US: U.S. Moves to Seize Pension Fund in Dispute With Renco
The federal government filed a lawsuit Friday to seize the pension plan
of the bankrupt WCI Steel, saying that the plan was more than $100
million short of the amount it needed and that the government believed
WCI's corporate parent, the Renco Group, should be held responsible for
The Renco Group is a privately held company whose assets include a number of mining and heavy industrial concerns, in addition to WCI Steel. Its holdings also appear to include Fair Field, the well-known Hamptons estate of Renco's founder, Ira L. Rennert. The house has an assessed value of $185 million, according to local tax records.
"Our action today is designed to protect workers from lost benefits and the pension insurance program from an unnecessary claim," said Bradley D. Belt, the executive director of the Pension Benefit Guaranty Corporation, in a statement. "Companies that make pension promises are obligated to pay for those pension promises."
When a pension plan defaults, the Pension Benefit Guaranty Corporation has the power under law to go after the assets of any companies that are more than 80 percent controlled by the same corporate parent. The agency uses this power only rarely, however, because in most pension failures, the sponsoring company is bankrupt and there is little point in going after the small amount of money to be had from its related entities.
In the current case, the pension agency said the Renco Group had more than enough money to make the WCI Steel pension fund fully solvent. The pension fund was established in 1995 to pay benefits for about 2,000 steelworkers in Warren, Ohio.
The government said that if the pension fund were not made solvent, the steelworkers risked losing about $23 million worth of benefits. This is because of limits built into the federal pension insurance program. The steelworkers plan promises certain benefits that the government does not cover.
A stipulation by the Renco Group, filed in Federal Bankruptcy Court for the Northern District of Ohio, in Akron, appeared to substantiate the government's position that WCI's corporate family had the means to make the pension plan whole. It said the company had more than enough "cash, securities and other assets" to cover all benefits owed to the workers.
WCI Steel's actuary had estimated in 2003 that the pension plan owed up to $282 million to the steelworkers, but had only about $93 million in assets, leaving a $189 million shortfall.
The pension agency said Friday that it had calculated a slightly smaller deficit since then, of $117 million. An agency spokesman, Randolph Clerihue, said the deficit had been reduced primarily because WCI Steel had made contributions to the pension plan since 2003 and because market gains had buoyed the value of the assets.
The Renco Group's stipulation also said that Renco had received a substantial amount of cash when it sold a 70 percent stake in A.M. General to the financier Ronald O. Perelman in 2004. As a result of that sale, the Renco Group had "cash substantially in excess" of the amount the steelworkers' pension fund needed, the stipulation said.
The government will be in a stronger position to make Renco pay some of that cash into the pension fund by threatening to put a lien on Mr. Rennert's estate.
But for the government to have any chance of laying claim to Mr. Rennert's holdings, it had to file its lawsuit before Monday. That is the day the Federal Bankruptcy Court in Akron is scheduled to hear arguments on whether to confirm a proposal to bring WCI Steel out of bankruptcy.
The proposal, made by a group of WCI's secured noteholders, calls for the creation of a new company that would receive all of WCI's business assets. The pension fund would remain with the old, bankrupt shell of WCI.
If the plan is confirmed, the assets will be transferred out of WCI, the controlled group will be broken. Once that happened, the government would no longer have any right to retrieve assets from the Renco Group.
By moving to seize the pension fund now, the pension agency asserts its claims on Mr. Rennert's assets before the controlled group is broken.