Alcoa and PBGC agree on additional pension funding

WEATHERSFIELD — The Pension Benefit Guaranty Corp. has reached an agreement with Alcoa Inc. to provide an additional $150 million in pension contributions to the company’s two largest pension plans, which cover more than 83,000 people.

“These contributions will improve the financial status of both plans and help to further secure the pensions of Alcoa’s workers and retirees,” PBGC Director Tom Reeder stated in a Tuesday news release announcing the agreement. “We’re always looking to work with plan sponsors to give people better retirement security, and we appreciate that Alcoa shared this priority and was a helpful partner in the process.”

New York-based Alcoa, which has local operations in Weathersfield, is splitting into two independent, publicly traded companies.

Alcoa Corp. will concentrate on serving the North American packaging market by focusing on upstream products, including aluminum. The second company, Arconic Inc., will focus on engineered products for its automotive and aerospace segments.

Alcoa’s local plant in Weathersfield, formerly RTI, will become part of Arconic Inc. Operations there are expected to continue as they have been.

The separation is scheduled to take effect Nov. 1 before the market opens, the company announced Tuesday.

Once the transaction is complete, Arconic will carry about $9 billion in long-term debt. This, in addition to the financial condition of the two largest plans, created the potential for additional risk to the company and its pension plans.

Alcoa Inc. sponsors eight pension plans that cover more than 102,000 workers and retirees. A majority of participants in the two largest plans, Alcoa Retirement Plan I and Alcoa Retirement Plan II, comprise 91 percent of the company’s pension obligations. These participants will be split between Alcoa Corp. and Arconic when the transaction is finalized.

The additional $150 million in pension funding contributions will be made by Arconic in three payments of $50 million each during a 30-month period.

PBGC’s agreement with Alcoa Inc. will improve the financial status of the plans and address the agency’s concerns in connection with the transaction.

The Alcoa agreement is a product of PBGC’s Early Warning Program, in which the agency monitors companies with large, underfunded defined benefit pension plans to identify corporate transactions that could jeopardize pensions. PBGC, an independent U.S. government agency, works with employers to arrange suitable protections for pensions and the pension insurance program.

The century-plus-old metals maker, which announced the separation about a year ago, had been dealing with a downturn in its smelting business because of lower aluminum prices. The split is part of a wider movement by companies to spin off units in a bid to boost shareholder value. Often, the strategy helps free the stronger part of a company’s business from a weaker segment.

Alcoa acquired RTI International Metals last year, including the Weathersfield plant that once served as RTI’s headquarters. Alcoa, which is based in New York with significant operations in Pittsburgh, has been an industrial presence in the U.S. economy for well over a century, dating its founding as the Pittsburgh Reduction Co. in 1888.

vshank@tribtoday.com

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