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The Pension Benefit Guaranty Corp. will restore two pension funds that the agency took over from holding company The Renco Group Inc., the agency announced Friday.
Under the agreement, Renco will take the pension funds back as of June 1, 2016, pay all future benefits and pay $35 million in shutdown benefits not guaranteed by PBGC but covered by the plans. Renco will also reimburse the PBGC $15 million for benefits that agency has paid since taking over the two pension funds in November 2012, when they were underfunded by $82 million and $7.4 million.
The agreement marks only the second time in the PBGC's history that terminated pension funds were restored to an employer. In 1993, PBGC restored three LTV Steel pension funds after legal challenges that reached the U.S. Supreme Court, under different circumstances.
In Renco's case, PBGC officials were made aware through its early warning program that Renco was planning to leave the control business group responsible for the pension funds. In January 2013, the agency filed a lawsuit in U.S. District Court in New York alleging that the principal purpose was to evade responsibility for the pension funds, and that the company committed fraud by misleading the PBGC about the facts of the transaction.
The PBGC lawsuit alleged that when Renco Group sold a 24.5% ownership stake in RG Steel, Sparrows Point, Maryland, to an affiliate of Cerberus Capital Management in January 2012, the goal was to “free itself from responsibility for RG Steel's pension debts.”
Shortly after the trial began in December, the parties had a settlement agreement. “We thought the trial went extremely well; apparently Renco thought the same,” said a PBGC official on background.
The PBGC “accomplished just about every goal the agency had,” the official said, including protecting $80 million in PBGC assets that would have gone to cover future RG Steel benefits if it had kept the pension funds.
Renco Group spokesman Jim McCarthy said in an emailed statement that restoring the plans “was a creative, nontraditional approach that allowed the parties to reach a reasonable economic resolution.” Mr. McCarthy said Renco “strongly believes” the PBGC allegations were erroneous and that the company acted appropriately during the financing transaction, which was aimed at solving RG Steel's liquidity problem. The settlement with PBGC “was the most sensible, economic and practical resolution to the dispute, and it puts an end to the significant expense and distraction of continued litigation,” he said.
“When companies attempt to evade their obligations, PBGC will act to protect participants' benefits and PBGC's premium payers from unnecessary losses,” PBGC Director W. Thomas Reeder Jr. said in a statement.
Hazel Bradford writes for Pensions & Investments, a sister publication of Business Insurance.