The federal Pension Benefit Guaranty Corp. is suing the Renco Group — parent of bankrupt RG Steel — for allegedly attempting to "evade liability" for the steelmaker's pension obligations.
The agency is seeking $97 million from the New York holding company, which created RG Steel in 2011 to buy the Sparrows Point steel mill and other facilities. RG Steel rapidly failed and sought bankruptcy protection last May.
The lawsuit, filed in U.S. District Court in New York on Monday, alleges that Renco sold 24.5 percent of the steelmaker, of which it had been sole owner, in January 2012 with the "principal purpose" of avoiding pension liabilities. It sold the stake to Cerberus Capital Management LP, a New York private equity firm, in exchange for financing it needed to remain open.
Under the Employee Retirement Income Security Act, a company is on the hook for pension liabilities if it owns at least 80 percent of the employer sponsoring the pension.
The Pension Benefit Guaranty Corp. said it was on the brink of terminating the pension plans, which in January 2012 were underfunded by $70 million, but decided not to do so after Renco "falsely represented" that no transaction reducing its ownership stake was "imminent."
Renco disputed the lawsuit's allegations.
"The facts will show that these claims are baseless," said Andrew Shea, a company spokesman.
But the agency isn't the only group making such claims. The Official Committee of Unsecured Creditors in the RG Steel bankruptcy case also alleged in court documents that the January 2012 transaction was done to avoid pension obligations.
The committee is seeking court approval to sue Renco's founder, Ira Rennert, for allegedly worsening RG Steel's finances in order to improve his own.
RG Steel had two pension plans with 1,354 retirees and future beneficiaries, according to the Pension Benefit Guaranty Corp. The agency said the $97 million it is seeking from Renco is for unfunded benefit liabilities, unpaid minimum funding contributions and termination premiums.
The agency takes over troubled pension plans and pays out benefits to retirees with the plans' funds, employer insurance premiums, investment earnings and "recoveries" of the sort it is seeking from Renco. The Pension Benefit Guaranty Corp. took over Bethlehem Steel's pension plan in 2002 after the longtime Sparrows Point owner filed for bankruptcy.
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