OCT 2 9 2003 

Re: Appeal c-1 

Mchuth Steel Pension Plan With USWA'LU 2659 ("Old Plan." Case # 038976) 

Mchuth Steel Products Corporation Pension Plan ("~ew plan:" Case # 173584) 

The Appeals Board has reviewed the appeal you filed on behalf of your client, r-1 

of PBGC's August 20, 2002 revised determination of his New Plan benefit and 

August 21, 2002 revised determination of his.Old Plan benefit. As explained below, we are 

denying this appeal. 

In 1982, the Mchuth Steel Corporation ("Old McLouth") filed for bankruptcy and sold 

off its operating assets to a new company, eventually McLouth Steel Products Corporation ("New 

McLouthn). The Old Plan terminated, effective November 30, 1982, without sufficient assets to 

provide all benefits PBGC guarantees under the Employee Retirement Income Security Act 

(ERISA). New McLouth established the New Plan, which used credited service with both New 

and Old McLouth to compute a New Plan accrued benefit, which it then reduced by the benefit 

payable from the Old Plan based only on Old McLouth service. The New Plan terminated, 

effective August 13, 19%. also without sufficient assets. PBGC is trustee of both Plans. 

. . &Q.UQ&V of PBGC's D- and YoPBGC's September 2, 1988 determination of Old Plan benefit, which he 

did not.appea1, said that he was entitled to $626.00 per month, if paid as a lifetime annuity with 

no survivor benefit beginning on his Normal Retirement Date under that Plan (the first of the 

month following his 62nd birthday), or to a lower amount if paid earlier and/or in a different 

form. PBGC included a benefit statement with the information used to calculate his benefit. 
+\5Lf135 

PBGC issued New Plan benefit determination on June 19.2001, which 

he did not appeal. PBGC's letter told him "the amount you currently receive is the correct amount 

of your benefit," and that his monthly benefit was currently subject to an offset based on his 

Workers' compensation award. PBGC .also said that, because his momhly Workers' 

Compensation payments are greater than the guaranteed monthly benefit payable from PBGC. he 

was not currently entitled to receive payment of his monthly pension from PBGC. The benefit 

statement PBCC included with its determination showed that, befoe taking into account Workers' 

Compensation,was entitled to $1,313.49 per month as a Joint and 50% Survivor 

Annuity from May 1,1995 (his actual retirement at age 58) through May 1, 1999, and to $800.17 

per month thereafter.' Lastly, PBGC's letter said that, if he died before his eligible spouse, she 

was entitled to a separate Surviving Spouse Benefit of at least $90 per month. 

On July 23,2002, your partnerlwrote PBGC's Authorized Representative 

for the McLouth Plans to ask (1) what significance, if any, did Workers' Compensation have on 

receipt ofpension benefits under both McLouth Plans and (2) why= 

I has not received pension benefits due him since his date of disability of June 1, 1992. 

also said that has been on Social Security Disability since 1992. 

On August 13, 2002,sent PBGC a copy of a Workers' Compensation 

Redemption Order he received on July 2, 2002. On August 20, 2002, PBGC issued a revised 

New Plan benefit determination that said, based on the infonnation contained in the award, PBGC 

would activate his $800.17 per month New Plan benefit, effective August 1, 2002. According 

to PBGC's files, on November 1,2002, PBGC began payingb monthly benefit 

of $800.17, and sent him a check for $2,415.05 to cover the August, September and October 

payments, plus interest. 

On August 21, 2002, PBGC issued a revised Old Plan benefit determination that said, per 

plan practice. PBGC will consider the lump-sum paymentreceived under the 

Redemption Order to represent $385.90 per month for 156 months (the assumption the 

Redemption Order used for his ismining life expectancy). PBGC's letter said that (1) beginning 

August 1,2002 and lasting until July 1,. 2015, his monthly Old Plan benefit would be offset by 

$385.90 per month, and (2) beginning August 1,2015, his Old Plan benefit would be restored to 

its full amount. PBGC also noted that; to begin receiving this benefit, would need 

to complete and return PBGC's participant application for benefits. The files show that he has 

not yet done so and has not begun receiving his Old Plan benefit. 

