PBGC to Assume Pension Plan for Kaiser Aluminum Salaried Employees
FOR IMMEDIATE RELEASE
December 16, 2003
The Pension Benefit Guaranty Corporation today announced that it will assume responsibility for the pensions of 5,000 salaried workers and retirees of Houston-based Kaiser Aluminum Corp., the nation's third-largest aluminum producer with operations in 10 states and overseas.
"The PBGC is stepping in because Kaiser has missed tens of millions of dollars in legally required contributions to the pension plan and because the plan is so poorly funded that it will be unable to pay benefits when due," said PBGC Executive Director Steven A. Kandarian. "The federal pension insurance program will ensure that Kaiser Aluminum's salaried workers and retirees receive the basic pension benefits they have earned."
The Kaiser Aluminum Salaried Employees Retirement Plan is 21 percent funded, with $71 million in assets to cover $339 million in benefit liabilities. Of the $268 million in total underfunding, the PBGC estimates that it will be liable for about $246 million. With $65 million in annual benefit payments, the plan is expected to run out of money in just over one year.
"The rules requiring companies to set aside enough money in advance to pay for their pension promises clearly did not work in the case of the Kaiser salaried plan," Kandarian said. "The burden of paying for these unfunded promises will now fall on PBGC's premium payers, the vast majority of whom are responsibly meeting their obligations to their pension plans."
The Kaiser salaried plan, which permitted individuals to take their full benefit as a lump-sum payment at retirement, disbursed $77 million in lump sums in 2002. By December 31, 2002, plan assets had been depleted to the point that the plan failed to meet federal liquidity requirements, and lump sums were discontinued.
Since the pension plan fell below the liquidity shortfall threshold, Kaiser Aluminum has failed to make required quarterly payments to restore the plan to liquidity. The first such payment was due on January 15, 2003. One day earlier, on January 14, 2003, nine Kaiser Aluminum subsidiaries filed for bankruptcy protection, thereby preventing the PBGC from filing liens against them to cover the missed payment.
The Kaiser Aluminum Salaried Employees Retirement Plan will end as of December 17, 2003. Once the PBGC becomes trustee of the plan, retirees will continue to receive their monthly benefit checks without interruption, up to guaranteed federal limits. Other employees will receive benefits when they are eligible to retire. Seven other defined benefit plans sponsored by Kaiser Aluminum remain ongoing and are not affected by PBGC's action.
Under federal pension law, the maximum pension guaranteed for workers in plans that end in 2003 is $3,664 a month (or $43,977 a year) for persons retiring at age 65. Maximum guarantees are reduced for those who retire before age 65 or choose survivor benefits. In addition, certain early retirement subsidies and benefit increases made within the last five years may not be fully guaranteed.
Workers and retirees do not need to take any action. Until the PBGC becomes trustee of the Kaiser Aluminum salaried pension plan, individuals who have questions or wish to retire should contact the pension plan administrator. Information about PBGC's pension insurance program is available at the agency Web site, www.pbgc.gov.
PBGC is a federal corporation created under the Employee Retirement Income Security Act of 1974. It currently guarantees payment of basic pension benefits for about 44 million American workers and retirees participating in over 32,500 private-sector defined benefit pension plans.
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PBGC No. 04-15