>The two sides announced Friday that the Pension Benefit Guaranty Corporation (PBGC) will assume responsibility for the four plans that cover 121,500 participants and are collectively underfunded by $9.8 billion, under a pact that still requires US Bankruptcy court approval. Some $6.6 billion of the plans’ shortfall is guaranteed, according to the PBGC.
>The key issue for the PBGC has been the speed with which it can take over the plans since delaying the turnover until the carrier’s bankruptcy case was completed could have potentially cost the agency even more as benefits continued to accrue. Friday’s settlement means the agency can begin coping with the massive additional liability more on its timetable rather than waiting until the carrier got permission to terminate the plans on its own.
“We believe that this agreement, under the circumstances, is in the best interests of the pension insurance program and its stakeholders,” said PBGC Executive Director Bradley Belt in a PBGC statement . “The PBGC has an obligation to reduce its losses for the protection of workers and retirees, other companies that pay insurance premiums, and taxpayers. By reaching a settlement now, we further that goal.”
>The agency commented further in the announcement: “The PBGC and its financial advisers believe the settlement is superior to the recovery the agency would have received as an unsecured creditor in bankruptcy.”
>According to the PBGC announcement, the plans to be taken over include:
- the UA Pilot Defined Benefit Plan, which covers 14,100 participants and has $2.8 billion in assets to pay $5.7 billion in promised benefits. The PBGC had been fighting an agreement between the company and the pilots that covered their pension program (See PBGC Opposed to Latest United Pilot’s Agreement ).
- the United Airlines Ground Employees Retirement Plan, which covers 36,100 participants and has $1.3 billion in assets to pay $4 billion in promised benefits. The PBGC announced in March that it had started proceedings to take over the ground workers’ plan (See PBGC Moves to Seize United Ground Worker Pension Plan ).
- the UA Flight Attendant Defined Benefit Pension Plan, which covers 28,600 participants and has $1.4 billion in assets to pay $3.3 billion in promised benefits
- the Management, Administrative and Public Contact Defined Benefit Pension Plan, which covers 42,700 participants and has $1.5 billion in assets to pay $3.8 billion in promised benefits.
>United’s unions remain opposed to the plans being scrapped, and US Bankruptcy Judge Eugene Wedoff must first approve the agreement. “I’ll consider this agreement when it’s presented,” Wedoff said in court when informed of the settlement, according to news reports Friday.
>The company has been fighting to scrap the defined-benefit plans in order to save $645 million a year, part of the $2 billion in annual savings it says it needs to secure financing to emerge successfully from bankruptcy court protection (See United Makes Formal Pension Demise Request ).
>The pension insurer was running a $23.3 billion deficit as of September 30, 2004 (See PBGC Posts Record Deficit in FY2004 ).
>With the PBGC already having been pounded with rampant pension woes in the airline industry, the $45 billion to $50 billion collective pension underfunding in the US auto industry could very well be its next ticking time bomb, according to one news report (See Auto Pensions Next Big PBGC Bomb? ).