Aon Move Cushions Bankruptcy Impact on USAir Workers

According to a news report in the Pittsburgh Post-Gazette, an independent fiduciary hired to keep watch over 22.9 million retirement plan shares, got rid of $8 million to $9 million in stock before the markets shut down trading when the airline filed for US bankruptcy protection.

The sales reduced the number of US Airways shares managed by Aon in various employee funds to 19.8 million shares and doubled the amount of cash in the funds from about $8 million to $16.8 million, said Nell Hennessy, president of Aon Fiduciary Counselors Inc., a unit of Chicago-based Aon.

Hennessy, a former deputy executive director of the Pension Benefit Guaranty Corp., told the Post-Gazette that airline workers who were invested in the company stock fund will receive a proportionate share of the cash raised from the pre-bankruptcy sales.

“We have arranged for cash in the Stock Fund to be transferred to the Fidelity Retirement Government Money Market Portfolio,” Hennessy told US Airways participants in a letter. “You should be able move that cash from the Money Market Portfolio into any of the remaining investment options in your Savings Plan.”

First Impression

Nell Hennessey, president of Aon Fiduciary Counselors, says that to the best of her knowledge the airline’s decision to hire Aon in June marked the first time a plan sponsor has given an independent fiduciary oversight of company stock in a 401(k), absent an order from a bankruptcy court.  And in the wake of Enron, WorldCom, Lucent and a litany of other company stock related suits, it likely won’t be the last.  

In hiring Aon, US Airways moved to shield company insiders with responsibility for its retirement plans from any potential conflict of interest related to offering employer stock in those plans. Since they no longer have to make decisions about the appropriateness of offering company stock, they do not have to worry about how those decisions might conflict with what they know about the company’s financial performance. Second, by transferring responsibility for company stock decisions to a third party, US Airways would appear to transfer much if not all of the potential liability for those decisions as well.

“Hold” Order 

Hennessy told the newspaper that as Aon Fiduciary Counselors assumed its position with the US Airways retirement programs, she instructed Fidelity Investments, the plan’s trustee, to dump US Airways shares and to buy no more.
 
As an independent fiduciary, the law looks to Aon to make prudent decisions based on the best interests of those it represents – in this case, Aon retirees and beneficiaries. It has the authority to continue, restrict or terminate the investment of defined contribution plan assets in US Airways stock.

The stock was used as investment options in an Employee Stock Ownership Plan and several savings plans — the US Airways Inc. 401(k) Savings Plan, the US Airways 401(k) Savings Plan for Pilots, the US Airways Employee Savings Plan and the Supplemental Retirement Plan of Piedmont Aviation.

Generally, anxious US Airways shareholders can do little at this point to rescue their money since the New York Stock Exchange trading hold is still in place.

Stockholders are typically the last to get their money back in bankruptcies and frequently get nothing or next to nothing. US Airways has warned its shareholders that they may get nothing from the reorganization.

Ultimately, the worth of US Airways’ shares will be determined by the reorganization plan approved by federal bankruptcy court in Alexandria, Va. The plan will outline the company’s new ownership structure and specify what creditors, stockholders and other interested parties will receive and in which order they will be paid.

Randy Myers also contributed to this story.