The head of Bethlehem Steel Corp. said yesterday that a possible deal to sell its assets to a rival company is threatened by a federal takeover of the steelmaker's underfunded pension plan.

Robert S. "Steve" Miller Jr., Bethlehem's chairman and chief executive, said that any deal with International Steel Group Inc. cannot progress unless there is a satisfactory new agreement with the United Steelworkers of America. As part of negotiations with ISG and the union, Bethlehem had expected to trim payroll costs through early-retirement inducements that would no longer be available under the federal oversight.

"What looked like a deal coming together has been interrupted by" the federal takeover and termination of the pension plan, Miller said.

If the deal with ISG is scuttled, Bethlehem still might seek significant work force reductions at its plants through additional negotiations with the union, Miller said.

The federal Pension Benefit Guaranty Corp. announced Monday that it planned to terminate the pension plan, effective today, which covers Bethlehem's 95,000 workers and retirees. Bethlehem's pension program is underfunded by $4.3 billion, and the PBGC will be liable for $3.7 billion.

Bethlehem and ISG are in the midst of a 60-day exclusive exploration period in which ISG is seeking to purchase Bethlehem's assets - including the Sparrows Point plant and its 3,300 workers - without assuming its liabilities. The deal would create the country's largest steelmaker.

"The consequence [of the PBGC takeover] is that this poses a world-class problem" with ISG's attempts to acquire Bethlehem's assets, said International Steel's chairman, Wilbur L. Ross Jr.

"There will be very big economic disincentives for people to step down; it means that it will cost more per person to accomplish a reduction in staffing," Ross said. "It may make it impossible to do [the acquisition] as a practical economic matter."

Miller said he had hoped the PBGC would take over the pension plan after Bethlehem finished deciding on whether to merge with ISG and reduce its staff through early-retirement measures. He did not specify the number of job reductions needed to clinch the sale to ISG, but did say it was "on the order of a couple thousand." Bethlehem employs about 12,000.

Bethlehem's mounting "legacy costs," which include pension and health-care obligations for retirees and their dependents, have weighed heavily on the steelmaker's bottom line. The company so far this year has posted a $300 million loss; it would have had a profit if not for those obligations, company executives said.

Employees who will be most affected by the PBGC's takeover include workers under age 62 who have more than 20 years' experience but aren't old enough to retire. Those workers will have to wait until retirement age to collect their pensions.

In the greater Baltimore area, 15,000 pensioners receive roughly $120 million in annual payments, a Bethlehem spokeswoman said.

"The plan was to encourage early retirement amongst people who are in the 20- to 30-year seniority class," Miller said.

He said that 90 percent will get their full pensions while the rest will have theirs capped at the PBGC's maximum annual payment of $42,954.

Gerald Dickey, a USWA union spokesman, said yesterday that the union knows that Bethlehem's work force will have to be reduced and that some facilities will have to be closed. The union, like Bethlehem and International Steel Group, has taken issue with the PBGC's timing.

"Let us restructure this thing," Dickey said. "Everybody wants it restructured.

The PBGC, which seeks to protect employee pension programs, reiterated yesterday that it moved to take over the plan to protect workers' pensions and limit its own liabilities.

PBGC spokesman Jeffrey Speicher said it was aware of Bethlehem's plan to induce workers to leave through early retirement and "that [the PBGC's] liabilities could significantly increase through such maneuvers."

"One of the criteria under the law that permits the PBGC to act is for unreasonable increases, and we saw this as a real possibility," Speicher said.

The PBGC terminates the Bethlehem plan today, and plans to file a motion in an unspecified U.S. District Court to become its trustee, Speicher said. No further pension benefits will accrue after today, he said.

A Bethlehem spokeswoman said the company may ask for the pension termination date to be pushed back.

The PBGC said the Bethlehem pension takeover is the largest in its 28-year history. The steel industry accounts for more than 50 percent of all claims against the federal pension insurance program, it said.