Pilots' Union "Deplores" PBGC Action

December 31, 2004 (PLANSPONSOR.com) - The nation's private pension insurer may have stepped in to preserve the pension benefits of United Airlines' pilots - but the pilots' union isn't having any of it.

“We deplore the PBGC’s ill-timed attempt to retaliate against the United pilot group in the United bankruptcy proceeding,” according to a statement by the United Master Executive Council, Air Line Pilots Association, posted on ALPA’s  website .

On Thursday the Pension Benefit Guaranty Corporation (PBGC) announced that it was assuming responsibility for the pension plan covering more than 14,000 active and retired United pilots (see  PBGC Takes Over United Pilot Pension Plan ).   The PBGC said that 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 said it 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 PBGC’s move announced Thursday follows the December 17 agreement between United and the Air Line Pilots Association under which the pilots’ union wouldn’t oppose United’s efforts to drop its defined benefit pension plans (See  ALPA Agrees not to Fight UAL Pension Termination ).

“Vigorously Oppose”

In a statement, the pilots’ union said, “ALPA will vigorously oppose any effort by the PBGC to take over the plan before May 1, 2005, or to single out the pilot group for punitive and vindictive   treatment in the United bankruptcy. Under the terms of the tentative pilot agreement, the Company has also agreed to oppose any attempt to terminate the pilot pension plan prior to May 1, 2005.”  

In its December 17 agreement not to oppose United’s plans to drop its pension plans as it reorganizes and leaves bankruptcy protection, the airline agreed to 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.   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 (See  ALPA Agrees not to Fight UAL Pension Termination ).


In its December 30 statement, ALPA also noted, “We are equally concerned about the timing of the PBGC action in the midst of a pilot membership vote over the tentative pilot agreement. We question whether the PBGC’s action may be designed to confuse the pilot group, undermine the membership ratification process, and deprive the pilots of the benefits and protections of the tentative agreement. If so, today’s action is an outrageous ploy by the PBGC to harm the very employee interests that the agency is sworn to protect.”   ALPA also claims that there are no grounds for the termination of the pilot pension plan.

Preemptive “Strike?”

The PBGC already was facing the required takeover of United pension plans in 2005. By acting at year’s end instead of in May, when the pilots’ pensions were to have been terminated, the agency said it can avoid the annual increase in mandated benefit payments and save as much as $140 million in additional payouts.   Confronted with $4.1 billion in required pension contributions by the end of 2008, United said earlier this year it would terminate all its existing employee pensions and replace them with less expensive defined-contribution plans (see  United Makes Formal Pension Demise Request ).

On Thursday United issued a  statement  saying the PBGC’s decision “changes nothing with respect to our need to terminate and replace all four of our defined-benefit pension plans.” The company says it requires an extra $725 million in labor cost savings to emerge from bankruptcy “as a sustainable, profitable enterprise.”

In a statement announcing the takeover attempt, the PBGC Executive Director Bradley Belt said, “The decision to take over a pension plan is never made lightly, especially in situations where participants won’t get everything the company promised but failed to fund.   I hope the plight of participants in airline pension plans puts an exclamation point on the need for Congress to strengthen the funding rules for defined benefit plans.”