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Johnstown pension fight near closure
Monday, November 17, 2008

They called it the "sweet spot" -- the time when costs for shuttering FreightCar America's plant in Johnstown and laying off 450 employees would be the lowest.

If company officials closed up shop by year-end 2007, the payout would be $7.8 million.

But if FCA waited until the end of 2008, that cost would skyrocket to more than $19 million because a large number of employees were due to vest in generous pensions that year.

So the company made its move in the spring of 2007. Layoffs were announced, and the publicly traded company, which last year had sales of $817 million, would move all of its rail car manufacturing to plants already operating in Virginia and Illinois.

The affected employees in Johnstown believed the company's decision to take away their pension benefits was illegal and filed a federal class-action lawsuit.

Today, U.S. District Judge Kim R. Gibson is expected to approve a settlement agreement between the parties that will guarantee pension eligibility to approximately 100 members of the United Steelworkers union who otherwise would not have earned it.

"It was a really outstanding result," said John Stember, the lawyer who represents the employees. "We usually don't get this much."

FCA's general counsel, Larry Trusdell, said he could not comment on pending litigation.

The settlement comes nearly a year after Judge Gibson ruled that the company must continue operations so that time toward employee pensions would keep running.

"Not only the local economy of Johnstown but the national economy is affected when national companies such as FCA evade obligations under pension and welfare plans," the judge wrote in a 99-page opinion.

It was an unusual decision and likely contributed to the quick settlement in the case.

The rail car facility in Johnstown has a long history. Opened in 1901 as the Cambria Steel Co., the facility was owned and operated by Bethlehem Steel from 1923 to 1991. It transferred hands, and in the mid-1990s was acquired by FCA.

An incredibly cyclical industry, FCA made only 4,067 rail cars in 2002. But it made 18,674 in 2006.

"Things were just gong crazy," Mr. Stember said. "They were making money hand over fist."

Jeffrey Anderson was a repairman for FCA and the United Steelworkers unit president there.

"They never once told us we didn't make them money," he said. "It was just more cost-effective to shut us down."

According to testimony during a hearing last year, FCA officials said that manufacturing costs at the Johnstown plant were significantly higher than at the company's other facilities because of increased labor costs and inefficiencies -- like employees being paid to shower after work.

Total hourly labor costs at Johnstown are 61 percent higher than at the Illinois plant and 104 percent higher than in Virginia.

A rail car in Johnstown cost $3,000 more to produce than at the other locations.

At a July 2005 meeting between company officials and union leaders, the former president and chief executive officer for FCA said he could not take on any more legacy costs.

In notes taken by a union staff representative and quoted in an opinion by Judge Gibson, CEO John Carroll said: "Finally figured out Johnstown workers' mentality. 'Get a job and the company owes you a living for the rest of your life. [N]ot that way in the real world.' After you get laid off you should look for other work.

"There's a whole world out there. [M]ove to where work is," he said.

For Bryan Stem, that's a lot easier said than done. The 48-year-old was hired at the rail car facility in February 1988. He has a wife in Johnstown with a full-time job and three children.

Moving, he said, isn't an option.

Instead, he's been looking for work since May and still hasn't found anything. The only jobs available pay significantly less than the unemployment he's collecting.

He's thought about going back to school but is worried that even that won't lead to a good job.

In the meantime, he said, his family is still financially sound, thanks in large part to his wife working.

But, he continued, there is more to worry about than just money

"The thing is, my kids see everyday I'm not working," Mr. Stem said. "I don't want to give them the impression that I don't want to work.

It's stressful. When the unemployment runs out, what's going to happen?"

He's frustrated by what he considers to be FCA's greed.

"For seven quarters in a row, they were making money on top of money on top of money," said Mr. Stem, who worked in the paint shop. "It was never enough for them."

Now, he said, all their operations have moved. But he's sure the company will not ever find the same kind of hard-working, dedicated work force it had in Johnstown.

But the work force didn't matter, employees said. Evidence in the case showed that the company had been planning the shutdown for a long time, said Mr. Stember.

"These were very rich pensions. There was a lot of incentive to get rid of them," he said. "We've never had a case where there was a smoking gun like this."

Mary Ellen Signorille, a senior attorney with AARP who was involved on the side of the employees, said she'd rarely seen a case where company officials were so blatant with their plans and the motivation for them.

She was surprised by Judge Gibson's original decision in favor of the pensioners to keep the plant open.

"It's the only case that I know of," she said. "It's very unusual."

Ms. Signorille believes the settlement will send a message to other companies.

"What we really want is for employers not to do this," she said. "It's pretty egregious because it affected so many people."

As part of the settlement, the retirees will keep their health benefits. They will not, however, receive any back wages. And they were unable to keep the plant open.

"We're going to get something out of it, but we lost 450 jobs for the Johnstown community," Mr. Anderson said.

Paula Reed Ward can be reached at pward@post-gazette.com or 412-263-2620.
First published on November 17, 2008 at 12:00 am