., 

PBGC Pension Benefit Guaranty Corporation 

1200 K Street. N .W •• Wasbfngton. D.C . .2O()()5...4Ol6 

Re = Appeal I Ii Case No. 197613, Pellet 

Salaried Employees Pension Plan (the "plan") 

Dear Ms.~1 ______ ~ 

We are responding to your appeal of PBGC's March 16, 2005 

determination regarding your monthly pension benefit from the 

Plan. For the reasons stated below, we are denying your appeal. 

PBGC1s Determination and Your Appeal 

PBGC determined that you are entitled to a monthly PBGC 

benefit of $2,289.63 based on your benefit starting on 

June 1, 2021, in the form of a Straight Life Annuity. PBGC also 

provided you with a Benefit Statement. The Benefit Statement 

showed that your earliest retirement da~e was June I, 2011, and 

that you would receive an actuarially-reduced benefit of $915.85 

if you started benefits on that date. 

Your March 31, 2005 appeal asserted that you were 

"unjustly" denied pension benefits within the definition of the 

Plan's "Rule of 65 11 Retirement provisions. You further claimed 

that you were "unjustly" denied benefits under the "Age 62/15" 

provision, which allowed participants with 15 or more years of 

service to retire at age 62 without a reduction to their 

pension. 

You noted that PBGC terminated the plan in December 2002 I 

and your employment "officially terminated" on May C=1 2003. 

You asserted that benefits "should have been due and payable 

June I, 2003 for time accrued up to the December date. II You 

also questioned PBGC's decision to terminate the Plan t.o avoid 

pension liability, expressing your opinion that "PBGC has 

willfully and illegally used their fiduciary principles to 

withhold my pension benefits. 1I 
2 

At the request of the Appeals Board, an authorized 

representative of PBGC's Benefits Administration and Payment 

Department ("BAPD") responded to your March 31 letter. This 

April 14, 2005 response stated that, although you met the age 

and service requirements for a "Rule of 65" benefit, you did not 

meet the additional requirement that \\your employment with the 

company had' to be terminated due to the permanent closing of 

your location. 11 The letter noted that the "location that you 

worked at was purchased by U. s. Steel and remains open." The 

April 14th letter further said that you did not qualify for a 

"rule of 62/15" benefit because "you were not age 62 when the 

plan terminated." PBGC concluded, however, that you met the 

requirements for a deferred vested retirement. PBGC gave you 30 

days from April 14, 2005, to provide the Appeals Board with 

specific reasons why PBGC's determination is wrong. 

Your April 28, 2005 letter to the Appeals Board again 

requested that PBGC start paying you benefits as of May 20, 

2003, which you asserted is the date that National Steel Pellet 

Company ceased to exist due the complete sale of its assets. 

You also stated: "I also believe it is a violation of ERISA to 

pay retirement benefits to employees who continue to work for a 

company. This shows that the PBGC recognizes the termination of 

the Pellet company by paying benefits to 30 year employees." 

Background 

When National Steel Corporation ("National") filed for 

bankruptcy on March 6, 2002, it was one of the largest 

integrated steel companies in the United States. National Steel 

Pellet Company ("Pellet") I a subsidiary of National that 

operated a mining operation in Keewatin, Minnesota, filed for 

bankruptcy along with National. 

On December 5, 2002, PBGC issued a notice of determination 

that the Plan and six other pension plans sponsored by National 

should be terminated and trusteed by PBGC. At that time I PBGC 

had found that the National plans were only 47 percent funded, 

with roughly $1.3 billion in assets to cover more than $2.8 

billion in benefit liabilities. National further had told PBGC 

that it would make no further contributions to the plans, and 

the company had missed more than $150 million in required 

funding contributions. When it issued its notice of 

determination, PBGC had concluded that: (1) each of the seven 

plans met the plan termination criterion in Employment 

Retirement Income Security Act (ERISA) section 4042 (a) (2) that 

the plan "will be unable to pay benefits when duei" and (2) the 
3 

Plan, as well as five of the other National plans, posed a risk 

that PBGC's long-run loss will increase unreasonably if the plan 

did not terminate, thus meeting the plan termination criterion 

in ERISA section 4042(a) (4). 

On April 21, 2003, the Bankruptcy Court approved the sale 

of most of National's assets, including the Pellet operation, to 

u.s. Steel. u.s. Steel, however, did not assume sponsorship of 

the seven National pension plans. In May 2003, U. S. Steel 

completed its purchase of Pellet's assets, and this mining 

operation has remained open under U.S. Steel's ownership_ Also, 

effective May 31, 2003, PBGC and National entered into an 

agreement providing for the termination of the Plan (along with 

six other National Plans), establishment of December 6, 2002, as 

the Date of plan Termination ("DOPT"), and appointment of PBGC 

as the Plants trustee. 

