August 15, 2012 (PLANSPONSOR.com) – The Pension Benefit Guaranty Corporation (PBGC) announced its completion of corrective work for United Airlines retirees’ pension amounts.
The agency found that in 2008 it had undervalued United’s pension assets by about three-fourths of one percent. As a result, PBGC will increase slightly the benefits of some United retirees, and will be making back payments with interest to those who have already been underpaid.
“Unfortunately, PBGC let the people of United Airlines down, but we’re determined to put things right,” said PBGC Director Josh Gotbaum. “We’ve gone back and redone the work. Anyone we’ve underpaid, by even a dime, is getting paid back with interest and an apology. And we’re making other changes so this doesn’t ever happen again.”
Two years ago, Congressman Miller raised concerns about PBGC’s handling of United pensions. The agency’s inspector general then found that the firm hired to value the assets had done a poor job, and that the agency had failed to supervise them (see “PBGC Admits to Problems Processing United Airlines Plans”).
For the review of United Airlines's pension assets, the agency hired KPMG. From that review it became clear that the original valuation had relied on the accounts furnished by the pension trustees, and that in a few cases those numbers were out of date, or were not adjusted to reflect the fact that PBGC was taking over the pension. After several reviews, PBGC determined that the United pension plans had been undervalued by about three-fourths of one percent ($58 million out of $7.3 billion).
Most people were not affected by this error because, for most people, PBGC pays their full pension, and asset values do not affect their benefits. But asset levels do matter for those who earned a benefit above what the agency is legally allowed to pay. At United, less than one in five – or 18% of retirees – were affected by the change in asset estimates. For those who were shortchanged, in almost all cases it was less by than 1%. The agency said it has a policy of correcting all mistakes that reduce benefits – no matter how small – and making back payments with interest. More information about the PBGC’s review is at http://www.pbgc.gov/wr/bulletin/info/unitedfaq.html.