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Patriot plan short on health-care fund, UMW says

CHARLESTON, W.Va. -- A plan proposed by bankrupt Patriot Coal would provide only half of the money needed to fund health-care benefits for thousands of retired coal miners and their families, according to new court documents filed by the United Mine Workers union.

As part of its financial restructuring, Patriot wants to set up a new, separate trust, called a voluntary employee beneficiary association, or VEBA, to fund health-care benefits for retirees, UMW lawyers say.

Patriot has proposed putting $15 million into the fund on June 1, and then setting up a profit-sharing mechanism equal to 15 percent of the company's annual net income.

But, the UMW says, Patriot proposes to cap its annual contribution at $40 million and its total contribution at $200 million.

By contrast, retiree health-care benefits cost Patriot $71 million in 2012, and the figure is expected to increase to nearly $74 million this year.

The disclosure of the proposal is the first time that details have been made public about Patriot's closed-door discussions with UMW negotiators about how the St. Louis-based coal giant plans to rework its massive pension and health-care liabilities as it tries to emerge from bankruptcy.

Patriot had made the proposal in mid-November during a private meeting with UMW officials in Charleston, according to court records.

UMW lawyers revealed the information Monday in an amended version of their federal court lawsuit against Peabody Energy and Arch Coal, other coal firms that the union alleges helped create Patriot in an effort to get out of their obligation to fund retiree pension and health-care benefits.

The details were first reported in The Wall Street Journal, and discussed very briefly by UMW President Cecil Roberts in a press conference prior to a Tuesday protest at Peabody headquarters in St. Louis.

"Peabody, Arch Coal and Patriot Coal may be proud of the financial con game they're playing on these retirees to get out of decades of promises and obligations," Roberts said. "But the truth is that this is a sickening display of corporate greed that has overstepped the boundaries of decency. In an America where there are few boundaries for corporations, that's saying something.

Patriot's bankruptcy has jeopardized the pension and health-care benefits for about 10,000 retirees and another 10,000 dependents. About half of the retirees live in the Illinois coal basin in Illinois, Indiana and Kentucky. Another nearly 40 percent live in West Virginia, according to court records.

At Tuesday's protest, more than 750 current and former miners rallied outside the federal building in St. Louis, where a bankruptcy hearing was being held, before marching through the city streets to Peabody's building, according to The Associated Press. Roberts and nine other union members were arrested when they refused to leave after sitting down in the street in front of Peabody's headquarters.

Last July, Patriot filed for Chapter 11 bankruptcy, seeking to reorganize amid what the company called "unsustainable labor-related legacy liabilities" including pension and health-care payments and strip-mine reclamation costs.

UMW officials say Patriot was essentially a "company created to fail," to give Peabody Energy and Arch Coal a way to shed obligations to fund union pensions and health-care benefits in the nation's eastern coalfields, while profiting from their giant, nonunion surface mines out west.

Peabody formed Patriot as a spin-off company where Peabody tucked union mines in West Virginia and the Midwest, along with pension and health-care obligations for union retirees. Patriot later bought another company, Magnum Coal, which had been similarly spun off by Arch Coal when it got rid of most of its Appalachian operations and their related pension and health-care liabilities.

The UMW says that 90 percent of the retirees listed as Patriot's obligation today never worked for Patriot, but were instead previously employed by Arch or Peabody.

In a class-action lawsuit filed in October in U.S. District Court in Charleston, the UMW and 10 active and retired miners allege that the moves by Peabody and Arch are illegal under a federal law that governs employee benefit plans. Lawyers for Peabody and Arch dispute that and have filed motions to have the case, pending before U.S. District Judge Joseph R. Goodwin, dismissed.

Arch Coal had declined comment on the lawsuit, but Peabody spokesman Vic Svec has said Patriot "was a completely viable company" when it was spun off from Peabody in 2007.

"Substantial events after that time, both inside and outside Patriot, significantly affected its future, from Patriot's transformational acquisition of Magnum Coal Co. to Patriot's decisions to make significant changes in its capital structure," Svec said.  "Other factors were decreased demand for U.S. coal due to sharp declines in natural gas prices; the softening of the global steel markets; and more burdensome regulations. Patriot notes many of these same factors in its filings with the bankruptcy court."

Along with its union pension and health-care liabilities, Patriot cited environmental costs in its bankruptcy filing, specifically noting that the costs of treating selenium pollution could run into "hundreds of millions of dollars."

In November, Patriot agreed to a plan to deal with those liabilities that included its promise to phase out mountaintop removal and other forms of strip mining, a move CEO Ben Hatfield said is in the best interests of the company, its employees and the communities where it operates.

Reach Ken Ward Jr. at kward@wvgazette.com or 304-348-1702.


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