PBGC to Take National Steel Plans in 2nd Largest Claim Ever

December 5, 2002 (PLANSPONSOR.com) - The federal pension insurer is moving to take over seven badly underfunded pension plans from National Steel Corp., which collectively represent a $1.1-billion liability - the second largest agency claim ever.

The Pension Benefit Guaranty Corp. (PBGC) said the National Steel pension plans are 47% funded, with roughly $1.3 billion in assets to cover more than $2.8 billion in benefit liabilities. Of the $1.5 billion in underfunding, the PBGC estimated that it would be liable for more than $1.1 billion.

The company told the PBGC that it will not make any additional contributions to the plans, and the company has already missed more than $150 million in required minimum funding contributions, the PBGC officials said.

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PBGC officials said the agency “has concluded there is no reasonable scenario under which National Steel can afford to maintain the pension plans.”

Seizing the seven plans covering 35,000 workers and retirees of the Mishawaka, Ind. steelmaker follows the agency’s largest claim in March 2002 when it assumed $1.6 billion in pension liabilities from LTV Steel Corp.

A March of Steel Plans

Both LTV and National Steel are part of a steady march of tottering US steel companies, which have needed the PBGC to make certain workers and retirees will get paid their pensions according to federal pension guidelines.

With the termination of the National plans, the steel industry accounts for more than 40% of all claims against the pension insurance program but only 2% of covered workers, the PBGC said in announcing the pending National Steel takeover.

Since October 1, 2001, the PBGC said it has absorbed nearly $3 billion in claims from a number of steel companies, including Acme Metals, CSC Steel, GS Industries, and Empire Specialty Steel. (See  PBGC Exec: Pension Insurer Hit by ‘Perfect Storm’ ).

The National Steel plans the PBGC wants to take over as trustee include:

  • National Steel Corporation Retirement Program
  • National Steel Corporation Pension Plan-Hourly Employees
  • Granite City United Steelworkers of America Pension Plan
  • Granite City Pension Plan for Chemical Workers, Bricklayers, Hodcarriers, Blacksmiths, and Watchman’s Union
  • Weirton Retirement Program
  • National Steel Pellet Company Pension Plan for Hourly Wage Employees
  • Pension Plan for Salaried Employees of National Steel Pellet Company.

Federal guidelines call for workers in plans that terminate in 2002 is $3,579 a month (or $42,954 a year) for workers retiring at age 65.  Maximum guarantees are adjusted for retirees older or younger than age 65 and for those who choose survivor benefits.

PBGC, created by ERISA to guarantee private-sector pension benefits, currently backs pension benefits for about 44 million American workers and retirees participating in over 35,000 private sector defined benefit pension plans.  The agency is financed by insurance premiums from covered companies and investment income.

Neuberger Berman Again Escapes Big Bond Buyback

November 5, 2002 (PLANSPONSOR.com) - For the second time this year, money manager Neuberger Berman avoided having to buy back much of a zero-coupon convertible bond issue maturing in 2021 by sweetening the deal.

A Reuters news report said the company only had to pick up a small share of the issue – some $25,000 of the bonds, leaving $166 million outstanding.   Reuters said the company was faced with another major bond buyback in May of as much as $175 million; it ended up only having to pick up $8.7 million worth.

To avoid its own buyback, Neuberger last week offered to pay bondholders semi-annual cash payments, at a rate of 3.047% a year over the next 18 months, for their agreement not to exercise their right to sell the bonds back on Monday, Reuters said.

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In May, Neuberger had offered bondholders both a one-time $4.34 cash payment for every $1,000 in face value, plus the option to sell the bonds back to Neuberger on November 4, Reuters said.

Holders of Neuberger’s convertible bonds still have a right to sell them back to the company on May 4 of 2004, 2006, 2011 and 2016.

Some financial services companies have been successful in avoiding a buyback, and others not. In May, Stilwell Financial Inc. the parent of Janus mutual funds, was forced to spend $614.5 million and draw down part of a bank credit line to buy back its own convertible bonds.

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