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U.S. Steel union relents on key contract demands

US Steel's Lake Erie works in Naticoke, Ont.

Stephen C. Host/The Canadian Press

The pension crisis that helped send Stelco Inc. into creditor protection seven years ago is looming on the horizon again.

In face of that threat, local 1005 of the United Steelworkers has given in on two key demands, reaching a tentative settlement with United States Steel Corp., the company that took over Stelco.

Local 1005 has agreed to give up its demands that U.S. Steel continue indexing of pension benefits for retirees and to permit the creation of a defined contribution pension plan for newly hired employees. The union had steadfastly refused to agree to those two demands and U.S. Steel just as adamantly stuck to them during contract negotiations that began in the spring of 2010 and throughout an 11-month lockout of workers in Hamilton.

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As part of the protracted battle during the Stelco's Companies' Creditors Arrangement Act filing and its takeover by U.S. Steel in 2007, the pension plans were supposed to be solvent by 2015.

Instead the plans will be "at least $500-million short" by then, local 1005 president Rolf Gerstenberger said Wednesday. "One of the things we're worried about is they're going to pull a Nortel on us once it's 2015. That's the big elephant in the room. How do 700 to 800 people produce enough value to fund a pension plan for 9,000?" (The value of pensions held by employees and retirees of Nortel Networks Corp. collapsed when it went into CCAA protection in 2009.)

Trying to hang on to indexing and a defined benefit pension plan for all employees represented a difficult battle for local 1005 because they were standing against a tide that has swept through North America. Employers in all sectors are converting defined benefit plans to defined contribution plans or closing off the richer defined benefit plans to newly hired employees.

Indexing of pension benefits is all but unheard of in the private sector.

Local 1005 softened the blow for 9,000 retirees in Hamilton by negotiating a $1,000, lump-sum payment to retirees now receiving less than $1,500 a month. That covers about 4,200 pensioners.

U.S. Steel also agreed to a new profit-sharing formula that will pay out 6.5 per cent of earnings before interest, taxes, deprecation and amortization in excess of $25-million to a maximum of $3,500 per active employee.

Those are among the changes from what the company called its final offer, submitted to the union last month along with a letter to employees that said it had lost massive amounts of money in Hamilton since it took over Stelco in 2007.

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Mr. Gerstenberger pointed out that workers received a big profit-sharing payout in the third quarter of 2008 that came just before the market crashed and U.S. Steel halted production at its Canadian operations in Hamilton and Nanticoke, Ont.

That shutdown landed U.S. Steel in a lawsuit with the federal government, which accused the steel maker of violating commitments on employment and production that it made under the Canada Investment Act. U.S. Steel has responded that the state of the North American economies made it impossible to keep its Canadian mills operating.

Although U.S. Steel plans to recall about 730 workers if the contract is ratified in voting on Saturday, it only needs about 500, Mr. Gerstenberger said.

It's not firing up its blast furnaces. Instead it is reopening coke ovens and a cold mill and galvanizing line that will process steel made at the Lake Erie operations in Nanticoke.

With the takeover, U.S. Steel inherited Stelco's promise to make $70-million annual payments to the pension funds to return them to solvency.

Hamilton's share of that is about $45-million a year, Mr. Gerstenberger said.

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