Judge Rejects United Statement on Effects of Pension Dumping

US Bankruptcy Judge Judge Eugene Wedoff granted the emergency motion, which was filed by United’s machinist and flight attendant unions. In doing so, the judge struck from the record a 107-page document filed by United’s parent company, UAL Corp., on Thursday.

In the filing in US Bankruptcy Court in Chicago, UAL Corp. laid out details of how each labor group within the company structure would be affected by the jettisoning of the pensions. The filing showed that among all labor groups, pilots would be hardest hit. Sixty percent of pilots would see the value of their pension plans drop by at least 40%, according to the Rocky Mountain News.

News for other unions wasn’t good either. Depending on the age of retirement – later retirees will get more money if the pensions are unloaded onto the federal private pension insurer – the union workers will be receiving much less than they originally expected. For example:

• Mechanics who retire at age 61 will receive on average only 61% of their pension upon retirement.
• Baggage handlers who retire at 61 would only receive on average 53% of their promised pension upon retirement. Retirement at age 65 would only reap 71%.
• Flight attendants who retire at the age of 56 would only receive an average of 66% of their pension.

The pension insurer is the Pension Benefit Guaranty Corporation (PBGC), which steps in to take over private pension plans from ailing or bankrupt companies.

United unions, not surprisingly, struck back with a vengeance in reaction to the company court document.

“United’s legal filing dramatically demonstrates that the pilots of United Airlines – and the pilot group alone – will bear the overwhelming majority of the losses inflicted by United’s scheme to dump its pensions,” the pilots union said, according to the Rocky Mountain News. The pilots union is considered a powerful force that could challenge the UA reorganization effort by lining up investors who could propose an alternative plan. Until November 1, however, United has the sole right to file a reorganization plan.

Surprisingly, it was the machinists and flight attendant unions that had the document struck from the record. The ruling does not derail United’s effort to shed its pension obligations, but does point to a long legal battle regarding such actions.

The unions had the backing of the PBGC, which gave a vastly different estimate of the DB plan’s funding levels. UAL Corp. claims the plans are underfunded by $2.7 billion, where the PBGC states that there is an $8.3 billion shortfall.

The agency strongly objected to the United’s Thursday’s filing, stating that it was “procedurally improper, gives potentially opposing parties no realistic opportunity to respond and serves no legitimate purpose,” according to the Associated Press.

UAL has stated that it may need to end the defined benefits pension plans currently provided and switch to a more cost-effective defined contribution plan (See United Considers Scuttling Pension Plans ). The PBGC would pick up a substantial portion of the tab, but the shortfalls would come out of the pensioner’s pockets. Under the PBGC caps, a current retiree who is at the age of 65 can receive no more than $44,386 annually. Since many UAL DB plans promise higher benefits, pensioners will be losing a significant amount of expected income.

UAL currently sponsors four plans covering nearly 120,000 employees. The company filed for Chapter 11 bankruptcy on December 9, 2002, and failed to make required payments to three of its pension plans in July 2004 (See United Skipping Fall Pension Payment ).