AK Steel settles suit over retirees' health benefits

| Wednesday, Jan. 12, 2011

Retired steelworker Peter Connor of Butler County said he felt like David battling Goliath when he joined a class-action lawsuit against AK Steel Corp. over cuts to retirement benefits.

Connor and about 3,000 retirees and their families, most of whom live in Pennsylvania, won a $178.6 million settlement Monday when a federal judge in Cincinnati approved a deal to end the 2009 lawsuit.

"We did not get all we wanted to get. We did not get everything back that we lost," said Connor, 76, of Clearfield Township.

Connor worked for 40 years for AK Steel's predecessor, Armco Steel Corp., in Butler and retired in 1993. He said it cost him about $3,400 a year to pay for vision and dental care that AK Steel covered before nixing coverage in 2007.

That year, the company increased health care premiums. Now those premiums are capped.

"We lost because the (United Auto Workers) broke our contract," which required the company to pay health care benefits for life, Connor said.

Jerry Ehrman, president of United Auto Workers Local 3303, which represents production workers at AK Steel's Butler plant, declined to comment Tuesday on the settlement or changes made to the retirees' health care benefits in 2006.

AK Steel, based in West Chester, Ohio, is pleased to reach a settlement and "we think it is equitable," spokesman Alan McCoy said.

The settlement likely will impact how corporations in other industries approach plans to cut employee retirement benefits, said Lorin Lacy, head of Downtown-based Buck Consultants LLC's health and productivity practice.

The settlement likely will impact how corporations in other industries approach plans to cut employee retirement benefits, said Lorin Lacy, head of Downtown-based Buck Consultants LLC's health and productivity practice.

"I think it definitely will make companies a little bit more conservative in the way they pursue changes or eliminate benefits," Lacy said.

Retirees accused AK Steel of unilaterally changing their benefits in January 2007, raising monthly premiums, terminating dental, vision and Medicare subsidy coverage and slashing life insurance.

Connor said actuaries told the retirees' attorneys that an employee benefit trust fund "should last until the last of the people dies." He said the deal does not restore vision or dental insurance.

The settlement covers workers who retired before Dec. 31, 2006, under labor contracts negotiated between the UAW or Butler Armco Independent Union and AK Steel or Armco Steel, which AK bought in 1994. It provides hourly and salaried retirees with about $91 million for future medical needs.

The settlement requires AK Steel to put about $86 million into a trust fund, known as a Voluntary Employees Beneficiary Association, or VEBA, to cover future benefits costs of retired hourly workers. Attorneys will receive 10 percent of the settlement.

There are reasons for both sides to be pleased, according to Cincinnati attorney David Cook, who represented retirees of the company's Middletown Works plant in a 2007 lawsuit over AK Steel's plan to have them contribute to health care premiums.

The latest settlement is part of a strategy to eliminate long-term liabilities -- such as retiree health care -- from the company's balance sheets for a fraction of the true cost, Cook said.

"The strategy today, and AK Steel may embody this, is to litigate claims that may have some merit and then settle them," Cook said.

In the Middletown Works case, AK Steel shed a $1.1 billion liability by settling for $663 million. Retirees, through a beneficiary association, can provide some benefits, though possibly at higher cost than before the settlement.

"It is still a better solution than reduced benefits provided by the employer, with the risk that the employer could eliminate the benefits, or worse, go bankrupt," Cook said.

This was not a unique fight between retirees and a large corporation over benefits, and larger settlements occurred recently.

In 2008, Goodyear Tire & Rubber Co. of Akron, Ohio, agreed to contribute $1 billion to an employee trust fund. That allowed Goodyear to transfer its obligations to provide retiree health care to a VEBA and removed $1.2 billion in long-term liabilities.

Alcoa Inc., which has its operations center on the North Shore, is involved in a class-action lawsuit in Tennessee with 13,000 employees and their families over whether the aluminum producer can increase retiree health care costs.

The lawsuit says employees who retired from 1993 to 2006 from Alcoa and Reynolds Metals, which was acquired by Alcoa in 2000, should not be subjected to a company cap on its contributions to retiree health benefits. Alcoa and the workers are awaiting a federal judge's decision.

Additional Information:

AK Steel Corp.

Headquarters: West Chester, Ohio, near Cincinnati

Employees: 6,200

Produces: Flat-rolled, stainless, tubular, carbon and electrical steel products; has clients in the construction, appliance and car industries

Facilities: Butler; Middletown, Mansfield, Coshocton and Zanesville, Ohio; Ashland, Ky.; Rockport, Ind.

CEO: James L. Wainscott

2009 Revenue: $4.1 billion

Stock Symbol: AKS

Year Founded: 1899 by predecessor Armco of Middletown

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