>In upholding a ruling by a federal judge in Washington, DC, the US DC Circuit Court of Appeals ruled that federal law allowed the Pension Benefit Guaranty Corp. (PBGC) to enter into an agreement leading to termination of the air carrier’s plans.
>The ruling came in a 2002 lawsuit by two TWA pilots and the Air Line Pilots Association, which alleged the PBGC could only terminate plans based on ERISA and not on a private agreement with financier Carl Icahn and the company. The appellate judges ruled that PBGC’s decision to terminate the TWA plans in 2001 was made on an ERISA-based determination in 1992. The pilots had complained that more than 1,000 pensioners were receiving lower pensions than what they had been promised – as much as $1,500 per month less.
>The suit, which was filed in the US District Court for the District of Columbia, represents the latest chapter in the controversial 1992 acquisition of the airline (See Former TWA Pilots Sue For Pension Shortfall).
>As part of that acquisition, Icahn entered into an agreement with the PBGC, the unions, and creditors of the airline, under which Icahn had to put $200 million into TWA and assume liability for its pension plans. However, he gained the right to terminate the plans any time after 1995. Ownership was transferred to TWA’s employees and creditors, and a bankruptcy court approved the final agreement in 1993 (TWA filed for bankruptcy protection in January 1992). The pension plans were frozen, preventing new benefits from being added to them.
>Then in late 2000, Icahn did terminate the plans, placing the Pilot’s Pension Plan (which, at the time, was underfunded by $200 million) and the Employees’ Pension Plan (which was underfunded by more than $500 million) in the hands of the PBGC (see Pilot Pensions Grounded At TWA ). The current complaint alleges that the termination violated ERISA.
>The pilots claim they were tricked into a drastic reduction of wages and benefits in return for stock equity in the company and job security items including enhanced retirement benefits. However, the Employee Stock Ownership Plan (ESOP) became worthless after Icahn was unable to turn the airline around and filed for bankruptcy.