Senator Demands United Pension Default Answers

September 28, 2004 ( - US Senator Peter Fitzgerald (R-Illinois) has turned to the federal pension insurer for answers about its possibly picking up United Airlines' pension plans while the carrier proposes service expansions.

In a  letter to Pension Benefit Guaranty Corporation (PBGC) Executive Director Bradley Belt, Fitzgerald noted what he deemed an apparent contradiction between refusing to contribute to employee plans while at the same time assigning funds to development projects at Chicago’s O’Hare airport.

“Given the magnitude of United’s financial commitment to the O’Hare airport expansion, how can United in effect divert money from its employee pension plans into a humongous capital improvement project such as the tearing up and rebuilding of O’Hare airport?,” the senator asked in his letter Monday.

Fitzgerald also inquired about:

  • how a company in bankruptcy can stop making pension plan contributions without violating the law.
  • the effects of United’s failure to make required payments into its pension plan, and how this may or may not reduce participant’s eventual benefits.
  • the effects on the airline’s competitors, PBGC premium payers, and taxpayers should the company eventually dump its pension plan onto the pension guarantor.

Fitzgerald also demanded to be immediately notified should the plan be terminated, either through a request by United or action by the PBGC.

UAL Corp., United’s parent company, has stated that it may need to end the defined benefits pension plans currently provided and switch to a more cost-effective defined contribution plan (See United Considers Scuttling Pension Plans ). The PBGC would pick up a substantial portion of the tab, but the shortfalls would come out of the pensioner’s pockets. Under the PBGC caps, a current retiree who is at the age of 65 can receive no more than $44,386 annually. Since many UAL DB plans promise higher benefits, pensioners will be losing a significant amount of expected income.

Late last week in a court filing, UAL laid out the details of how each labor group within the company structure would be affected by the jettisoning of the pensions. The filing showed that among all labor groups, pilots would be hardest hit. Sixty percent of pilots would see the value of their pension plans drop by at least 40%, according to the Rocky Mountain News.

The filing, however, was rejected by the court because it contained unsubstantiated factual claims (See  Judge Rejects United Statement on Effects of Pension Dumping ).