Court Denies Termination of United Pilot's Pension Plan

September 23, 2005 ( - The US Bankruptcy Court for the Northern District of Illinois has denied the Pension Benefit Guaranty Corporation's (PBGC) motion for an order approving its involuntary termination of United Airline's defined benefit pension plan for pilots.

BNA reports that the PBGC said the court must give deference to its decision to involuntary terminate the plan under ERISA Section 4042.   However, the United Retired Pilots Benefit Protection Association (URPBPA) and the Air Line Pilots Association (ALPA) said the PBGC’s decision to involuntarily terminate a plan under Section 4042 must be reviewed by a court under a de novo standard of review, and the court agreed.

According to BNA, the court found in Pension Benefit Guaranty Corporation v. United Airlines (In re UAL Corp.), Bankr. N.D. Ill., No. 05 A 00481, 9/21/05 that, under Section 4042(c), if PBGC and the plan sponsor agree that a plan should be terminated, then termination may occur without court adjudication. But, if the involuntary termination is contested, then PBGC must apply to the appropriate federal district court for a decree adjudicating that the plan must be terminated, the court said.

PBGC issued a notice on December 29, 2004 to United and ALPA that it had determined that the pilots’ plan must be involuntarily terminated under ERISA Section 4042(a)(4) “because the possible long-run loss of [United Airlines] with respect to the Plan may reasonably be expected to increase unreasonably if the Plan is not terminated. PBGC further determined … that the plan must be terminated to avoid any unreasonable increase in the liability of the fund,” BNA reports.   The following day the agency filed a complaint in the US District Court for the Northern District of Illinois against United seeking approval for the involuntary termination.

Because of this, the court did say that, if the plan is terminated, the termination date will be December 30, 2004 since that was the date the participants’ “expectation interests” were ended, BNA reports.

The district court previously affirmed a ruling by the bankruptcy court approving the termination of United’s plan for flight attendants in spite of the Association of Flight Attendants objections saying, “The facts clearly show, as the bankruptcy judge concluded, that PBGC has authority provided to it by Congress to involuntarily terminate the pension plans if it sees fit despite AFA’s objections.” (See  Judge Affirms Ruling For United’s Pension Plan Termination )