Compliance July 15, 2003

Lawmaker's Bill Would Offer Airline Pension Relief

July 15, 2003 (PLANSPONSOR.com) - A Michigan lawmaker was expected to introduce pension relief legislation that would, among other things, put off for five years additional ERISA-required pension contributions for beleaguered US airlines.
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>According to US Representative Dave Camp (R-Michigan) as reported by Washington-based legal publisher BNA, The Airline Pension Act , would:

  • put into place a temporary five-year postponement for additional pension funding required by ERISA’s deficit-reduction contribution surcharge (DRC). The DRC is a special funding surcharge assessed when a pension plan’s funding status drops below 90% or 80% in some cases.
  • restore US Airways’ pilots’ pension plan, which was terminated earlier this year, to its pre-termination status before December 31, 2002, unless a collective bargaining agreement provides that the plan will not be restored
  • protect federal pension insurer Pension Benefit Guaranty Corporation (PBGC) from additional liability if an airline pension plan terminates during the deferral period.

“Enactment of this bill is essential to maintaining a healthy and viable airline industry and protecting the pensions of thousands of airline employees,” Camp press secretary Deanne Brady said in a statement.

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>Brady said in the statement that the DRC is confronting the major airlines with a bill for tens of billions of dollars in unanticipated pension funding obligations for the years 2003 through 2005, when the airline industry can least afford it. In the face of the recent economic downturn and the simultaneous collapse of asset values and interest rates, the DRC has proved onerous and inflexible, particularly with respect to highly cyclical industries like airlines, Brady said.

“This is the opposite of long-term, predictable funding that should accompany long-term liabilities like defined benefit plans,” the Camp press secretary’s statement continued. “Further, in a collectively bargained setting, employers agree to pay packages that span three to six years.

“The DRC does not work,” Brady continued. “It overestimates liabilities using an excessively low interest rate, is highly volatile, and has imposed huge, unanticipated funding requirements precisely at the time when the airline industry can least afford it.”

>The airlines first proposed the relief measures contained in the Camp bill earlier this year ( Airlines Seeking Delayed Pension Funding ).

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