Two of metropolitan Milwaukee area’s largest manufacturing companies – Bucyrus International Inc. and Ladish Co. Inc. – recently announced that they would be acquired for $8.6 billion and $778 million, respectively.
Bucyrus will be bought by Peoria, Ill.-based Caterpillar Inc., while Ladish will be bought by Pittsburgh-based Allegheny Technologies Inc. Both transactions are expected to close in the first half of 2011.
Both Bucyrus and Ladish each have more than 100 years of history behind them, and each company still has thousands of employees and retired workers throughout the Milwaukee area.
Many of the employees and retirees of the two companies are wondering if the acquisitions will have any impact on their pensions.
A Bucyrus spokesperson declined to comment when asked about the potential impact on the company’s retirees and pension plan by the acquisition.
Wayne Larsen, vice president and corporate counsel with Ladish, said the company expects there to be no effect on its retirees or any changes to the retirement plans offered to current employees.
“There was certainly no discussion of changes (with ATI),” he said. “There is no sinister plan to do anything to people. They have not told us that.”
Several Milwaukee attorneys who specialize in employment law say retirees collecting pensions have little to worry about in the event of an acquisition because their former employers are legally bound to continue their retirement plans.
“For the pensions that people are receiving now, the law has all kinds of protections to make sure that the money is still there,” said Kristin Bergstrom, an attorney with Reinhart Boerner Van Deuren S.C. “For those that are receiving pensions now, there is federal law protecting them and federal insurance from the Pension Benefit Guarantee Corp (PBGC). Pension benefits are vested, and people have a legal right to those benefits. If (people) are in a defined compensation plan, that’s where the government steps in if a company fails.”
John Donahue, an attorney in the tax and employee benefits practice group at Godfrey & Kahn, agreed and said the PBGC probably examined the Bucyrus and Ladish pension programs while Caterpillar and ATI were conducting due diligence. Both Ladish and Bucyrus have acquired numerous companies in recent years, making an examination by the PBGC highly likely.
“In the case of a defined benefit plan (such as a pension), the liability to pay benefits and keep the plan well enough funded to make benefit payments is a joint and several liability,” Donahue said. “All members of the controlled group are jointly responsible for those contributions.”
Because Caterpillar and ATI are acquiring Bucyrus and Ladish, they will become responsible for the well-being of the pension programs of those companies.
An acquiring company such as Caterpillar and ATI will frequently take on the assets and liabilities for the pension or retirement plan of the acquired companies, said Paul Secunda, a law professor at the Marquette University Law School. The IRS and the Employee Retirement Income Security Act (ERSA) do not allow for changes to a defined benefit program that takes away or lowers a benefit that participants had before, he said.
“There could be a change to the plans, but it would have to be more generous (than it was before),” Secunda said. “Those benefits are protected. There are very few ways you can take money out of the plan.”
Because both Caterpillar and ATI are well-funded companies and the numerous federal laws and agencies prohibit changes to existing pensions, current retirees from Bucyrus and Ladish have little to worry about because of the acquisitions of their former employers, Donahue said.
“I can’t see a way that anyone should be alarmed by the transaction, or how it would affect the pension benefits they’ve already earned,” he said.
