The roots of this debate can be traced back to a 1946 agreement between U.S. President Harry S. Truman and UMWA President John L. Lewis that offered lifetime health benefits to resolve a nationwide strike. Back in those days and even into the early 1980s, the UMWA had clout—the kind of clout that would rattle a Chicago machine politician. Today, the UMWA represents about 20,000 active miners (25% of the hourly coal mining workforce) and more than 100,000 retired miners and their dependents. Annually, it pays out about $1.2 billion in benefits divided evenly between pension and health care. The UMWA rally has not made headlines outside of St. Louis and West Virginia.

Patriot Coal has asked the U.S. Bankruptcy Court for the Eastern District of Missouri to modify how benefits are handled for 10,000 retired miners and 13,000 dependents. Who are these people? Most of them are not Patriot people. Patriot is only six years old. They are your uncles, fathers and grandfathers, who worked for great companies like Eastern Associated Coal Corp., Southern Ohio Coal Co., etc.—companies that Peabody Energy acquired prior to the “unbundling” of Patriot Coal. Many of these retirees are not 65 and they can’t collect on Medicare.

Patriot was originally formed from a collection of mostly Peabody union mines in West Virginia. Then it acquired several more properties when it purchased Magnum Coal. Today, roughly 40% of Patriot’s miners are represented by the UMWA. Patriot Coal wants to create a $300 million trust from future profit sharing to fund health care benefits. Its current liability is estimated at $1,600 million; Patriot spent approximately $14 million on retiree benefits in 2012. The company is also asking a judge to allow it to pay approximately $7 million in bonuses to mid-level managers, not the CEO or any other executive management. The company believes it needs the bonuses now more than ever to retain key employees and keep the company intact. The UMWA sees the bonuses as an insult.

Patriot has also filed a suit against Peabody Energy seeking confirmation from Peabody officials that they will continue to fund retirees’ benefits despite the latter’s previous assurances; Patriot officials maintain benefits for 23,000 people are in danger and that these moves will save more than 4,000 jobs.

This decision will affect the entire coal industry. Patriot’s retiree health care and pensions are currently paid from a multi-employer plan established by the UMWA Wage Agreement funded mostly by union coal operators (signatory companies). If the judge allows Patriot to reduce or eliminate the amount of money it pays into the fund, the other signatories have to make up the difference. Patriot Coal should be held accountable for its liabilities. If, however, the company defaults on its obligation, the situation with underfunded liabilities will only further unravel.  

Steve Fiscor, Coal Age Editor-In-Chief
sfiscor@mining-media.com