The Pension Benefit Guaranty Corporation filed a $97 million lawsuit against The Renco Group Inc. and its affiliates for attempting to evade their pension obligations.
The New York-based holding company had a controlling interest in RG Steel, which sponsored two pension plans with about 1,350 people.
In January 2012, Renco sold 24.5 percent of its ownership stake in RG Steel to an affiliate of the New York-based investment firm Cerberus Capital Management, L.P. Renco reduced its ownership stake in an attempt to free itself from responsibility for RG Steel's pension debts.
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Filed in the U.S. District Court in Manhattan, the complaint said that PBGC raised concerns about the transaction and held back on terminating the plans after Renco gave assurances that no transaction changing its ownership status was imminent.
"A principal purpose of this proposed transaction was to dilute Renco's ownership in RG Steel below the 80 percent threshold set forth in ERISA in order to break up the controlled group, thereby allowing Renco to evade liabilities owed to PBGC if the plans were to terminate," the complaint said.
On Jan. 18, 2012, Renco said publicly that its transaction with Cerberus would give RG Steel new capital to improve the company's financial health. However, less than five months after the deal closed, RG Steel filed for Chapter 11 protection in the U.S. Bankruptcy Court in Wilmington, Del., and began to sell off its assets to buyers that didn't assume the pension plans. In November 2012, PBGC took responsibility for the plans.
The $97 million in damages sought by PBGC includes the plans' unfunded benefit liabilities, unpaid minimum funding contributions, and termination premiums.
PBGC protects the pension benefits of more than 40 million Americans in private-sector pension plans.
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