Remaking Steel

His union's mission, says Leo Gerard, United Steelworkers of America's international president, is "saving these damn plants for our members, retirees and the next generation of workers" -- not for corporate executives or nonunion subcontractors. With temporary import protections now providing a little stability for the battered American steel business, United Steelworkers is actively encouraging the reorganization of the fragmented, mainly bankrupt industry into fewer, stronger companies.

Many analysts have written off the steel industry as hopeless, and most of those who haven't assume that steel companies can only survive by dumping all of their responsibilities to retirees, drastically slashing employment of union workers, and cutting wages and benefits. But the union believes that the industry can be saved -- and the living standards of both workers and retirees protected -- if owners invest in newly consolidated operations, excess management is trimmed, and workers and the union are given a stronger voice, from a redesigned shop floor on up. In recent months, these changes are precisely what the union has been securing.

In Europe, government policies such as health insurance and income protection pick up much of the social cost of the recent steel-industry consolidation, rather than imposing it on either workers or the companies. But in the United States, the Steelworkers have had to create an industrial policy for steel through a patchwork of innovative union collective bargaining, bankruptcy-court negotiations and often inadequate government programs. Union leaders want to avoid shifting the social costs of reorganization to either the roughly 188,000 active employees or to the 600,000 retired steelworkers and their dependents who rely on contractually negotiated pensions and, until recently, employer-paid health insurance. But many retired steelworkers are still falling through holes in this makeshift safety net.

Take the case of 52-year-old Larry Ross, who retired a year ago after 32 years at National Steel in Granite City, Ill. Last December the Pension Benefit Guaranty Corporation (PBGC), the government pension insurance agency, took over the bankrupt company's retirement plan. The PBGC sets caps on retirement pay that especially penalize early retirees, and its rules will prevent Ross from receiving the full pension improvements included in the last union contract. That will cut his $1,800 a month pension by $400 and reduce his expected increases.

But health care is even more of a problem for Ross. Unlike National, which paid for a portion of retiree health insurance, the PBGC pays nothing. Last year, as part of the renewal of the federal Trade Adjustment Assistance act, Congress provided a tax credit equal to two-thirds of the cost for workers to continue their employer's health insurance after leaving employment. But it only applies to workers between the ages of 55 and 65, which leaves Ross out. He's shopping around for a new policy, which will more than double his current cost to at least $500 a month, and also thinking of doing without. "Hope I don't get anything that kills me until I can find work," he said. "There's no way I can pay the bills, eat and buy [health] insurance," he said, even though he needs expensive medicine for a heart condition.

Bruce Gerfen, just a year younger than Ross and still working at National Steel, faces a different retirement problem. Last December, in a move that angered the Steelworkers, the PBGC terminated National's pension plan prematurely, even though the sale of the company was still uncertain. Three weeks later, Gerfen reached his 30th anniversary of working at National and would have been eligible to retire early with benefits like Ross'. Now he will have to wait until he's 62 -- another 12 years -- to retire and collect benefits. Also, because of the early pension-plan termination, nobody will be eligible to receive the special shutdown benefits that the union had negotiated. They will accumulate pension benefits for future work in a special union-established multi-employer pension plan, which will supplement pensions they receive for their past work under the old National Steel plan.

"Now everybody is worried about the medical insurance and leaving at all," let alone retiring early, Gerfen said. "Everybody is thinking they may have to work for a long time."

Compared with workers who never had a federally insured defined-benefit pension and may have lost most of their 401(k) savings in recent years through stock-market collapse and corporate scandal, Ross' and Gerfen's problems may not seem severe. Indeed, a few steelworkers are both collecting pensions and working, and most who didn't retire early will not suffer big pension losses, except for future increases the union might have negotiated. But these corporate contractual promises were also deferred pay for the hard work steelworkers had already done.

The PBGC effort to limit its responsibilities to steelworkers by terminating plans early and thus blocking the special shutdown benefits has also complicated the union's consolidation plans. From a bean counter's viewpoint, the PBGC action might make sense. Even though it faces no problem paying bills for the foreseeable future, the PBGC balance sheets plunged from a $7.7 billion surplus to a deficit of $3.6 billion over the past fiscal year. This decline, five times worse than in any previous one-year period, resulted from a drop in values of the PBGC's stock investment coupled with a surge in bankruptcies of companies with badly underfunded pension plans. Steelworkers account for 56 percent of all claims against the fund, but only 3 percent of all workers insured.

On the other hand, union leaders argue that the PBGC isn't supposed to balance its books by limiting protection of workers. If anything, the PBGC's policies have recently grown worse. Before its actions in several steel cases last year, union spokesman John Duray said, "The PBGC worked with the union and the company to coordinate termination of the pension and takeover by the PBGC. The existence of the pension fund was used to offset some of the cost of downsizing the work force, giving people incentives and making it possible for them to retire." However, in its recent agreements with steel companies, such as a contract to cover National Steel workers as U.S. Steel takes over the company, the union had to negotiate "transition" payments and bonuses to encourage early retirements and permit reductions of the work force without layoffs. That increased the cost of the package and the difficulty of reaching an agreement. "It was a big issue in negotiations," said Jim Robinson, District 7 director of United Steelworkers. "The shift in PBGC policy made it more difficult. The biggest thing is people won't get as good a deal."

But the worst problem for the greatest number of steelworkers is the loss of company-paid health insurance for about 208,000 retirees and dependents, including 51,200 who are not yet eligible for Medicare. Even with the new tax credit, these older workers will be financially squeezed. Although a new owner such as U.S. Steel has no legal obligation to National Steel's retired employees (who never worked for U.S. Steel), the union felt it had a moral obligation. In every takeover in recent months, the union has negotiated arrangements for the new employer to pay a share of profits (plus transfer money from previously negotiated benefit funds) into a special program to provide health-insurance benefits for the purchased company's retirees. This will never fully replace what these retirees had, but it's a significant expansion of corporate social responsibilities.

The breakthrough for the United Steelworkers came last year when new outside investors -- the International Steel Group -- bought the shuttered LTV steel operations (and later Bethlehem Steel). International Steel agreed to a drastically different relationship with the union that gave workers more power, dramatically reduced management and subcontractors, and to a large degree protected the jobs and incomes of union workers. In expanding this new model to the rest of the industry, the union has worked hard to protect the livelihood of retired workers as well, but the shortcomings of American public policy, especially the lack of national health insurance, have left too many older workers with reduced incomes and new health-care risks. The union's strategy to save and strengthen a vital and viable industry without making workers and retirees pay the price for both past bad management and the pressures of a globalized economy may still succeed. But with smarter public policy, the odds of this grand gamble winning would be much better.