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District Court Finds WCI Liable for Transferred Pensions

July 23, 1999

In a significant decision underscoring employers' responsibility for their pension obligations, a federal district court has ruled that White Consolidated Industries, Inc. (WCI), of Cleveland, Ohio, is liable for the unfunded benefits of six pension plans that were terminated several years after their transfer by WCI. The case, brought by the Pension Benefit Guaranty Corporation (PBGC), involved $120 million in unfunded pension benefits, which could exceed $200 million with interest.

The U.S. District Court in Pittsburgh, in a 90-page opinion issued on July 21, 1999, held that WCI's transfer of the underfunded plans to Blaw Knox Corporation was a sham transaction and that the company "ultimately became solely motivated by a desire to unload the BK Plans." The court also held that a principal purpose of WCI in entering into the transaction was to evade its pension liabilities.

"This decision confirms the fundamental principle in federal pension law that employers must stand behind pension promises to workers and retirees," said PBGC Executive Director David M. Strauss.

PBGC had to terminate all six plans in the early 1990s because they either ran out of money or lacked sufficient funds to pay all benefits when due. The plans covered about 5,700 workers and retirees. PBGC filed suit against WCI in September 1991 to establish the company's liability for the underfunding of the Blaw Knox pension plans. PBGC alleged that the principal purpose behind WCI's 1985 transfer of the severely underfunded pension plans and unprofitable operations to Blaw Knox, a corporate shell, was to insulate WCI from liability for the pension underfunding.

The district court initially dismissed PBGC's suit in its entirety. On PBGC's appeal, however, the case was reinstated and returned to the district court for further proceedings. The district court then held a 10-day trial in 1997, which resulted in this week's ruling.

The law firm of Reed, Smith, Shaw & McClay provided major trial litigation support to the agency.

"The successful conclusion of this complex case comes thanks to the combined efforts and thoroughness of PBGC's legal team," said PBGC General Counsel James J. Keightley.

WCI has submitted an appeal to PBGC challenging the agency's calculation of the amount of the plans' unfunded benefit liabilities. Once PBGC's Appeals Board has ruled on the issue, WCI may seek further review in district court.

PBGC is a federal corporation created under the Employee Retirement Income Security Act of 1974 to guarantee payment of basic pension benefits earned by about 42 million American workers and retirees participating in more than 44,000 private-sector defined benefit pension plans. The agency receives no funds from general tax revenues. Operations are financed largely by insurance premiums paid by companies that sponsor pension plans and investment returns.

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PBGC No. 99-29