On September 27,2002, you appealed PBGC's revised determinations od-1 

behalf. According to your appeal, PBGC should not have coordinated IS pension 

by his Workers' Compensation settlement because it is not permissible to coordinate benefits when 

1 June 1. 1999 isbormal retirement date under thc Old Plan. The Old Plan offset of $513.32 

equals his age42 Old Plan benefit ($626.00 as a lifelime annuily with no survivor benetit) multiplied by the Plan's factor 

for convening a lifetime annuity to a JBSO%S. 
the recipient is under age 65. You submitted a copy of a Michigan Supreme Court case, 

-, which you believe is securely on point concerning the issue of coordination. 

The fil& PBGC's auditors obhined from the prior New Plan Administrator show that (1) 

"last day of work" was June 1, 1992; (2) he had been receiving Workers' 

Compensation since his last day worked; (3) he continued to accrue credited service under the 

New Plan from June 1, 1992 until April 30, 1995; (4) he retired, effective April 30, 1995, on 

"30-Year Retirement" under Plan section 2.3; and (5) on June 1, 1995, McLouth's Director of 

Personnel Services directed the New Plan's custodian bank to issuea check for 

$9,445.36 under the "Special Payment" provision for a 30-Year Retirement (Plan section 3.2). 

did not, however, begin receiving his "Regular Pension" benefit under section 3.3, 

because the Plan Administrator offset his Regular Pension (equal at that time to $1,313.49) by the 

Workers' Compensation payments he was then receiving ($441.00 per week, or $1,896.00 per 

month). 

PBGC's files also include copies of: 

A Notice of Favorable Decision from the Social Security Administration's Oftice of 

Hearings and Appeals, dated June 15, 1993, which found that had been 

disabled since June 1, 1992, that he was unable to perform past relevant work and that 

there are no jobs that exist in significant numbers which he can perfom. 

A Redemption Order from the.Michigan Department of Consumer & Industry Services, 

Bureau of Workers' Disability CompensationlBoard of Magistrates, dated July 2, 2002, 

to "redeem the employer's entire workers' compensation liability for injuries sustained by 

the plaintiff on the following date(s) 4/26/92,6/1/92, 1992 . . . and any and all other dates 

of injury while employed by McLouth Steel Products." 

Plan Prowsw . . 

Section 2.3 of the New Plan provides that a "30-Year Retirement" benefit is available to 

any panicipant who retires on or after November 1, 1989 and who "has not attained the age of 

62 years and who shall have had at least 30 years of continuous service." The 30-Year benefit 

consists of a "special payment" that is paid immediately after retirement and a "regular pension 

amount" that begins the first full calendar month following the three calendar months for which 

the special payment covers. 

According to section 2.5 ("Permanent Incapacity Retirementn) of the New Plan, "any 

participant who shall have had at least 15 years of continuous service and who shall have become 

permanently incapacitated shall be eligible to retire on or after November 1, 1989, and shall upon 

his retirement (hereinafter "permanent incapacity retirement") be eligible for a pension. A 
participant shall be considered to be permanently incapacitated . . . only (a) if he has been totally 

disabled by bodily injury or disease so as to be prevented thereby from engaging' in any 

employment of the type covered by the Basic Agreement, and @) after such total disability'shall 

have contirmed for a period of six consecutive momhs and, in the opinion of a qualified physician, 

it will be permanent and continuous during the remainder of his life." 

Section 2.5 of the Old Plan provided a similar Permanent 

for the reasons explained later in this decision,'PBGC is not able to pay 

of benefit for his service under the Old Plan. The Old Plan also provided a "Deferred Vested 

Pension" under Old Plan section 2.8 for participants with 10 or more years of continuous service, 

and ms met the requirements for that benefit. 

Both the Old Plan and the New Plan offset a participant's Pennanent Incapacity Retirement 

benefit for Workers' Compensation benefits payable after the participant reaches age 65 

(section 3.10 of both Plan documents). For other types of retirement, the offset applies to any 

monthly benefit payable while a participant is receiving Workers' Compensation. For both plans, 

Section 3.10 also provides that: 

If any such amount [of Workers' Compensation payments] is not determined with 

respect to a period of time, the Company shall apportion the amount to a period of 

time under procedures reasonably designed to result in deduction or charge 

comparable to that which would be made if the amount had been determined with 

respect to a period of time. 

