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The Magnitude of Retiree Costs to the Steel Industry
Daily Policy Digest

Economic Issues / Corporations

Thursday, April 25, 2002
One of the primary reasons the American steel industry can't compete with foreign competitors is a factor known as "legacy costs" -- which is the totality of health care, life insurance and pension payments promised to the industry's retirees, who now far outnumber active steelworkers.

  • These legacy costs are estimated to total $10 billion.
  • In the past four years, 31 steel companies have filed for bankruptcy -- either to liquidate or reorganize.
  • Those being liquidated have left 125,000 retirees and dependents without the benefits they had been promised.
  • Such a severe profit squeeze would normally result in the industry consolidating -- but the legacy costs deter any would-be acquirer, since it would inherit the acquiree's retiree obligations.
Some companies are starting to reshape themselves to either unload the cost burden or survive in spite of it.

If their strategies succeed, the companies may well stay alive, and their workers stay employed. But their retirees are likely to face the same fate as if they went out of business: the loss of most benefits.

Source: Robert Guy Matthews, "Retiree Costs Drive Big Change in Steel; Retirees Are Losers," Wall Street Journal, April 25, 2002.

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