Posted on: Saturday, April 23, 2005
Insurer will assume United pension plans
By James F. Peltz
Los Angeles Times
The United States' pension insurer agreed yesterday to take over all four of the underfunded pension plans at embattled United Airlines and assume the plans' $6.6 billion in liabilities — the largest such claim in the federal agency's 31-year history.
The move by the Pension Benefit Guaranty Corp. was a victory for United, which had sought to escape the plans' financial burden by turning them over to the agency.
United says it needs to shed its pension obligations as part of its plan to emerge from Chapter 11 bankruptcy, which also includes extracting more wage cuts from its 61,000 current employees.
"It will allow the company to move forward as a sustainable, competitive enterprise for the long term," United said of the pension insurer's decision.
The pension plans cover about 121,000 active and retired workers, and United's agreement to shift the plans to the pension insurer fueled talk of strikes against the carrier by one or more of the company's employee unions.
"We are outraged by this avoidable action and will oppose it forcefully in the courts and on the streets," Greg Davidowitch, head of the United chapter of the Association of Flight Attendants, said in a statement.
United's 15,500 flight attendants had threatened to strike over the pay cuts United sought, then reached a tentative, concessionary contract in January. But that agreement fell apart earlier this month.
The unions for more than 25,000 United mechanics and other ground workers also are threatening to walk out if they can't come to terms with the airline.
"If we can't resolve pensions and other issues ... we are prepared to strike United Airlines," said Joe Tiberi, a spokesman for the International Association of Machinists, which represents about 19,500 United ramp workers and other ground employees.
The IAM is taking a strike vote beginning May 3, with the results expected May 10 — one day before a Bankruptcy Court hearing starts on United's plea to have wage and benefit concessions imposed on the workers if they can't reach agreement before then.
United's deal with the pension insurer remains subject to approval by Bankruptcy Judge Eugene Wedoff in Chicago, who is overseeing the reorganization of United and its parent, UAL Corp.
Under federal pension laws, the insurer's benefits payout is capped at $45,613 a year for workers who retire at age 65; it's less for those retiring at an earlier age.
United's pilots are expected to take the greatest hit to their pension benefits. They commonly earn six figures a year, and under federal law, they must retire at age 60.
"I can definitely say this is not good," said William Stewart, 68, a retired United pilot in Mission Viejo, Calif. "The fact that they (United) don't think it's convenient to keep paying seems to me immoral and unethical, if not illegal."
The pension insurer said United's four plans combined are underfunded by $9.8 billion. The insurer's liability — based on the portion it had guaranteed — is $6.6 billion.
United, which filed for Chapter 11 in December 2002, said it can't afford to keep making payments to its pension plans. The payments would total $1.3 billion this year and $4.4 billion over the next six years, the airline said in a court filing earlier this month.
But for the insurer, assuming United's plans deepens its own financial problems, which have been compounded by the troubled airline industry.
The quasi-governmental agency — which is funded by employer-paid premiums, investment income and assets from failed pension plans — posted a deficit of $23 billion for its fiscal year ended last Sept. 30. That deficit included estimated losses from taking over plans at United and US Airways Group Inc. In February, the agency assumed the US Airways plans and $3 billion liability.
