K Plan Fiduciary Blocks Employee Stock Buys

December 17, 2002 (PLANSPONSOR.com) - The outside fiduciary for the company stock in UAL Corp's 401(k) plans has blocked United Airlines employees from buying any shares for their retirement plan account until the company emerges from bankruptcy and issues new stock.

According to a Dow Jones news report, Aon Fiduciary Counselors made the decision to stop employee 401(k) company stock purchases to protect the workers from losing money. (See UAL Calls In Independent Company Stock Fiduciary ).

The value of UAL shares is expected to be wiped out during the company’s Chapter 11 bankruptcy-court proceedings, as is typical of shares of a company in bankruptcy, Dow Jones said.

In a letter to United ground employees, management and administrative workers and flight attendants participating in the company’s 401(k) plans, obtained by Dow Jones, Aon said it sold all of the UAL stock it held for United Airlines stock fund before UAL’s December 9 Chapter 11 filing.

While the stock fund has been reopened, no new investments are permitted into the fund, which will now be entirely invested in a money market instrument. New contributions to the fund will now be deposited in UAL’s blended income fund, Dow Jones reported.

Chicago-based Aon Fiduciary had held more than 12.7 million UAL shares, or 22% of shares outstanding, according to a document filed with the US Securities and Exchange Commission on September 30, Dow Jones said.

State Street Sells ESOP Shares

Aside from the 401(k) retirement investments, United employees owned 55% of UAL until the company’s Chapter 11 filing.

However, in order to protect what little is left of the workers’ battered nest eggs, State Street Corp.’s (STT) State Street Bank and Trust, which manages the company’s employee stock ownership plan, had sold more than a third of that stake before the Chapter 11 filing. (See State Street Selling UAL Stock ).

While State Street had planned to unload more of the ESOP stake, the bankruptcy court in Chicago, handling UAL’s filing, last week restricted large shareholders, including the employee-owners, from selling their holdings at least until December. 30. (See United Pilots Ask for Stock Sales Halt ).

State Street has protested the order in court documents. The order was designed to allow UAL make use of certain tax provisions for potential savings of about $1.4 billion, Dow Jones said. A court hearing on the matter is slated for December 30.

State Street holds UAL equity securities that upon conversion will be equal to 32.5 million common shares.

UAL shares were down 14%, to $1.50 Monday.