The announcement by UAL follows media reports that the company planned to ask the Internal Revenue Service (IRS) for waivers so it can postpone about $2 billion in accelerated payments to its employee pension plans. If granted, the waivers would postpone the required contributions over five years from the year they were originally due and require the PBGC to take a risk on UAL’s pension plan, according to a Dow Jones report.
Last month, UAL said the four pension plans for its US workers went from being almost 100% funded in January 2002 to being only 70% funded in January of this year because of low interest rates and poor investment returns. Under current law, that shortfall requires UAL to make accelerated payments in the next few years. The company estimated earlier this year that it would have to make $4.2 billion in pension contributions through 2008.
Once the accelerated schedule was divulged, UAL said if the IRS does not grant the waiver, or the company did not receive legislative relief, it would consider terminating one or more of the pension plans. Any terminated plan would be assumed by the nation’s private pension insurer, the PBGC, with a much lower payout to plan participants.
However, UAL issued a press release earlier this week stating the company would be able to fund its pension obligations on the standard, non-accelerated timetable, but it has an “issue” with the accelerated pension funding schedule currently mandated. “United, along with many other companies, supports the efforts in Congress to modify this accelerated timeline and smooth out pension contributions in the short term,” said Chief Financial Officer Jack Brace in the release. “We are emphatically not seeking government aid or asking the government to take over our obligations.”