Your Overs' ComaWhen PBGC becomes the trustee of a terminated pension plan, PBGC pays benefits to the 

plan's participants according to the terms of the plan, subject to the requirements and guarantee 

limits of the Employee Retirement Income Security Act of 1974, us amended (ERISA). The Old 

Plan terminated on November 30, 1982, and the New Plan terminated on August 13, 19%. 0. 

I entitlement to a benefit is based on the terms of those Plans and on ERISA. 

The United States Supreme Coun has held that pension plan provisions that allow for the 

offset of workers'compensation payments against pension benefits do not violate ERISA. Alessi 

v. Rqbesfos-Manlranun, 451 U.S. 504 (1981). Furthermore, the Supreme Court has concluded 

that states may not enact laws that would disallow such offsets from pension payments. Id. at 522- 

526 (New Jersey law purporting to prohibit Workers' Compensation benefits from being used to 

offset pension benefits is a law which "relates to pension plans" governed by ERISA and thus is 

preempted). See also ERISA 8 514(a), 29 U.S.C. 8 1144(a) (ERISA pre-emption of state laws). 

Thus, your reliance upon Michigan laws and state cotllt decisions that address the 

coordination of Workers' Compensation benefits is misplaced. PBGC is not permitted to rely 

upon such state laws and court decisions, but rather must make benefit decisions based upon 
pension plan terns and ERISA. Nevertheless, we have included the following discussion of 

Michigan Workers'Compensation law because it might be helpful to in 

understanding his benefits. 

Since the enactment of a 1981 statute, Michigan has allowed emulovers to decrease 

Workers' Compensation payments to those disabled em$oyees who were eligiblito receive wageloss compensation from other employer-funded sources, including pensions. Mich.Comp.Laws. 

('McL") 5 418.354. Under Workers' Compensation law; such a statutory offset is co&nonly 

referred to as "benefit coodimtion. " 

The 1981 Michigan law provided that disability benefits from pension plans may be treated 

diierently from other pension benefits with respect to the offsets. If the individual was receiving 

a nondisability pension benefit, the.Workers' Compensation benefit generally must be reduced 

by the amoimt of the pension. MCL. 5 418.354(1)(d). On the other hand, disability pension 

benefits do not have to be offset against Workers' Compensation payments. MCL 5 418.354(14). 

However, this exemption from coordination of benefits is not automatic: rather, if the Dension 

plan is silent on the subject, the disability compensation benefits are subject to cootdmtion. 

Sterner v. McLouth Steel Products, 211 MiCh.App. 354, 536 N.W.2d 225 (Mich.App. 1995), 

motion to appeal denied, 451 Mich. 893, 549 N.W.2d 577 (1996), citing Scoft v. Jones & 

Luughlin Steel Cop., 202 Mih.App 408, 509 N.W.2d 841 (Mich.App. 1993). See also 

Hempstead v. Detroit Lions, Inc., 2W3 WL 133065 (Mich.App., Jan 03, 2003) (unpublished) 

("statute .requires some affirmative statement in a [pension] plan to be exempt from 

coordination"). 

New McLouth, in several litigated Workers' Compensation cases, took the position that 

disability pension benefits from the New McLouth Plan were subject to coordination. The 

company argued that section 3.10 of the Plan -- which provided that Workers' Compensation 

benefits "shall not be deducted from any such amount for permanent incapacity retirement payable 

prior to age 65" - did not prohibit a reduction to Workers' Compensation payments. Thus, the 

company asserted that coordination of Workers' Compensation benefits is not barred by 

application of MCL 8 418.314(14). The Michigan Court of Appeals in Sterner rejected New 

McLouth's position. However, New McLouth appears to have prevailed in Iater-decided cases 

that involve this issue. See, e.g., Klenewski v. M&uh Steel Products Cop., 635 N.W.2d 306, 

465 Mich. 904 (Mich. Nov 16,2001) (Michigan Supreme Court denial of a~peal).~ 

In White v. McLouth Steel Products, 453 Mich. 522, 556 N.W.2d 478 (Mich. 1996), 

which you cite in your appeal letter, the Michigan Supreme Court made a number of rulings 

concerning the coordination of workers'compensation payments with lump sum pension benefits. 

The Supreme Court in White also held that New McLouth is not entitled to a reduce weekly 

The Michigan Supreme Cow issued three other ruliogs on the same day that were idemical u, Kleczewski. The 

ohr cases were Simprun v. McIaidh Srcel Products, McCariy v. McLouth See1 Products, and Herr v. McLmrth fieel 

Producrs. 

