The Pension Benefit Guaranty Corporation (PBGC) said in a news release that it will be assuming responsibility for the plan covering more than 14,000 active and retired United pilots and that participants in the company’s other three pension programs are unaffected.
According to the PBGC, the United Airlines Pilot Defined Benefit Pension Plan is 49% funded on a termination basis, with $2.8 billion in assets to cover $5.7 billion in benefit liabilities Of the $2.9 billion in underfunding, the PBGC expects to be liable for approximately $1.4 billion in guaranteed benefits, making the United pilots plan the third-largest claim in the history of the insurance program., the agency said
By stepping in now to assume the pilots plan, the PBGC said it protects against the possibility of up to $140 million in additional losses. The termination of the pilots plan also gives the company a greater financial capacity to maintain the remaining plans, the agency asserted.
“Ideally, the company would maintain all four of
its pension plans and honor fully the promises it has
made to its employees,” PBGC Executive Director Bradley
Belt said in the news release. “However, in conjunction
with the company’s bankruptcy proceeding, PBGC’s
financial advisers have come to the conclusion that
United Airlines can afford at most only three of its
With the termination of the United pilots plan, five of the 10 largest claims in PBGC’s history are now from airline companies. Overall, the airline industry accounts for nearly 20% of total PBGC claims, but fewer than 2% of insured participants.
The PBGC’s move announced Thursday follows the December 17 agreement between United and the Air Line Pilots Associaton under which the pilots union wouldn’t oppose United’s efforts to drop its defined benefit pension plans
>In exchange , United, as it reorganizes and leaves bankruptcy protection,, would issue to the union $550 million in convertible notes that the 6,600 active pilots could sell in the capital market to raise money to cover a portion of the pension shortfall they would encounter, according to the union’s investment banker.. The ALPA also agreed to accept a 15% pay cut, which is in addition to at least a 30% cut in pay that kicked in last year. The agreement still must be ratified by the union’s membership. UAL also will be seeking cost concessions from its other unions.