US - Bethlehem Steel, America's third-largest steelmaker, has filed for Chapter 11 bankruptcy-court protection citing a $1.85bn gap in its pension fund's finances as a major factor in its demise.
The Pennsylvania-based steel firm said that its finances have been decimated by high pension and health care costs for tens of thousands of employees. A spokesman for the firm said that the Bethlehem Steel retirement plan has pension obligations of $6.4bn, but only $4.55bn in assets. On top of that, the firm has a $200m health care bill to contend with.
Bethlehem Steel currently has 13,000 active workers, whilst retirees number 74,000-strong. The spokesman said the firm also has to contend with a further 16,000 who have deferred their retirement. Despite the massive gap in the pension fund's funding, the spokesperson claimed that employees’ pensions would not be affected.
The company claims that its enormous pension and healthcare costs, when combined with competition from cheap imports, high labour costs and the global economic downturn are responsible for the chronic state of its finances. For the third quarter, the company reported a loss of $152m, or $1.25 a share, compared with a loss of $34.8m, or 34 cents, a year earlier. Sales fell 17% to $825m from $998.8m.
To tackle the debt mountain, the firm claims that it will be working with the United Steelworkers of America (USWA) to improve productivity and further reduce costs. Bethlehem Steel has singled out employment and healthcare costs as an area that needs to be dealt with quickly.
News of Bethlehem's problems follow the recent announcement by Polaroid that it has also sought Chapter 11 protection. Last week Polaroid filed for bankruptcy and told staff that it was terminating the firm's retiree health and life insurance plans.
Polaroid has contacted the Pension Benefit Guarantee Corporation (PBGC) regarding its situation, and said that the agency is assessing its pension status and outlook. The PBGC is the federal agency that assumes control of underfunded pension funds when the plan sponsor fails. Polaroid operates both defined benefit and defined contribution 401(k) retirement plans.
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