Alcoa to Pay $150 Million to Shore Up At-Risk Pensions

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By David B. Brandolph

Oct. 11 — Alcoa Inc. will pay $150 million to bolster the funding of its two largest pension plans, covering more than 83,000 people, the PBGC announced.

The agreement with the Pension Benefit Guaranty Corporation to make the payments, announced Oct. 11, was arranged under the agency’s Early Warning Program. Under that program, the agency monitors companies with large, underfunded pension plans for corporate transactions that could harm plans and their participants.

The PBGC said it became concerned about the plight of the Alcoa pensions after the company announced in September 2015 that it would split itself into two pieces: Alcoa Corp., a producer of bauxite, alumina and aluminum products, and Arconic Inc., a maker of high-performance materials and products for such industries as automotive and aerospace.

The transaction was expected to leave Arconic saddled with $9 billion in long-term debt, the agency said. This, coupled with the poor financial condition of the combined entities’ two largest plans, created the potential for additional risk to the company and its pension plans, the PBGC said.

“Alcoa approached us before announcing their intent to split the company, and it gave us the opportunity to have a constructive dialogue about their plans. We hope that all sponsors would partner with us like Alcoa so that, together, we can ensure that workers and retirees have the best retirement possible,” PBGC Director W. Thomas Reeder told Bloomberg BNA in an e-mail Oct. 11.

The United Steelworkers also announced Oct. 11 that it had reached an agreement with Alcoa on the effects of the company’s pending separation into the two independent, publicly traded businesses.

The PBGC, through its pension insurance program, serves as a backstop to provide a minimum level of benefits for those participating in plans that can’t pay their benefit obligations. If the agency identifies a problem transaction, it can threaten to bring involuntary termination proceedings against an uncooperative employer.

The agreement under the Early Warning Program follows similar ones with Sears and Safeway Inc. The PBGC reached an agreement in March covering about 200,000 Sears employees. In February 2015, Safeway, an affiliate of Cerberus Capital Management LP, agreed to make $212 million in additional contributions benefiting some 54,000 employees. In April 2014, an agreement with Saint-Gobain Containers Inc. required the employer to add $207.5 million to its pensions.

To contact the reporter on this story: David B. Brandolph in Washington at dbrandol@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com

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