Ultimately the request, which had been approved by the Pension Benefit Guaranty Corporation (PBGC), was approved by the federal bankruptcy judge, clearing the way for the largest corporate pension default in American history.
United, who has been in Chapter 11 bankruptcy since December 2002, had turned to the PBGC, which insures the nation’s private pension plans, to takeover four severely underfunded pension plans (see United, PBGC Hammer Out Plan Takeover Pact ). However, the maximum pension guarantees provided by the PBGC are less than that promised by the airline, and affected United workers, who have already agreed to sizeable slashes in their benefits, would see their pensions decreased by about a quarter as a result.
Labor unions, including the Association of Flight Attendants, who says it wants to see management change at the company, threatened to strike if if the pensions are terminated because United is also set to revamp employee labor contracts during an additional hearing on Wednesday, the Associated Press reported. Two other unions, the International Association of Machinists and the Aircraft Mechanics Fraternal Association, have said strikes are possible if United voids the labor contracts.
United, a unit of UAL Corp., has said that the PBGC takeover of its pension plans, which are underfunded by an estimated $9.8 billion, would save the company more than $4.4 billion of funding contributions over six years and $1.7 billion in potential claims against it.
Traditionally, the generous benefits of the steel and airline industries have been most problematic for the PBGC (see Steel, Airlines Weigh on PBGC ). Yet despite other airlines dropping their pensions, union leaders and executives at American Airlines are continuing to stick to their game plan of keeping their defined benefit pension system intact (see American Airlines: We Can Fund Our DB Plan ). However, Delta, Northwest, and United Airlines have all attempted in some way to shift employees from traditional defined benefit plans for the cost-savings of defined contribution plans (See Northwest Airlines Latest to Propose DB to DC Move ). In response, some executives at other airlines have urged Congress to ease pension contribution requirements so that they can stay competitive with companies dumping their pensions (See Airline Pension Payment Deferral Legislation Proposed in Senate ).
In response to UAL’s moves to terminate four of the
airline’s pension plans, Congressmen George Miller
(D-California), Jan Schakowsky (D-Illinois), Pete Stark
(D-California), and Senator Ted Kennedy (D-Massachusetts)
have proposed a bill called the Pension Fairness and Full
Disclosure Act that would more closely link executive
retirement plans to those of their workers, and would also
make more details about executive payouts available to the
Also, according to MarketWatch, Miller and Schakowsky also
filed an amicus brief Monday with the court and laid out
their opposition to United’s plan.
The previous largest U.S. pension default was Bethlehem Steel’s $3.6 billion in underfunding in 2002 (see PBGC Takes On Its Biggest Liability Yet ).