Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: TUESDAY, June 19, 1990 TAG: 9006190443
SECTION: BUSINESS PAGE: A-5 EDITION: EVENING
SOURCE: Associated Press
DATELINE: WASHINGTON LENGTH: Medium
For the federal agency that insures the pensions of 30 million American workers, the ruling means a savings of up to $8 billion in potential pension liabilities.
The court on Monday broadened the authority of the Pension Benefit Guaranty Corp. to order employers to restore terminated pension plans in a case involving LTV Corp. and its subsidiary, LTV Steel Co.
"We feel like justice was done. We weren't asking for miracles. We only want what we're owed and to keep other retirees from having this happen to them," said Carole McMahon, who said her husband's $950 monthly pension was shortchanged $120 a month after LTV filed for bankruptcy protection in 1986 and its pension plans were terminated.
Federal officials called the ruling a victory that benefits all Americans because it helps keep solvent the nation's system of insuring pensions.
Not only will the ruling keep the PBGC from having to pay LTV's unfunded liabilities of $2.3 billion, it also might save another $8 billion because companies will be discouraged from following LTV's lead, said James Lockhart, executive director of the agency.
"It removes a major cloud that has been overhanging the agency for 2 1/2 years," Lockhart said. He added the agency knew of a handful of companies that were considering terminating their pension plans through bankruptcy proceedings.
However, Michael Gordon, a Washington pension lawyer, said the LTV case was "a relatively isolated example."
"While companies might be tempted to rid themselves of pension liabilities through the bankruptcy code, I think that's a pretty harried course for most major corporations. I don't know that its impact is as cosmic as some would have you believe," Gordon said.
"Nonetheless, it was a loophole that could be exploited. It's closed now and it's a good thing," Gordon said.
The PBGC takes over a pension plan's assets and liabilities when a company ends the plan with insufficient money to satisfy promised benefits. The agency then pays the pensions, but sets limits on some types of benefits.
Ultimately, taxpayers shoulder the burden of PBGC liabilities.
Carole McMahon, who is part of a union retirees' activist group, said the ruling would protect other retirees across the country.
"If this had not happened, all of these other companies would have seen LTV escaping and taking these losses from their retirees," she said.
Though retirees are pleased to have their pensions fully funded, they are worried LTV might make up the difference with decreased health-care benefits, the ex-steelworker's wife said. "People are scared right now because we don't know what's going to happen."
Alice Lynd, a Youngstown, Ohio, lawyer representing LTV retirees, said the average LTV pensioner received $40 a month less after LTV terminated its pension plan.
The PBGC has money problems of its own: a $1 billion deficit. It lists assets of about $3.2 billion and liabilities of about $4.2 billion.
The Dallas-based LTV and its Cleveland-based LTV Steel subsidiary, after filing for reorganization under federal bankruptcy law in 1986, advised the PBGC that they could not fund the pension plans they sponsored. The plans were ended in 1987.
In a deal with the United Steelworkers union, however, LTV Steel agreed to what government lawyers called a "follow-on" arrangement. Under it, LTV agreed to make up any benefits lost to retirees that are not covered by the federal pension insurance program.
The PBGC contended such arrangements are abusive, and the agency ordered LTV to reassume responsibility for the pension plans. When LTV refused, the agency sought to enforce its order in federal court.
by CNB