The Pension Benefit Guaranty Corp. and Armco Inc. are both claiming victory in settlement of a dispute over the Pittsburgh-based conglomerate's pension liabilities for a subsidiary that closed in the mid-1980s.
The agreement ends the PBGC's lawsuit against Armco, one of the nation's largest steel producers. The suit sought $21.4 million in underfunding plus interest for a pension plan of Reserve Mining Co., which the PBGC terminated in 1987, a year after the company was liquidated.
Reserve Mining was a 50-50 joint venture between an Armco subsidiary, First Taconite Inc., and a subsidiary of The LTV Corp.; it was shut down after LTV filed for bankruptcy protection in the mid-1980s.
The PBGC filed the April lawsuit against Armco in U.S. District Court in Minneapolis after negotiations broke down amid concerns the company might take actions that would have set back any efforts taken by the PBGC to recoup the money, said Ellen Hennessy, PBGC deputy executive director, and chief negotiator.
Under the agreement, Armco paid the PBGC $10 million to cover its share of pension liabilities for Reserve Mining and also agreed to pay $17.5 million in July to an existing pension plan for unionized workers the agency claims has a $300 million shortfall.
Because of differences in calculating those liabilities, the company recorded projected obligations of only half that amount at the end of 1993, said Richard Mandera, Armco manager of employee benefits accounting.
"We settled the Reserve Mining suit for less than half of what the original amount was for (in excess of $21 million) without admission of fault or liability," said Jim Herzog, a company spokesman. Mr. Herzog said the company estimated a protracted legal battle with the PBGC could have cost more than twice the $10 million settlement.
As a goodwill gesture, Armco also agreed not to count the $17.5 million toward its pension obligations for its $622 million plan that covers about 20,000 workers and beneficiaries.
The PBGC maintains that Armco would not normally have made any contribution for the next two years because it has outstanding credits for contributing more than the minimum levels required under law. But company officials say that Armco planned to contribute at least that amount by next year.
"We were not required to make a payment this year, however, we expected to make a payment of $17.5 million this year anyway," Mr. Herzog said.
But the PBGC's Ms. Hennessy called that "an amazing coincidence."
Mr. Mandera said the company probably will contribute another $24 million to the underfunded plan next year.
Ms. Hennessy described the agency's agreement with the steelmaker as one that "compensates us in part for the liability of the Reserve Mining plan but also protects participants in an ongoing plan."
While PBGC's agreement with Armco is not unique - the agency also required LTV to make a massive $1.6 billion in payments to three underfunded pension plans as part of a bankruptcy reorganization plan - Ms. Hennessy noted it was unusual because the PBGC sought to recover the entire amount of Reserve Mining's $21 million in unfunded liabilities from Armco, which had legal responsibility for only half the joint venture.
Armco was sued for the entire amount on the grounds that both First Taconite Inc. and Reserve Mining, were Armco alter-egos, a legal argument that stood up in a separate federal court decision, Ms. Hennessy said.
"Our legal argument was they were responsible for the entire amount, the end result is they are not," she said.
Nonetheless, she said "you have to make a choice between money now and money in the distant future."
Mr. Mandera of Armco said one of the reasons both parties reached the settlement was because of "the uncertainty over who was responsible and for how much liability."
Even after this settlement, Armco, which has been on and off the PBGC's list of companies with the largest outstanding pension obligations, is currently on the list with an estimated $298 million gap between promised and funded pension benefits.
According to Armco's annual report, the company had $1.91 billion in assets for its eight pension funds and projected benefit obligations of $2.16 billion at the end of 1993.
Ms. Hennessy noted the company is almost certain to be on the next list.