Rockefeller, in wake of Patriot Coal action, tries to fix union benefits

Sen. Jay Rockefeller, D-W.Va., said May 30 that a decision the prior day by a federal bankruptcy judge to allow Patriot Coal to sever United Mine Workers of America obligations would have wide-ranging impacts on federally-backed UMWA benefit programs.

In a May 29 ruling, Judge Kathy Surratt-States of the U.S. Bankruptcy Court for the Eastern District of Missouri allowed Patriot Coal to back out of its collective bargaining agreement with the UMWA. Patriot Coal, which has been in Chapter 11 protection since July 2012, said it needed this break to survive for the long-term. 

“Miners who have given their lives to this industry are now facing terrifying uncertainties over their health care, pensions, and pocketbooks,” said Rockefeller, who has moved a number of times in Congress over the last 20 plus years to shore up the UMWA pension and benefit systems. “I am deeply disappointed by this outcome and what it means for our miners directly impacted by this decision and all workers who have experienced the unfairness of our bankruptcy system. Fighting for our workers and reforming our bankruptcy system go hand in hand, and I will continue to be front and center on this effort.”

Rockefeller says this means Congress really needs to act

The judge’s decision gives Patriot Coal the ability to change the terms of its union contract, including the benefits it provides for both employees and retirees. In addition to wage reductions for employees, the court approved Patriot’s proposal to make devastating modifications to health care benefits and limit its future pension obligations. 

While the decision was a serious setback for workers, it also makes clear that Congress must act to protect the benefits that they’ve earned, Rockefeller said. The judge acknowledged the very real hardships these miners face and pointed to Rockefeller’s Coal Accountability and Retired Employee (CARE) Act, introduced earlier this year, as the leading proposal in Congress that can solve the problems created by the Patriot case.   

“Judge Surratt-States and I can agree on one thing – that in return for decades of tireless and dedicated work, retirees were promised a lifetime of health care benefits that were jeopardized by the current bankruptcy system before they even signed up for them,” said Rockefeller. “Without Congressional action on legislation that protects worker benefits, we are going to see this same devastating situation happen again. I urge my West Virginia colleagues in the House of Representatives to support Congressman [Nick] Rahall’s companion to my bill, which Senator [Joe] Manchin is cosponsoring and would give thousands of West Virginia miners security and peace of mind.”

Manchin is West Virginia’s other Democratic senator, while Rahall is a West Virginia Democrat in the U.S. House of Representatives.

Rockefeller said he has joined the UMWA and other leading miner advocates in expressing “skepticism” over Patriot Coal. The company is a 2007 spin-off of Peabody Energy (NYSE: BTU), and also has former UMWA-represented operations of Arch Coal (ACI), which “unloaded” their promised pension and health care costs onto the new company, said the Rockefeller statement.

The May 29 court ruling means more than 12,000 retired miners, including nearly 7,000 West Virginians – the vast majority of whom never worked for Patriot – and their dependents are facing the loss of health benefits, and a further chipping away of the 1974 union pension plan, the senator pointed out.

To address the crisis around pensions and health care for retired miners, Rockefeller had already introduced the CARE Act. In addition to holding employers accountable for the commitments they make to their workers, Rockefeller’s bill would: 

  • Amend the federal Surface Mining Control and Reclamation Act to transfer funds, raised through per-ton fees on current U.S. coal production, in excess of the amounts needed to meet existing obligations under the Abandoned Mine Land fund to the UMWA 1974 Pension Plan to prevent its insolvency;
  • Make any union retiree who loses benefits following the bankruptcy or insolvency of his or her employer eligible for the 1992 Benefit Plan, which was established under the federal Coal Act and provides health benefits to retired or disabled miners and their families; and,
  • Provide that employer contributions are not unfairly penalized by the tax code and receive the same tax-exempt treatment as contributions to other pension plans, allowing the full value of employer cash contributions to go to the retirees who earned them. 

Rockefeller engineered passage by Congress of the 1992 Coal Act, which preserved health benefits for up to 200,000 retired miners and their widows who had been promised these benefits by both the federal government and their companies, some of whom believed they shouldn’t have had to keep this pledge. Rockefeller said he again led the charge in 2006 to protect these health care plans from insolvency by allowing Abandoned Mine Land funding to be used to pay for retired miners’ health care.

UMWA will try to appeal judge’s ruling

UMWA International President Cecil Roberts said in a May 29 statement that the union plans to appeal the bankruptcy judge’s decision into the companion U.S. District Court.

“But I want to make it emphatically clear that despite this ruling, the UMWA’s effort to win fairness for these active and retired workers is by no means over,” Roberts said. “Indeed, this ruling makes it more important than ever for the architects of this travesty, Peabody Energy and Arch Coal, to take responsibility for the obligations they made to thousands of retirees who are now at imminent risk.”

Under the bankruptcy court’s ruling, Patriot will be allowed to cease paying for retiree health care benefits as early as July 1. Responsibility for paying benefits would be handed over to a Voluntary Employee Beneficial Association (VEBA), which will only have guaranteed funding of $15m plus a royalty payment of $0.20 per ton of coal the company produces, which may add approximately $5m to the VEBA per year, Roberts noted. Current health care costs for these retirees average nearly $7m per month.

Patriot has offered the UMWA a 35% stake in the company, which could be sold to help fund the VEBA, in the event there is a willing buyer. Since the current and future value of the company is unknown, there is no way of knowing how much money this could provide for health care benefits or when such funding would be available, Roberts said. The company has also proposed a profit-sharing mechanism that would not provide any additional assistance to the VEBA until 2016 and even then would not provide more than about $2m per year, at best, he added.

The UMWA has filed suit in Charleston, W. Va., alleging that Peabody and Arch violated the Employee Retirement Income Security Act (ERISA) by “dumping” contractual obligations. Both Peabody and Arch have said they spun off or sold UMWA-represented operations to financially healthy companies that operated for years afterward and are not responsible for Patriot’s obligations.

“The UMWA made specific proposals to the company that demonstrate – using the company’s own numbers and future projections – how the company could get through the next couple of lean years and then make millions, without punishing its workers in this way,” Roberts said. “The company rejected every one of those proposals and continues to insist upon changing long-standing contractual language that will not improve their bottom line one penny.”

He said the union remains willing to take “painful steps” to help Patriot get through the rough period it faces over the next couple of years in a tough coal market being dealt with by every U.S. coal producer.

“But if we’re going to share in that pain, then we have every right to share in the company’s gain when it becomes profitable again,” Roberts said. “That only makes sense, and we will continue to try to get this management team to understand that.”

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.