Friday, August 10, 2018
Last April, in the early weeks of our Chapter 11 process, two ad hoc groups of creditors reached a tentative settlement with FirstEnergy Corp., under which FE affirmed its responsibility to guarantee future benefits to FES, FG and FENOC employees under FE's Pension Plan, Executive Deferred Compensation Plan (EDCP) and Long-Term Incentive Programs (LTIP). FE also agreed to honor frozen and banked vacation claims and to pay claims under the Retiree Group Life Plan and, for certain retirees, the Retiree Medical Plan.
FES, FENOC and the other debtors and the Official Committee of Unsecured Creditors have negotiated certain changes to that tentative settlement and, as a result, have agreed to the modified settlement. The modified settlement will still need to be documented and submitted to the court for approval.
As part of the modified settlement, FE reaffirmed its earlier commitments to employees and former employees and expanded its guarantees in several important new ways:
- Voluntary Enhanced Retirement Option (VERO): If FES offers a VERO in connection with any workforce reduction (other than with respect to FENOC employees) prior to the effective date of the FES Restructuring Plan, FE will cover the costs of the temporary pension enhancement portion of the VERO, capped at $1,500 per month per employee until age 65 or a minimum of two years. To be eligible, employees must reach age 58 by Dec. 31, 2019.
- Pension Bridge: In 2017, FE put in place a "Pension Bridge," effective through June 30,2019, under which employees between ages 50 and 55 who are terminated because of a sale of the assets of their business unit would have their pensions bridged. Under the follow-up agreement, the effective date of the pension bridge would be extended through Dec. 31, 2020, and would also cover terminations resulting from a transfer of assets as well as a sale.
- SERP and Cash Balance Plan: FE has agreed to pay obligations to current and former and former FES, FG and FENOC employees who participate in either the Supplemental Executive Retirement Plan (SERP) or the Cash Balance Pension Plan.
- Retiree Medical Plan: The previous agreement is expanded to include certain represented retirees who receive healthcare or subsidies under union health plans.
All of the changes are positive for FES, FG and FENOC employees. We believe the enhanced settlement offers additional security at a time of uncertainty.
There are other significant provisions under the modified settlement which, while not affecting employees directly, are worth noting:
- FE has agreed to credit nine months of FES shared-services costs, up to $112.5 million, beginning April 1, 2018. The availability of shared services, if desired by FES, has been extended to June 30, 2020. FE has also affirmed its cooperation with a separation of shared services and other support functions for FES.
- The transfer of AES's interest in the Pleasants Power Plant to FES will go forward as initially contemplated in the April settlement, subject to FES's completion of due diligence.
- FE will provide FES with $225 million in cash and $628 million of notes on the Plan Effective Date in exchange for a release of claims against FE.
As always, if you have questions, please address them to the Employee Mailbox and we will provide answers in the coming weeks.