Kaiser considers voiding pension plans
Retiree incomes at stake as company talks to federal pension agency
John Stucke
Staff writer
Kaiser Aluminum Corp. may void its pension plans as it attempts to rebound from bankruptcy.
The retirement incomes of thousands of company retirees and workers in Spokane and North Idaho would be affected by such a move.
On Wednesday, Kaiser CEO Jack Hockema said he intends to meet with the Pension Benefit Guaranty Corp. about the company's weighty pension liabilities. Should the federal pension agency take over Kaiser's plan, it may pay less than Kaiser's current obligation.
Last year, the company paid retirees more than $36 million from its underfunded pension plan. Kaiser has since sought Chapter 11 bankruptcy protection, blaming soft demand and poor prices for aluminum.
In the Feb. 12 bankruptcy court filing, Hockema noted that pension costs would have to be addressed should Kaiser hope to somehow emerge from bankruptcy.
Meeting with the federal pension agency would be Kaiser's first stab at escaping some of those costs.
Hockema said the company has analyzed its pension liabilities with the help of independent actuaries.
"While it is not possible to say what actions will emerge from our analysis, we must explore options to reduce or mitigate the pension funding obligations," he said. "Those options may include ... the potential termination of our pension plans."
The federal pension agency acts as a kind of federal insurer that protects private pension plans. Companies that are failing can petition the agency to take over the plan.
It was created in 1974 after several high-profile business collapses left workers without any of the retirement income promised by employers. It is financed mainly from insurance premiums paid by companies whose plans it protects -- not from taxes.
If companies collapse or pension plans lack the money to pay promised benefits, the federal agency can help.
While Kaiser's pension plans are reportedly underfunded, it is not alone.
Barron's reported last week that almost half of the pension plans of 500 companies in the Standard & Poor's Index were underfunded.
Much of the blame rests with poorly performing financial markets. The underfunded plans could force companies to tap the corporate treasury to meet pension demands.
The collective S&P pension-fund deficit is some $300 billion among 240 companies, according to the report.
Often, Pension Benefit Guaranty Corp. payments don't fully fund pensions.
That's what has Kaiser retirees and workers worried.
"We've been trying for the past couple months to get all the information we can about what the PBGC might pay if Kaiser does this," said Dan Russell, president of Local 329 representing Steelworkers at Kaiser's idled smelter in Mead. "We just don't know yet."
Kaiser spokesman Scott Lamb said the company has 25,000 retirees. There could be more as longtime workers from idled plants such as those in Mead and Tacoma ponder retirement.
There's no timetable for Kaiser's meeting.
Hockema acknowledged that while any talk of pension issues was unnerving, it is necessary.
"We understand that this kind of pension plan review creates uncertainty," he said, "and we are admittedly trying to maintain a fine balance as we work through these difficult issues."
Meddling with pensions is sure to upset employees and retirees -- especially after Kaiser executives sought and received multimillion-dollar perks for staying with the company through the bankruptcy proceedings.
The retention program also includes millions for executives should the company fold or they get fired if another firm purchases Kaiser.
Dave Carlson, president of Steelworkers Local 338, said his Trentwood rolling mill union is waiting for more explanation.
"We'll have a conference call tomorrow to figure out what they're doing," he said. "Lord help us if the pension plan held any of their own stock. It's now trading at a nickel."
Kaiser's decision to tackle pension liabilities is the latest move the company has taken to reorganize under bankruptcy.
Last month the company ended its power supply contract with the Bonneville Power Administration, a relationship that reached back to Kaiser's start in Spokane.
The company and the federal energy marketer have been at odds since late 2000, when Kaiser decided to close its Mead and Tacoma smelters and sell its massive electricity allocation on the open market. The move paid rich dividends for Kaiser, which collected some $465 million.
BPA wanted Kaiser to share the proceeds to offset regional energy troubles and employee cutbacks, yet Kaiser declined.
Now in bankruptcy, Kaiser decided to terminate its BPA contract. If the company decides to restart its smelters, it must find a private power supplier.