United Pension Hearing Delayed, But Okayed By Court

May 10, 2005 (PLANSPONSOR.com)—In Chicago Tuesday, a significant number of current and former United Airlines workers showed up for a hearing between United Airways and its labor unions discussing the termination of several of United's defined benefit plans - large enough that the hearing could not begin until it was moved to a larger room.

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. 

Strike Threats

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 ).

Legislative Moves

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 public.   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 ).