In papers filed in bankruptcy court, United parent UAL Corp said the company was considering whether termination and replacement of all its pension plans will be necessary, Reuters is reporting. “As United has told its board of directors, the creditors’ committee, and its labor unions, given the magnitude of the further cost reductions needed to create a viable business plan and attract exit financing, the termination and replacement of all of United’s defined benefit pension plans likely will be required,” the court documents said.
No final decisions on the pension plans have been made, United said. United, which has been operating in Chapter 11 bankruptcy since December 2002, has four pension plans covering various groups of employees.
This is not the first time United has used its pension plan as leverage. On July 15, UAL did not make a required $72 million contribution to three of the plans, claiming its bankruptcy financing prohibited it from doing so. (See United Skipping Fall Pension Payment). Then, on July 23, the airline said it would not make any of its legally and contractually required contributions to the plans while still in bankruptcy, including a $400 million payment scheduled for September 15. The airline has said skipping a $72 million pension payment in July and the upcoming fall contributions will provide it with the flexibility it needs to save money and attract badly needed investors.
That’s when Bradley Belt, executive director of the Pension Benefit Guaranty Corporation (PBGC), formally demanded information from the company on how it would make up the shortfall (See PBGC to United Air Lines: Show Us You Can Pay Your Pension Bills).
Then this week, Department of Labor (DoL) Secretary Elaine Chao announced an independent fiduciary will be appointed to represent the interest of the participants and beneficiaries in United’s four pension plans. Under the terms of an agreement, between the DoL and the airline, the independent fiduciary will be selected by the company, subject to the approval of the department and will be responsible for pension funding issues (See United, DoL Agree to Independent Fiduciary ).
UAL sponsors four plans covering nearly 120,000 employees. The company filed for Chapter 11 bankruptcy on December 9, 2002.