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                                                                    Exhibit 10.3

                             KAISER/PBGC SETTLEMENT

                                                                October 14, 2004

            Kaiser Aluminum & Chemical Corporation ("Kaiser") and the Pension
Benefit Guaranty Corporation ("PBGC") agree to the following terms:

1.    After the USWA ratifies the amended and restated agreement under sections
      1113 and 1114 of the Bankruptcy Code with Kaiser, PBGC will make its
      decision on whether to approve the distress termination of the Kaiser
      Aluminum Pension ("KAP") Plan, and will notify Kaiser of its
      determination. If the ratification occurs prior to September 30, 2004,
      PBGC will notify Kaiser of PBGC's determination on or before September 30,
      2004. If Kaiser signs the trusteeship agreement (the "Trusteeship
      Agreement"), the form of which is annexed hereto as Exhibit A, on or
      before September 30, 2004, then, pursuant to IRC Section 7527(d)(2), PBGC
      will certify to the IRS that eligible KAP participants are receiving PBGC
      benefits commencing in October 2004. If the USWA ratification occurs on
      September 30, 2004 or thereafter, PBGC will notify Kaiser of PBGC's
      determination within two business days of the date of ratification. If
      Kaiser signs the Trusteeship Agreement, then, pursuant to IRC Section
      7527(d)(2), PBGC will certify to the IRS that eligible KAP participants
      are receiving PBGC benefits commencing in the month immediately following
      the month in which such agreement is signed by Kaiser.

2.    Kaiser will continue to sponsor the following plans:

            a.    Kaiser Aluminum Los Angeles Extrusion Pension Plan

            b.    Kaiser Center Garage Pension Plan

            c.    Kaiser Aluminum Tulsa Pension Plan

            d.    Kaiser Aluminum Bellwood Pension Plan

            e.    Kaiser Aluminum Sherman Pension Plan

      On the later of (a) five business days after bankruptcy court approval of
      this agreement or (b) 30 days after the effective date of the Intercompany
      Claims Settlement between Kaiser and the Official Committee of Unsecured
      Creditors, Kaiser will satisfy the minimum funding standard under IRC
      Section 412 for all five retained pension plans. Kaiser will also insure
      that the minimum funding standard is satisfied during the remainder of the
      Debtors' Chapter 11 proceedings, which proceedings are pending in the
      United States Bankruptcy Court, District of Delaware, Case Number 02-10429
      (jointly administered). Kaiser agrees that it will not seek reimbursement
      of any minimum funding payments for any retained pension plan from any of
      the other Debtors' estates.

3.    The appeal of the Bankruptcy Court Order finding that Kaiser satisfied the
      reorganization test as to all plans (other than Garage) will be dismissed.

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4.    PBGC will issue a no-action letter with respect to the salaried defined
      contribution plan, the USWA defined contribution plan, and the SPT plan
      (collectively, the "Replacement Plans"), in the form annexed hereto as
      Exhibit B.

5.    Kaiser, PBGC and USWA agree that, prior to July 1, 2009, the Replacement
      Plans will not increase benefits (contribution levels) and that Kaiser
      will not establish or contribute to a defined benefit plan (other than
      SPT) with respect to bargaining locations previously covered by the USWA
      Plan.

6.    The directed assets and the remaining assets of the Master Trust will be
      addressed in a side letter reasonably acceptable to both parties.

7.    PBGC agrees to a full release of all claims against Valco, and the form of
      such release is annexed hereto as Exhibit C.

8.    It is anticipated that reorganized Kaiser will make an election under
      applicable tax laws that will permit it to retain and utilize fully
      Kaiser's U.S. net operating loss carryovers (the "NOLs") following the
      effectiveness of Kaiser's plan of reorganization. PBGC acknowledges that,
      in order to ensure that reorganized Kaiser will retain and be able to
      utilize fully the NOLs as contemplated by such election, the equity
      securities to be issued in connection with the plan of reorganization will
      have to be subject to certain restrictions on transfer intended to avoid
      an ownership change following the effectiveness of the plan of
      reorganization that would trigger limitations on reorganized Kaiser's
      ability to utilize the NOLs under applicable tax laws. PBGC will agree to
      restrictions on the transfer of the equity securities to be received by it
      pursuant to Kaiser's plan of reorganization so long as the restrictions
      applicable to such securities are no more restrictive than those
      applicable to the equity securities to be received by the voluntary
      employee benefit association trust established for the benefit of retirees
      represented by the USWA.

9.    PBGC's claims for unfunded benefit liabilities and premiums shall be
      treated as allowed general unsecured claims against all the Debtors in the
      amount determined under the provisions of the Employee Retirement Income
      Security Act of 1974 ("ERISA") and PBGC's regulations, which the Debtors
      and PBGC agree is $630 million, less the amount in paragraph 10 below,
      provided that PBGC's recovery at the estates of AJI/KJC and KAAC/KFC will
      be limited to 32% of the net distributable proceeds payable in the
      aggregate to holders of senior notes, holders of junior notes and PBGC
      under confirmed plans of reorganization.

10.   PBGC shall have an allowed administrative claim against all the Debtors
      other than AJI and KJC in the amount of $14 million, which claim shall be
      joint and several against all the Debtors other than AJI and KJC.

11.   Kaiser will affirmatively support the agreed PBGC claim amounts, described
      above, against any challenge, including the objection filed by Law
      Debenture Trust Company in Kaiser's jointly-administered proceeding.

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12.   This agreement is subject to approval of the bankruptcy court presiding
      over Kaiser's Chapter 11 case, although PBGC shall take the actions
      described in paragraph 1 hereof whether or not bankruptcy court approval
      has been obtained by the applicable dates.

            IN WITNESS WHEREOF, the parties have caused this document to be
executed by the duly authorized persons whose signature appears below on the
date appearing opposite their names.

                                PENSION BENEFIT GUARANTY CORPORATION

Dated: October 15, 2004         /s/ Robert Joy
                                -----------------------------------------------
                                By:  Robert Joy
                                Its: Acting Deputy Executive
                                     Director and Chief Operating Officer

                                KAISER ALUMINUM & CHEMICAL CORPORATION

Dated: October 14, 2004         /s/ John Barneson
                                -----------------------------------------------
                                By:  John Barneson
                                Its: Chief Administrative Officer and Senior
                                     Vice President

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