Miners Get the Shaft in Patriot Coal Bankruptcy, Suffer Major Cuts to Health and Pension Benefits

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Posted June 19, 2013

Interview with Phil Smith, communications director with the United Mine Workers of America, conducted by Melinda Tuhus


A federal bankruptcy court judge in St. Louis, Kathy Surratt-States, ruled on May 29 that Patriot Coal Company, which declared bankruptcy last year, can drastically cut back on the health care and pension benefits it provides to its current and retired employees, members of the United Mine Workers Union. The union is appealing the decision. The CEO of Patriot Coal said it would have cost the company approximately $1.6 billion to cover health care costs for all retirees, putting the company at risk of liquidation. The union and its supporters believe that Patriot was set up to fail, and point out that when Peabody Energy spun off Patriot, it had 11 percent of the company's assets, but was saddled with 43 percent of retiree health care liabilities. Around the same time in the mid-2000s, Arch Coal spun off a company named Magnum Coal and similarly dumped a disproportionate amount of its liabilities into it. When Patriot Coal bought Magnum, that created an even more untenable financial situation.

The Mine Workers Union has recently organized protests in St. Louis – home to Peabody Energy, Patriot and Arch – as well as in the coal fields of Appalachia. Most of the coal miners and retirees live in West Virginia and Kentucky, although smaller numbers live in neighboring states.

Between The Lines’ Melinda Tuhus spoke with Phil Smith, communications director with the United Mine Workers of America. He explains why the workers' interests come last in bankruptcy law, and what the union is doing to try to recoup as much of their members' benefits as possible.

PHIL SMITH: I think it's important to understand, first of all, what bankruptcy law is in the U.S., particularly Chapter 11. The judge's purpose is to do whatever the judge feels is necessary to be done to bring the company out of Chapter 11 as a viable company. That means if contracts have to get broken with suppliers and vendors, then they do. If contracts have to get broken with workers, then they do. The end of that game is that workers come last; the people who put the money into the company come first. So they get paid like they're supposed to get paid, but the workers don't. And that's how bankruptcy law is and she pretty much says that in her decision. In many ways, she points out what her function is and what her purpose is and she follows according to what she thinks she needs to do and she follows that function. We don't agree with that she followed it the right way, which is why we're appealing the decision. She feels constrained, and there's some truth to that, in terms of what she can and can't do under bankruptcy.

BETWEEN THE LINES: What are the numbers of workers and retirees affected?

PHIL SMITH: There are 2,000, roughly, active workers and then there are 10,600 retirees; when you add in all the dependents of the retirees and the widows of retirees who are deceased, who are eligible for these benefits, you're talking about 22,500 people who are receiving retiree health care benefits.

BETWEEN THE LINES: Can you outline exactly what the judge's ruling was?

PHIL SMITH: What the judge approved is a plan by Patriot to end the current system of retiree health care entirely, and in its place establish what's called a Voluntary Employee Benefit Association, or VEBA, which is a tool often used by companies like this who are in bankruptcy to continue funding benefits at some level. To fund that VEBA, Patriot intends to put in $15 million in cash; there is a royalty payment of 20 cents per ton of coal that is mined that Patriot would pay into that, which would add maybe another $5 million a year, at best. So there's $20 million, roughly, of guaranteed money, into that VEBA. The other money that would come into it would be from a 35 percent stake in Patriot that they would transfer to the union, and the union could then sell to an investor, or investors, who may be interested in owning a piece of the company. We don't know what that 35 percent is; we don't know what the value of the company is, and we won't know that for some time, until Patriot comes out of bankruptcy. There may be a couple hundred million dollars that could go into it from the sale of the company, but we just don't know that.

But here's the thing – even if there is, let's say we could get the value of that fund up to $200 million; this is a $1.6 billion liability that we've got to cover. That's how much money is owed, from an actuarial standpoint to these people for whom Patriot has had the obligation to continue paying their health care. $250 million isn't going to go very far to make that work, so is there going to be an effect on the benefits that these people receive? Absolutely. Will we hopefully be able to do something to continue providing them with some level of benefits that they need to have? Yes, we're going to be doing that, but it's not clear at this time how long we're going to be able to continue doing that, given the level of funding the VEBA is likely to have.

What's important to understand is the architects of this are Peabody Energy and Arch Coal. As of now they have walked away scot-free. They have dumped their obligations onto Patriot; the judge has said it's okay for Patriot to let those obligations go, and the companies responsible for creating this mess have no repercussions for it. However, we have filed against Peabody and Arch to get them to live up to their obligations; that suit is in federal court in Charlestown, W.V. And we are going to continue our campaign and our effort and our rallies in St. Louis and elsewhere in an effort to get Peabody and Arch to live up to their obligations to these folks.

BETWEEN THE LINES: Phil Smith, what has the union been doing since the judge's ruling?

PHIL SMITH: Well, we've been meeting with the company in an effort to improve upon what it is the judge decided Patriot could do. And we felt like we'd been making progress in those talks. On June 11, in meetings we were having with the company, the company decided there was no point in talking any more – at least that was what they told us – and left the meeting and cancelled the negotiations that had been cancelled for later that week. They also said they intended to implement the judge's decision on July 1, which they've had the right to do ever since she made her decision back in May. That was obviously very disappointing and distressing to us, and we said as much. Since then the company has issued statements saying they didn't intend to end negotiations and they do want to come back to the bargaining table. So we welcome that statement and we look forward to be able to continue bargaining so we can get something that's somewhat better for these retirees and for our active workers than what the judge has said they should have.

Learn more about the plight of Patriot coal miners at FairnessatPatriot.org.

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