The Pension Benefit Guaranty Corp. (PBGC), which insures private sector defined benefit pension programs, should decide whether to bless the US Airways-pilots deal within the next several days, PBGC spokesman Jeffrey Speicher told the Associated Press. Speicher said the PBGC only wants to see whether the replacement plan would provide essentially the same benefits to pilots as the old set up.
Under the deal, the company would create a new defined contribution plan to replace its old defined benefit program, which the PBGC would take over. According to the PBGC, many US Airways pilots will receive a benefit higher than the standard PBGC maximum guarantee for their age.
For example, the agency estimated that 59-year-old pilots with 29 years of service will get about 75% of their full benefit or about $85,000 of the $110,000 they expected to receive under the original USAirways plan and not the PBGC maximum of $28,585. According to the PBGC, plan assets in a terminated plan are first used to pay benefits for workers who are retired or near retirement without regard to PBGC benefit limitations (See PBGC Releases 2003 Maximum Guaranteed Benefits ).
US Airways had said it did not have the money to make the $1.6 billion in contributions that would be required over the next seven years to keep the old pension plan solvent. Actuaries hired by the pilots earlier this month agreed with the bleak assessment.
DC Plans Supplements DB Program
But the PBGC benefit will be supplemented with the new defined-contribution plan. The company had initially proposed contributing about $850 million over the next seven years into the new plan. After negotiating with the pilots, the airline agreed to contribute an extra $154 million, a 17% increase, said union spokesman Roy Freundlich. “This was the best we could achieve,” Freundlich told the AP. “It’s not as good as saving the original defined-benefits plan, but it’s significantly better than what the company had initially proposed.”
A hearing is scheduled for Friday in U.S. Bankruptcy Court. If the PBGC gives its blessing to the plan by then, it is likely that the bankruptcy judge would give final approval to US Airways’ reorganization plan.
US Airways filed for bankruptcy in August, after losing $2 billion in 2001. The airline has shed roughly a third of its pre-September 11 workforce of 46,000, and employees have agreed to more than $1 billion a year in wage concessions to keep the airline afloat.
The company has always said it planned to emerge from bankruptcy protection by the end of March – a date most experts believed was unrealistic back in August. Once the company emerges from bankruptcy, it gains access to $1.24 billion in financing that is crucial to the company’s long-term success.