Blog | Health Care · Social Security and Retirement

Was Patriot Coal Designed to Fail to Dump Retiree Pensions?

In July, Patriot Coal filed for Chapter 11 bankruptcy in the Southern District of New York. Among the reasons for Patriot’s financial difficulties were the huge legacy costs related to health care benefits and pensions owed to retirees and widows of former employees. The company's intended goal, it seems, according to the Mine Workers (UMWA), is to get out of obligations to the miners that worked hard for decades, often doing significant damage to their own health.

Patriot was created in late 2007 when Peabody Energy spun off the company to get rid of all of their operations where workers were members of the UMWA. Included in the new company was most of Peabody's long-term health care obligations to retirees. It was clear at the time that the intent was to relieve Peabody of the costs of the promises it made to the workers who made the corporation profitable:

Greg Boyce, Peabody’s CEO, said at the time, “We’re reducing our legacy liabilities roughly $1 billion, and reducing our expense and cash spending in the neighborhood of $100 million as well.” Greg Navarre, Peabody’s CFO, said, “Our retiree health care liability and related expense will be reduced by 40%….In total, our legacy liabilities, expenses and cash flows will be nearly cut in half.”

In what would become a related move, Arch Coal similarly dumped its obligations into a spinoff company called Magnum Coal. Magnum was eventually purchased by Patriot. In both cases, the new companies were part of a revolving door of senior personnel between the various companies.

When the coal market collapsed, Patriot's fragile structure fell apart and it "suddenly" found itself unable to cover retiree costs. Meanwhile, Peabody and Arch found themselves to be highly profitable. In 2011, Peabody was the nation's largest coal producer, with profits nearing $1 billion. Arch Coal was also successful, making profits of $141 million. Patriot reported losses of $137 million the same year. Peabody and Arch had profits of $2.5 billion over the past three years. If it weren't for the spinoffs, the retirees who are now under Patriot's obligation could have easily had their earned benefits funded. Instead, Patriot filed for bankruptcy in New York, far from the workers and retirees they are seeking to abandon.

There are about 2,000 current workers at Patriot represented by UMWA and another 10,000 retirees who receive health care benefits from Patriot. With dependents included, the total number of people on the verge of losing benefits is more than 22,000. More than 90% of the potentially affected retirees never worked a single day for Patriot. They were promised benefits by Peabody and Arch as part of their compensation for helping to make the companies profitable for so many years.

UMWA isn't standing still:

The UMWA’s Fight for Fairness at Patriot has only just begun. The union is launching a multi-faceted worldwide strategic campaign to expose not only the moral issues underlying this struggle, but also the enormous consequences coalfield communities and other working communities will feel if the flow of hundreds of millions of dollars in benefit payments into their local economies is suddenly shut off.

We are mobilizing workers throughout the national and international labor movement, reaching out to religious, civil rights and other community groups and preparing a number of tactical remedies in order to send Patriot an unmistakable message of solidarity.

Supporters can sign a petition in support of the Peabody and Arch retirees and Patriot workers.

UMWA has produced a series of ads raising awareness about the story (view ad #1, ad #2).

This story is part of a larger trend where private companies are eliminating pensions and workers are losing retirement security.