Heard Off the Street: In a switch, bullish on coal

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Did someone forget to remind Robert Murray that President Barack Obama is waging a war on coal?

Mr. Murray, an experienced entrepreneur who a year ago predicted the total destruction of the coal industry by 2030, is paying $3.5 billion to double his position in the coal business.

Just imagine how much more Mr. Murray might have had to pay Consol Energy if his outlook for the business was a little less apocalyptic.

Cecil-based Consol announced last week that it will sell five West Virginia mines along with its river transportation business to Mr. Murray's Ohio company. The $3.5 billion price tag includes $850 million in cash upfront, $184 million in future cash payments and Murray Energy's assumption of $2.4 billion of Consol's pension, environmental and other liabilities.

According to Murray Energy, the transaction will nearly double its annual production to 58.6 million tons, nearly triple its coal reserves to 2.4 billion tons, and more than double its workforce to 7,100.

One more thing: The mines Murray Energy is buying have reserves that are expected to last more than 20 years, according to Consol CFO David M. Khani. That means they could be productive for at least three years beyond the doomsday prediction Mr. Murray made last year after Mr. Obama was re-elected.

By deadline, Murray Energy did not respond to emails asking whether Mr. Murray still stands by his post-election prophesy.

But others in the coal industry evidently are not buying it. Consol said there were multiple bidders for the mines.

"We had [bidders] coming in at the last hour to try and trump this bid," Mr. Khani told analysts.

"I guess there are some people who think there is a future for coal," Michael Dudas, an analyst with Sterne Agee & Leach, replied.

Consol believes the mines have great potential. It's just that the company wants to concentrate on expanding its natural gas business. The mines Murray Energy is purchasing "have stable domestic customers with long-term sales contracts," Consol chairman and CEO J. Brett Harvey told analysts.

"And they generate strong cash flows," he added.

After what he viewed as the disappointing outcome of the 2012 presidential election, Mr. Murray asked God for forgiveness for the decisions his company had to make "to preserve the very existence of any of the enterprises that you have helped us build." Then the company laid off about 150 workers.

Even though Mr. Murray's track record indicates he knows what he's getting into by purchasing the Consol assets, say a prayer for him, too.

Despite the fact that more people will have to rely on 401(k) plans as a major source of retirement income and despite the massive effort made in recent years to educate people about the ubiquitous retirement savings vehicle, those participating in the retirement plans are surprisingly ill informed about at least one aspect.

According to a recent survey conducted by human resources consultant Mercer, the average 401(k) participant thinks that the most a worker can contribute to the savings plan annually is $8,532. That's a little less than half of the actual limit of $17,500. The average participant between the ages of 50 to 64 -- the group closest to retiring -- thought the limit was $8,304.

In addition to the $17,500 maximum that applies to all participants, those 50 or older can make an additional catch-up contribution of up to $5,500 this year.

"In all age categories, the perceived maximum was just a little bit more than they are contributing today," said Mercer partner Dave Tolve.

The findings were based on a survey of workers Mercer defined as active 401(k) savers: those currently contributing and those with a balance of $1,000 or more in their employer's plan, regardless of whether or not they were currently contributing.

Mr. Tolve offered several possible explanations. Plan sponsors emphasize contributing enough to qualify for the maximum company match, which typically tops out at 6 percent, and that's often how employees decide how much to contribute, he said. In addition, features that automatically enroll new employees and/or bump up their contributions each year fall well shy of reaching the $17,500 limit, he said.

But Mr. Tolve believes the biggest reason for the lack of knowledge is that plan sponsors and the firms they hire to administer their 401(k) plans are not doing a good enough job educating employees.

He suggested targeted messages to different groups. For example, lower paid workers who probably cannot contribute the maximum should be informed about the benefits of saving an extra 1 or 2 percent of their pay. Higher paid workers should be reminded of what the maximum is, while those over 50 should be told about the $5,500 catch-up contribution.

By the way, the IRS adjusts the maximum for regular and catch-up contributions each year based on inflation. The agency announced Thursday that the cost of living did not jump enough to raise the maximums, which will remain the same in 2014.

The ceiling on contributions to IRA accounts also remains unchanged at $5,500.

Len Boselovic: lboselovic@post-gazette.com or 412-263-1941.

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