Compliance February 3, 2006

PBGC Fights to Avoid Taking Steel Company Plan

February 3, 2006 (PLANSPONSOR.com) - The Pension Benefit Guaranty Corporation (PBGC) has filed a lawsuit in an attempt to avoid taking over the underfunded pension plan of WCI Steel Inc. of Warren, Ohio.
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In its  news release , the PBGC said WCI’s parent company, The Renco Group Inc. of New York City, “has cash substantially in excess of the … maximum termination liabilities” of the pension plan.   The WCI plan is currently underfunded by $117 million (See  WCI Bondholders Cleared to File Suit ).   The PBGC has a claim against the assets of all Renco controlled-group companies.

By filing suit now to terminate the WCI pension plan, the PBGC matures its claim against the Renco controlled group for the pension shortfall and expects to achieve a full recovery, the release said.   If the PBGC had waited until after the plan of reorganization was confirmed, the pension plan would have been abandoned to a liquidating corporate shell with no assets, the agency asserted    The PBGC then could have been liable for $94 million of the $117 million shortfall, while workers and retirees would have forfeited up to $23 million in benefits not guaranteed by PBGC.

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Meanwhile, the New York Times reports that the PBGC is prepared to lay claim to the assets of Ira Rennart, owner of Renco, including his 29 bedroom, $185 million, oceanfront estate in the Hamptons, outside New York City.

A similar tactic worked with Carl Icahn, who controlled Trans World Airlines when it filed for bankruptcy in 1992.   The PBGC laid claim to Icahn’s holdings, including a racehorse and a beach house, according to the Times.   As a result, Icahn agreed to pay $30 million a year for eight years to help cover the costs of the airline’s pensions.

Concerning the Rennart case, Carol Connor Flowe, a former general counsel for the PBGC, says “It’s especially a situation where they’re going to be aggressive because there looks to be quite a bit of value” in Rennart’s holdings.

Benefits February 2, 2006

Harrods joins UK DB to DC Trend

February 2, 2006 (PLANSPONSOR.com) - Just as a continuing stream of US firms are freezing their defined benefit pension in favor of a defined contribution program, a similar trend finds UK firms doing the same.
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The latestUK example was London department store Harrods, which has announced plans to freeze its pension to new and existing workers as of April 1, 2006, the BBC reported.

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Harrods has said the decision was “not taken easily,” and that a new money purchase scheme will be introduced, according to the news report. Harrods asserted that “the cost and volatility of continuing with the plan presented an unacceptable future risk for its employees and the group.”

Harrods said longer life expectancy, lower interest rates, higher taxes and low investment returns recently had all contributed to increased funding deficits and the cost of providing future defined benefit pensions.

While the company would not discuss the particulars of its new retirement program, t he Transport and General Workers Union said staff had been sent letters saying the company would contribute 4% to the scheme if staff paid in 2% or more of their salary, rising to 8% if they paid in 5% of their wages.

The union, which represents warehouse and distribution staff across the store’sLondon operations, says the higher rate is only around half the maximum 15% Harrods pays into the final salary plan now.

Nissan was the latest example of the DB to DC trend covering its US operations. (See Nissan Follows Trend of DB to DC Switch ).

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