Chesterton Tribune

Chapter 7 bankruptcy bad news for workers and pensioners

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By KEVIN NEVERS

On Dec. 29, 2000, four days after Christmas, LTV Steel filed for Chapter 11 bankruptcy protection.

Eleven months later, on Tuesday, LTV petitioned the U.S. Bankruptcy Court for permission to cease production at its East Chicago and Cleveland, Ohio, plants and prepare those facilities for sale as part of a Chapter 7 filing.

The difference between Chapter 11 and Chapter 7 is a crucial one, and in the case of Bethlehem Steel Corporation—which filed for Chapter 11 on Oct. 15—could be measured in months and in the $450 million debtor-in-possession financing secured from GE Capital.

Corporations which file for Chapter 11 continue operation in the hope of repaying their creditors, but in the meantime obtain “protection” from the bankruptcy court while they reorganize their debts. In other words, liabilities incurred prior to the filing are frozen temporarily, but those incurred after the filing the corporations must pay as they go. Bethlehem is using the $450 million debtor-in-possession financing to keep its facilities running.

Corporations which file for Chapter 7, on the other hand, are conceding that they no longer have sufficient liquidity or capital to remain in operation and see no likelihood of the future viability of their concerns. These corporations have no further obligation to their creditors, and their property is forfeited and sold for cash to apply to their debt.

Bethlehem and its United Steelworkers of America locals are currently negotiating a reorganization plan in Pittsburgh, Pa., the goal of which is to reduce operating costs sufficiently to allow the company to return to profitability. So far, the USWA says, Bethlehem has proposed to cut a total of 2,000 hourly and salaried jobs corporate-wide, 1,000 of them at its Burns Harbor Division. The USWA also says that the company is seeking significant reductions of its health care obligations to active and retired workers.

If Bethlehem successfully emerges from Chapter 11 and returns to profitability, of course, it will continue to make 100 percent pension payments to its retirees or their survivors, although under any reorganization plan they are likely to find themselves paying a greater share of their own health care costs.

If Bethlehem were to file for Chapter 7, however—as LTV has done—the Pension Benefit Guaranty Corporation, a federal agency, would assume the company’s unfunded pension liabilities. But those pensions will be prorated according to the age at which a pensioner retired. A pensioner who retired at age 65 would receive a maximum guarantee in 2002—according to statement released Nov. 13 by the PBGA—of $3,579.55 monthly or $42,954.60 annually.

“The maximum guarantee applies to workers who retire at age 65,” that statement said. “Maximum guarantees are adjusted for retirees at other ages or those who elect survivor benefits. In some instances, where a pension plan has adequate resources or PBGC recovers sufficient amounts, a participant may receive benefits in excess of the maximum guarantee.”

Earlier this year, the PBGC estimated that LTV pensioners who retired at 65 would have been eligible in 2001 for an annual guarantee of $40,704.72; those who retired at 62, a guarantee of $32,156.64; those who retired at 60, a guarantee of $26,457.97; and those who retired at 55, a guarantee of $18,317.04.

Should Bethlehem file for Chapter 7, its retirees would lose all of their health care coverage.

Paul Gipson, president of USWA Local 6787, estimated that around $5 billion of the company’s pension plan is funded, around $2 billion unfunded. That pension plan makes the USWA Bethlehem’s largest creditor.

The PBGC says that approximately 541,000 retirees in 2,900 pension plans currently rely on the agency for their retirement income.

 

 

Posted 11/21/2001