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High Pension Costs Hurt Business

In an excerpt from a Frontline report, Hedrick Smith examines the problems that maintaining traditional pensions is having on middle-class Americans.

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    Foreign imports were flooding the U.S. market in the late '90s. Steel prices had plummeted. And companies like LTV Steel were in deep trouble.

  • DAVID HEIMAN, LTV Bankruptcy Attorney:

    The heart of the problem was the cash shortage. They could see that they were going to run out of cash.


    LTV's predicament was typical of the financial bind at a slew of American steel companies.


    The company had the misfortune of being the first one up, if you — if you will, to have to confront legacy costs.


    Legacy costs, the name companies use for the expenses or liabilities they have accrued for pension and health care benefits that they have promised their workers.


    LTV had too much debt. Its legacy costs were a big problem. The cost of retiree benefits per ton of steel was way out of whack in order to be competitive in the marketplace.


    So, in December 200, LTV filed for bankruptcy, Chapter 11. That gave management protection from creditors and created a new framework for renegotiating the old social contract.


    This is the core of the matter. The cost to produce a ton of steel for labor and legacy costs were far greater than — than could ever be viable. We had to reduce that cost.


    The union made concessions, significant concessions, on wages and work rules, but it resisted reductions in retiree benefits.

    Mark Granakis is president of the local steelworkers union.

  • MARK GRANAKIS, Local Union President:

    The deal is, I'm going to work here and bust my butt. I'm going to make a good wage. You're give me health care. And at the end of the rainbow is also another ring that I can grab, which is my pension. So, that — that is the whole deal. That's the promise that was made. And that's what became to be expected.


    And the fight at LTV, when it goes into bankruptcy, is that what the fight is over, that deal?


    Absolutely. It's about not only that deal. It's about you living up to your bargain. You gave me your word you were going to do something. And I expected that and worked hard for that.


    LTV and the union could not reach any deal. And with LTV bleeding a million dollars a day, it looked like curtains.

  • MAN:

    It is ultimately the banks who say, we're not going to provide you with any more capital. We advised everybody that we were shutting down.

  • JUDGE WILLIAM BODOH, LTV Bankruptcy Judge:

    The banks initially were looking toward a liquidation of LTV, because there was no — no white knight on the scene. There was no one that appeared to be ready to — to not only put up money to buy assets, but to assume some of the immense liabilities LTV had.

    So, the banks are saying, let's cut and run. Let's take our losses and go home.