-5- 
workers' compensation payments based on the amounts paid by PBGC for benefits under the Old 

Plan. This rulii did not affect, however, New McLouth's coordination of workers'compensation 

payments with pension amounts provided by the New Plan. We also note that one of the rulings 

in White, which concerned the calculation of the offset to workers'compensation when a pension 

lump sum is rolled over into an IRA, was rev4 by a subsequent decision. Koonfz v. Amentech 

Services, 466 Mich. 304, 645 N.W.2d 34 (Mich. 2002). 

Discussion 

As discussed above,i retired from New McLouth, effective April 30, 1995, 

on "30-Year Retirement" under Plan section 2.3. On or near June 1, 1995, New McLouth issued 

to a check for $9,445.36 under the "Special Payment" provision for a 30-Year 

Retirement plan section 3.2). Therefore, his New Plan benefit is determined under the 30-Year 

Retirement, rather than the Permanent Incapacity Retirement, plan provisions. 

also is entitled to a Deferred Vested Benefit from the Old Plan. While 

section 2.5 of the Old Plan provided for a Permanent Incapacity benefit, PBGC cannot pay that 

type of benefit because 7s permanent incapacity occurred after November 30, 1982, 

the date the Old Plan terminated. Under ERISA and PBGC regulations, PBGC cannot guarantee 

a disability benefit in the situation in which a participant does not meet the plan's definition of 

disability until after the Plan's termination date. See 29 Code of Federal Regulations (CFR) $8 

4022.3, .4(a)(3). Also, because the Old Plan terminated without sufficient assets to provide 

guaranteed benefits, PBGC is unable to pay benefits to Old Plan participants that are not 

guaranteed by PBGC. 

For participants liidelbho are entitled to benefits under both McLouth Plans 

as well as to Workers' Compensation, PBGC's practice is to calculate initially the benefits under 

both plans in the absence of any workers' compensation offsets. PBGC next applies the workers' 

compensation offset amount fust to the Old Plan benefit (under the rules for a Deferred Vested 

Retirement inwe) to the extent permitted by plan provisions. PBGC then 

applies any remaining workers' compensation offset amount to the New Plan benefit, again to the 

extent permitted by plan provisions. 

Prior to the issuance of the Redemption Order that was effective August 1, 2002, O 

monthly Workers' Compensation payments exceeded the combined amount of his 

monthly pension benefits from both the Old and New Plans. As discussed above, under the 

relevant pension plan provisions, both his Deferred Vested Retirement benefit under the Old Plan 

and his 30-Year Retirement benefit unaer the New Plan were required to be reduced by his 

workers' compensation payments, starting with the commencement dates of his monthly benefits. 

Thus, PBGC correctly determined that was owed no pension payments until 

August 1, 2002, other than the Special Payment he had received from New McLouth. 
In a decision on an earlier appeal on the same issue you raised (copy enclosed), the 

Appeals Board found that PBGC properly applied the Plan's Workers' Compensation offset 

provisions to a participant who, lie received a lump-sum redemption award in 

lieu of all future Workers' Compensation payments. Thus, using the method that New McLouth 

had used to apportion / redemption award over his remaining life expectancy, 

PBGC correctly determined that Pld Plan benefit would be offset by $385.90 per 

month beginning August 1,2002, and lasting until July 1,2015. Beginning August 1,2015,n 

/ Old Plan benefit will be restored to its full amount of $513.32 per month. 

Also, for the time periods after the redemption order became effective, there is no 

remaining Workers' Compensation amount to be offset against~ew Plan benefit. 

Therefore, PBGC correctly determined that I is entitled to a New Plan benefit of 

$800.17 per month, effective August 1, 2002. 

Having applied the law, the provisions of the Plan, and PBGC regulations and policies to 

the facts in this case, the Appeals Board found there was no basis for changing PBGC's revised 

benefit determinations for both the Old and New Plans. Pursuant to 29 C.F.R. 8 4003.59, this 

is the final agency action regarding the issues raised in1 appeal. He has exhausted 

his administrative remedies and may, if he wishes, seek judicial review of this decision. 

If you or have questions. please call PBGC's Customer Contact Center at 

1-800-400-7242. 

Sincerely, 

Linda M. Mizzi 

Member, Appeals Board 

Enclosure