Relevant Plan Provisions 

The January 1, 2001 Amended and Restated Plan document sets 

forth your benefit rights under the Plan. We have enclosed a 

copy of certain provisions in this document which address your 

-enti tlement to benefits. The Plan provides unreduced early 

retirement benefits under various conditions, each having its 

own set of requirements, including: 

Age 62/15 Retirement: Attainment of age 62 at the date of 

termination of employment and completion of at least 15 

years of credited service. See Enclosure, section 3.2{a) 

(2) of the Plani 

30-Year Retirement: 

credited service. 

and 

Completion of at least 30 years of 

See section 3.2 (a) (4) of the planj 

URule of 65" Retirement: Completion of 20 years of 

credited service and combined age and service is greater 

than 65 but less than 80 at retirement, where termination 

of employment is due to a permanent closing of 

operations. See section 3.2 (a) (5) of the Plan. 

Section 3.3 of the Plan provides that a participant is 

entitled to an "Early Retirement Pension" if he or she 

terminates employment as a salaried employee between the ages 55 

and 65, has at least 15 Years of Credited Service, and is not 

entitled to another type of benefit under section 3.2 of the 

Plan. This Early Retirement Pension is unreduced if payments 
4 

begin at age 62, but is actuarially reduced from age 62 if 

payments begin at an earlier age. 

Section 3.4 of the plan sets forth the requirements for the 

"Vested Deferred Pension. II This benefit is available at age 65 

to participants with at least 5 years of credited service, or at 

ages between 55 and 65 if the participant terminated employment 

with at least 15 years of credited service. However I for the 

"Vested Deferred Pension, I, the normal retirement amount is 

reduced by one-half of a percent (.5%) for each month that the 

benefit commences before age 65. 

Law and Regulations 

When the plan terminated on December 6, 2002, it did not 

have sufficient assets to provide all benefits PBGC guarantees 

under Title IV of the Employee Retirement Income Security Act 

(ERISA) . The terms of the Plan, the provisions of ERISA, and 

PBGC regulations and policies determine your entitlement to a 

guaranteed benefit. 

Section 4022 (a) of ERISA provides that subject to certain 

limitations, the PBGC shall guarantee the payment of all 

nonforfeitable benefits under a covered plan that terminates. 

ERISA defines a "nonforfeitable benefit n as: 

n ••• a benefit for which a participant has satisfied 

the conditions for entitlement under the plan or the 

requirements of . [ERISA] (other than submission 

of a formal applicationl retirement, completion of a 

required waiting period, or death in the case of a 

benefit which returns all or a portion of a 

participant I s accumulated mandatory employee 

contributions upon the participant IS death)." 

See also 29 CFR § 4001.2 (definition of "nonforfeitable 

benefit n). PBGC regulations provide that a guaranteed benefit, 

among other conditions, must be nonforfeitable as of the plants 

termination date. See 29 CFR § 4022.3. 

As discussed under "Flan Provisions," one requirement for 

"Rule of 65" Retirement is that the participant's termination of 

employment is due to permanent closing of operations. 

Conditions such as this, which involve how the employment 

relationship is terminated, are substantive requirements 

established under Pension plan terms that must be satisfied by 

the plan's termination date. See Fetty v. PBGCI 915 F. SUppa 
5 

230 (D. Colo. 1996), aff'd, 104 F.3d 367 (10th Cir. Dec. 23, 

1996) , cert. denied 522 U.S. 812 (1997) (subsidized early 

retirement benefits based upon plan shutdown are not guaranteed 

if the shutdown occurs after the date of plan termination); see 

also PBGC v. Republic Technologies Int'l, 386 F.3d 659 (6th Cir. 

2004) (court affirms PBGC's selection of a pre-shutdown 

termination date that avoided vesting of shutdown benefits) . 

Section 4044 of ERISA requires PBGe, as the Plan's trustee, 

to allocate plan assets to plan benefits as of the termination 

date. Plan assets are allocated to nonforfeitable benefits 

before they may be allocated to forfeitable benefits. Also, 

PBGC may allocate an additional amount to unfunded, 

nonguaranteed benefits that is based on PBGC's recoveries on its 

claims against plan sponsors (see ERISA § 4022 (c) ) . For your 

Plan, however, PBGC has determined that the Plan's assets and 

the 4022(c) amount were insufficient to pay any forfeitable 

benefits. 

Discussion 

According to PBGC's Benefit Statement, you were born one==] 

0, 1956, and you were hired by Pellet on July D, 1974. On 

DOPT, which was December 6, 2002, you were 46 years old and had 

28 years and 5 months of credited service . PBGC records and 

your appeal indicate that your employment with Pellet ended 

after DOPT. 

1. Your claim for "Rule of 65" Retirement 

It is undisputed that you met the combination of age and 

service for this type of benefit. However, as stated above 

under "Flan Provisions, 11 an additional requirement for "Rule of 

65/1 Retirement is that your employment be terminated due to a 

permanent closing of operations. You asserted that you met this 

requirement because, when your employment with Pellet terminated 

in May 2003, Pellet had ceased to exist as a result of the sale 

of its assets to U.S. Steel. 

