September 25, 2017 / 11:05 AM / in a year

RPT-EXCLUSIVE-U.S. agency claims huge hole in Westinghouse's pension plan

 (Repeats story from Friday with no changes to text)
    By Tom Hals
    WILMINGTON, Del., Sept 22 (Reuters) - Employees of U.S.
nuclear power firm Westinghouse Electric Co LLC, which is
bankrupt and reeling from a failed reactor project, got a nasty
surprise recently: in the eyes of the U.S. government's pension
insurer, its retirement plan has a massive shortfall.
    While bankrupt companies often have big pension deficits,
the vast majority flag the underfunding years in advance of
filing for Chapter 11. By contrast, the Westinghouse Electric Co
Pension Plan, which has about 9,700 participants, appeared fully
funded in its most recent report to the Department of Labor in
    The Pension Benefit Guaranty Corp estimated the pension plan
is unfunded by $937 million, according to previously unreported
court filings in August.
    The shortfall is conditional on Westinghouse using the tools
of bankruptcy to terminate the plan. In that case, the PBGC
would step in, take over the plan and apply its more
conservative accounting.
    Westinghouse spokeswoman Sarah Cassella said the company has
not told the agency it will end the plan.
    Westinghouse is considering bids for the company, and has
asked potential buyers to assume the pension would be maintained
and that annual contributions would continue near current
levels, according to a person familiar with the bidding process.
    However, Pittsburgh-based Westinghouse, which is owned by 
Toshiba Corp          of Japan, is expected to attract
private-equity investors who tend to want as few obligations as
    One actuary who advises pension plans said the PBGC claim
may encourage buyers to insist Westinghouse terminate the plan.
    "It highlights the poorly funded status and so no one really
wants to take on the defined benefit plan," said Greg Reardon,
of consulting firm Cheiron Inc. 
    The PBGC claim exceeds the plan's $926 million in assets and
according to PBGC data it would be among the 10 largest for a
pension shortfall, ranking ahead of Trans World Airlines in 2001
and Pan American Air in 1991 and 1992.
    The claim stems not from mismanagement or fraud, but the way
Westinghouse and the PBGC determine how much is needed today to
pay for future pension benefits.
    Under Department of Labor rules, Westinghouse is required to
assume that a bond portfolio will earn a much higher rate of
return than the current market rates, which are used by the
    The agency's conservative approach means more money is
needed today to pay for retirees. As a result, PBGC claims in
bankruptcy cases often catch other creditors off guard, said
Joseph House, a principal at Palisades Capital Advisors and
former head of the PBGC's restructuring group.
    The company has said in court documents that retaining
highly specialized engineers is key to its success, and until it
filed for bankruptcy in March the pension was one way to hold on
to top talent.
    Ending the plan would mean more Westinghouse debt and less
for other creditors, and it could mean reduced benefits for the
plan's participants. 
    If the plan is terminated, participants will receive a
guaranteed benefit from the PBGC, which currently hits a maximum
at about $64,000 a year. Any annual pension payments above that
level could be lost, although there are exceptions. 
    A former Westinghouse executive, who asked not to be
identified talking about his former employer, said the PBGC
claim came as a shock, given the plan's funding levels in recent
years and conservative investments.
    "You're going to have a lot of discontent," said the
executive. "It's a great tool to keep people tied to the
    Westinghouse, however, is in cost-cutting mode. The company
said in its recent turnaround plan it would reduce its roughly
11,000 global staff by 7 percent. 
    In July, two utilities in South Carolina canceled a
half-finished nuclear power plant that was meant to be a
showcase for Westinghouse's engineering and design.             
    The South Carolina project and a similar half-finished plant
in Georgia were both billions of dollars over budget and years
behind schedule, which contributed to Westinghouse's bankruptcy.

 (Reporting by Tom Hals in Wilmington, Delaware; Editing by
Noeleen Walder and Nick Zieminski)
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