ALPA Wants to Buy Time for Pensions

September 7, 2004 ( - With pension liabilities weighing heavily on the financial well-being of most major air carriers, and the future of those benefits at risk, the pilots' union now supports an alternative approach.

On Friday the Air Line Pilots Association said that companies with heavily underfunded defined benefit pension plans should be allowed to move more easily to defined contribution plans.   In a  statement , Duane Woerth, president of the ALPA, said, “ALPA is extremely concerned about the future of defined benefit pension plans for pilots unless we provide a method for the nation’s already stressed air carriers to deal with their current unfunded pension obligations.   Tens of thousands of pilots risk losing benefits they have earned.”

In an interview with the Financial Times, Woerth said the union’s proposal, supported by such airlines as Northwest, would allow carriers to voluntarily freeze their existing defined benefit pension plans, introduce defined contribution plans, and seek to make up the unfunded gap over the plans’ lifetime, potentially 30 years.   Woerth said that under such a scenario, “The PBGC avoids Armageddon and can put in a circuit breaker before United terminates its plans.”

Solution Cornerstone

ALPA said that a cornerstone for any pension solution “must be long-term amortization of current unfunded obligations” – relief that the union said could unlock the door to long-term capital financing.   “Given sufficient breathing room, pilots, other employee groups, and management can craft creative solutions that provide secure alternatives to pure defined-benefit plans for pilots who have more time until they reach retirement age.”   Such a move could provide “breathing room” to craft workable alternatives until the markets strengthen, according to ALPA.   However, ALPA cautions that the exact methods to achieve these goals will “have to be negotiated separately at each airline in accordance with pilots’ needs and the financial conditions of each carrier.”

In papers filed in bankruptcy court, United parent UAL Corp said the company was considering whether termination and replacement of all its pension plans will be necessary.   “As United has told its board of directors, the creditors’ committee, and its labor unions, given the magnitude of the further cost reductions needed to create a viable business plan and attract exit financing, the termination and replacement of all of United’s defined benefit pension plans likely will be required,” the court documents said (see  United Considers Scuttling Pension Plans ).  

Underfunding Contentions

In June, the Pension Benefit Guaranty Corporation (PBGC) cautioned that airline and steel companies still have a significant amount of underfunding to contend with.   In the airline sector, 11 companies reported a total of $31 billion in pension underfunding in plans covering 444,000 participants. In the steel industry, seven companies reported a total of $6 billion in pension underfunding in plans covering 213,000 participants (see  PBGC Reports Show Decrease in Pension Underfunding ).  

According to the Financial Times, the proposal has met resistance from Bradley Belt, executive director of the PBGC.   ”Airlines just came to Congress last year seeking additional relief,” Belt said, according to the report.   “I’m not sure there will be a high level of receptivity to the rattling of the cup so soon.”

Founded in 1931, ALPA is the world’s largest pilot union, representing 64,000 pilots at 43 airlines in the United States and Canada, including United, US Airways, Delta Air Lines, Continental Airlines, and Northwest Airlines.