As discussed above in "Law and Regulations,/I ERISA and PBGC 

regulations require (among other things) that a guaranteed 

benefit be nonforfeitable as of the pension plan's termination 

date. This means that you must satisfy the substantive 

conditions for entitlement to the benefit, including any 

requirements that are based on how the employment relationship 

is terminated, as of the plan's DOPT. In your case, you did not 

satisfy all of the conditions for "Rule of 65/1 Retirement as of 
6 

DOPT. Rather, the termination of your employment with Pellet 

and the sale of Pellet's assets to U. S. Steel both occurred 

after DOPT. 

2. Your Claim for "62/15" Retirement 

In order to qualify for "62/15" Retirement, you must have 

attained at least age 62 when you terminated your employment, in 

addition to completing at least 15 years of credited service. 

See Enclosure I, section 3.2 (a) (2) of the Plan. Since you were 

46 years old when the Plan terminated, you did not satisfy at 

DOPT this requirement that you terminate employment at age 62 or 

later. We note that you also did not qualify as of DOPT for the 

"Early Retirement Pension" described in Section 3.3 of the plan, 

because your employment must terminate at age 55 or later in 

order to qualify for that benefit. 

However, as PBGC stated in its letters, you met the 

requirements for PBGC to guarantee a "Vested Deferred Pension. II 

Under this Plan provision, you are eligible to begin receiving 

your pension on or after age 55, but will receive a reduced 

benefit if you decide to retire prior to age 65. 

3. Other Claims in Your Appeal 

You noted that PBGC had started paying benefits to 30-year 

employees upon the sale of Pellet's assets to U.S. Steel. You 

claim that this shows that "the PBGC recognizes that National 

Steel Pellet Co. ceased to exist." 

As you suggested, PBGC concluded that Plan participants 

could qualify for a guaranteed 30-Year Retirement, if they had 

completed at least 30 years of continuous service as of DOPT. 

Since a layoff or a permanent shutdown was not a requirement for 

30-Year Retirement, ERISA permitted PBGC to guarantee this type 

of benefit for these participants even though Pellet was still 

operating at DOPT. PBGC concluded, however, that it could not 

start payments to 30-year employees while they were working for 

Pellet, since neither Plan provisions nor PBGC policy permit 

participants to receive benefits while they were working for 

Pellet or a member of its controlled group. PBGC also concluded 

that eligible employees could start receiving benefits after the 

sale, even if they worked for U.S. Steel, based on PBGC's 

finding that U. S . St eel was an unrel at ed party who did not 

assume any of the pension liabilities. Thus, since the 

requirements for 30-Year Retirement were different than for 
7 

"Rule of 65" Retirement, the Appeals Board found no 

inconsistency in PBGC's treatment of the two types of benefits. 

You asserted that PBGC "has willfully and illegally used 

their fiduciary principles to withhold my pension benefits." 

You felt that PBGC terminated the Plan prematurely to avoid some 

pension liability. 

PBGC determined that seven of National's pension plans had 

to be terminated, primarily because National stopped funding 

them and no one else wanted to sponsor them. PBGC had found 

that the pension plans' benefit obligations for the seven plans 

exceeded the plans' assets by approximately $1.5 billion at the 

time of their termination. PBGC also decided that one of the 

reasons for the plan's termination (as well as for five other 

National plans) was to prevent PBGC's long-run loss from 

increasing unreasonablY, which PBGC concluded likely would occur 

if a later DOPT was established. 

ERISA specifically permits PBGC to seek termination of a 

pension plan to prevent unreasonable long-run loss to PBGC. 

ERISA § 4042 (a) (4), 29 U.S.C. § 1342 (a) (4). As a Federal court 

of appeals has stated, "ERISA provides for involuntary 

termination proceedings precisely so that PBGC can protect its 

own financial interests and 'avoid any unreasonable 

deterioration of the financial condition of the plan or any 

unreasonable increase in the liability of the fund.'" PBGC v. 

Republic Technologies Int' 1, 386 F. 3d 659, 668 (6th Cir. 2004). 

Furthermore, section 4048(a) (3) of ERISA provides that, 

when a pension plan is terminated by PBGC, the date of plan 

termination ("DOPT") is "the date established by the [PBGC] and 

agreed to by the plan administrator. II If an agreement on the 

date cannot be reached, section 4048 (a) (4) provides that the 

termination date is established by the court. As discussed 

above, PBGC and National entered into an agreement establishing 

December 6, 2002, as DOPT. Please note that the Appeals Board 

has no authority to change an established plan termination date. 

Decision 

Having applied Plan provisions, the law, and PBGC 

regulations to the facts in your case, we found no basis for 

changing PBGC's March 16, 2005 determination. This is the PBGC's 

final action in your case and you may, if you wish, seek court 

review of this decision. If you need other information from 

PBGC, please call the Customer Contact Center at 1-800-400-7242. 
Sincerely, 

Charles W. Vernon 

Chair, Appeals Board 

Enclosure 

8