But black lung coverage has something else is common with pensions: it’s a “postretirement obligation,” and under accounting rules is treated like other retiree liabilities, including retiree health care, long term disability, executive supplemental pensions, and deferred compensation. Coal producers must estimate the amounts they will likely pay over their afflicted miner’s lives, as short as they may be, and record that obligation on their financial statements.
These accounting rules, which reward employers for cutting retiree benefits, also provide them with an incentive to prevent workers and retirees from collecting benefits in the first place. Denying claims doesn’t just save coal companies money, it also helps the bottom line.
Consider the black lung obligations at Console Energy, one of the largest coal producers in the country. The $185 million “coal workers’ pneumoconiosis” obligation is calculated using assumptions including the incidence of disability, medical costs, mortality, death benefits, and interest rates.
But because the company has been so successful in denying claims, it has a pool of actuarial gains to draw on each year to offset the expense of its black lung obligation. As the company puts it in its financial disclosures: The gains are the result of “lower approval rates for filed claims than our assumptions originally reflected.” In 2010, Console recognized $21.6 million in gains; as far as accounting rules go, gains from denying benefits to dying miners are no different from profits from selling coal and methane gas.
In an effort to get the coal industry to shoulder more of the costs for its afflicted workers, the Patient Protection and Affordable Care Act of 2010 created new rules to make it harder for coal companies to deny claims. For one thing, the new law established the legal presumption that miners suffering from totally disabling black lung disease who have worked at least fifteen years in coal mines, have, in fact, contracted the disease on the job, not from smoking, living with a smoker, or some other means. And rather than a miner’s having to prove he contracted the disease by breathing coal dust, under the new law, a coal company that wants to deny benefits has to prove that a miner doesn’t have black lung disease or didn’t contract it from breathing coal dust. Coal companies are also required to continue paying benefits to dependent survivors, even if the miners with black lung disease die from something else, such as lung cancer.
Console Energy estimated that the impact of the new law increased its black lung liability by $45.7 million. But thanks to the flexibility built into benefits accounting, this didn’t hurt earnings. As the company explains, somewhat obliquely, in its financial disclosures, “In conjunction with the law change, Console Energy conducted an extensive experience study regarding the rate of claim incidence. Based on historical company data and industry data, with emphasis on recent history, certain assumptions were revised,” it says. “Most notably, the expected number of claims, prior to the law change, was reduced to more appropriately reflect Console Energy’s historical experience… This resulted in a decrease in the liability of $47.7 million.”
In other words, the company retrofitted its assumptions, which not only kept its black lung obligation from increasing but actually reduced it by $2 million. Combined with gains it took from denying benefits to dying miners in the past, the company reported
Only in the alternative universe of postretirement benefits accounting can a company profit from its black lung benefits plan. And Console Energy will likely continue to do so. The company disclosure is basically telling the world that while the company may be required to pay benefits to more old-timers, it will find ways to more aggressively deny them to everyone else.
Massey Energy, another giant coal producer, didn’t go through the same actuarial acrobatics. It reported a $98 million obligation for “traumatic workers’ compensation” benefits, which is what the company estimates it will pay for black lung, crushed limbs, and other traumatic injuries one might expect to find in mines that have racked up thousands of safety violations.
As for its black lung benefits, it estimated that the new law would increase its obligation by only $11.3 million, pushing its total black lung obligation to $77 million. “We do not believe the impact of these changes will significantly impact our financial position,” its filings said. The total amount Massey Energy paid out to miners for their black lung benefits in 2010 was just $2.4 million.
To put this into perspective, compare it with what the company spent for a single Massey retiree, chief executive Don Blankenship, who stepped down in December 2010. During his eighteen years as CEO, Blankenship aggressively promoted “mountaintop removal,” the practice of blowing off the tops of mountains to uncover seams of coal, and was at the helm when one of the company’s slurry ponds spilled 300 million gallons of toxic sludge into nearby streams, an event the EPA calls the worst man-made environmental catastrophe in the Southeast.
Though healthy for shareholders, the company’s practices haven’t been healthy for miners—or their families and neighbors, who have complained that poisoned groundwater has caused a litany of illnesses. Fatal mine accidents have been common, including the worst mining accident in forty years: the explosion at the Upper Big Branch mine in 2010, which killed twenty-nine miners. After the tragedy, shareholders sued Blankenship and the board of directors for mismanagement, and the Justice Department launched a criminal investigation into the Big Branch disaster.
In the wake of all this, Blankenship decided to retire, a decision for which the board awarded him $12 million in cash. He’ll also collect a pension worth at least $5.6 million, and $27.2 million in deferred compensation, which was on top of $10.4 million in pay. He can remain, rent-free, in a company-owned home in Sprigg, West Virginia, a property well protected by steel fences and security cameras. He’ll retain his company office, plus a full-time secretary. And he gets to keep a 1965 blue Chevrolet truck.
Blankenship will likely be healthier than most of his neighbors.
The total payout for all this in 2010? More than $55 million.
The total the company paid its retired coal miners in 2010 for black lung, traumatic workers’ compensation, and other retiree benefits: $37 million.
HOLDING THE LINE
Profits may motivate many employers to hold the line on awarding pensions, retiree health care, or disability. Pension law helps them tackle retirees who push back.
Victor Washington, a former San Francisco 49ers running back, spent most of his life fighting the NFL for disability benefits. His battle illustrates how federal benefits law, ERISA, though intended to protect workers, has become a legal shield for employers, enabling them to deny benefits with no penalty—and even finance their legal defense using pension assets.
Football was Washington’s ticket out of the rougher towns of northern New Jersey, where he’d spent part of his teen years in an orphanage in Elizabeth. A college scholarship eventually led to the 49ers, who picked him in the 1970 NFL draft. He was the team’s rookie of the year in 1971–72 and went to the Pro Bowl at the end of the season. The fivefoot-eleven, 195-pound Washington later played for the Houston Oilers and Buffalo Bills. Playing as a running back, defensive back, and wide receiver, he took the field against the likes of Joe Namath, Terry Bradshaw, and O.J. Simpson. At his peak, he was earning about $50,000 a year. When he racked up injuries to a shoulder (in 1973), back (1974), and elbow (1976), he says teams gave him painkillers and Valium so he could keep playing. “I took every play like it was my last play—that’s the only way to play,” Washington says.
Washington left the game the same way most players do: He was too injured to play. Knee trouble sidelined him for good in 1976. He’d lasted longer than most: Players on average leave after 3.2 years, often after multiple injuries. Players from the 1960s to the 1980s are a particularly busted-up bunch, having played on artificial turf that was little more than a carpet over poured concrete, in flimsy helmets and protective gear that provided little protection to someone who was rammed in the head by opposing players using the kinds of maneuvers that have since been banned. Concussions were regarded as badges of honor and, to keep players in the game, doctors doped them up with amphetamines and painkillers and looked the other way when players bulked up on steroids, oblivious to the long-term effects.
When Washington left pro football, he was thirty years old and had no other marketable skills. His marriage
