Airline mergers and retirement pensions

[lumax]

If airline A (no A-plan) buys or merges with airline B (with A-plan), what happens to the A-plan? Anyone experienced this? Did it happen with Delta/NW or will it happen with UA/CO?


Thanks

Concerned and curious

 

[Showtime]

I think the plan is to use the pensions to fund the managment golden parachutes before going bankrupt. At least that how it works most of the time.

-Showtime

 

[CitationLover]

If airline A (no A-plan) buys or merges with airline B (with A-plan), what happens to the A-plan? Anyone experienced this? Did it happen with Delta/NW or will it happen with UA/CO?


Thanks

Concerned and curious

Each plan is a separate legal entity with it's own IRS EIN number. The plan sponsor (mgmt) would have to merge the plan's in a separate transaction in conjunction with the PBGC. I believe the PBGC manages the UAL pension, no clue if the frozen CAL plan is PBGC managed or not.

 

[Jetjockey]

Here is how I understand it. CAL has an A plan (defined benefit) traditional pension which contributions have been frozen. They also have a B plan (defined contribution). Most of the new hires 2005 and later don't even have a A fund.

In the case of a merger and a JCBA, they will most likely spin off the A fund to a third party, unless they negotiate an A fund for all 13,000 new UAL pilots. In the event that the A fund is managed by a third party, it is highly unlikely the lump sum option would remain. Most guys sitting on the fence will probably take a real long hard look at the annuity versus the lump sum and decide if a few more years/months is worth it. This is how it was explained to me by a ALPA retirement guy who really knows his stuff. Most guys I know past 60 have said once the trigger on a merger has been pulled, they'd retire.

 

[Ky.BrownBourbn]

a ALPA retirement guy who really knows his stuff.

That's an Oxymoron
KBB

 

[Jetjockey]

That's an Oxymoron
KBB

That's funny, and that drink in your avatar looks mighty fine.......is it noon yet?

 

[Ky.BrownBourbn]

That's funny, and that drink in your avatar looks mighty fine.......is it noon yet?

It's always (close to) Noon somewhere!
KBB

 

[Ky.BrownBourbn]

If airline A (no A-plan) buys or merges with airline B (with A-plan), what happens to the A-plan? Anyone experienced this? Did it happen with Delta/NW or will it happen with UA/CO?


Thanks

Concerned and curious

A few more days like today with the DOW and we won't have to worry about it, they'll be dropping from Heart attacks!

Dow Down 1000 points before recovering over half...Damn Greeks!
KBB

 

[CitationLover]

Here is how I understand it. CAL has an A plan (defined benefit) traditional pension which contributions have been frozen. They also have a B plan (defined contribution). Most of the new hires 2005 and later don't even have a A fund.

In the case of a merger and a JCBA, they will most likely spin off the A fund to a third party, unless they negotiate an A fund for all 13,000 new UAL pilots. In the event that the A fund is managed by a third party, it is highly unlikely the lump sum option would remain. Most guys sitting on the fence will probably take a real long hard look at the annuity versus the lump sum and decide if a few more years/months is worth it. This is how it was explained to me by a ALPA retirement guy who really knows his stuff. Most guys I know past 60 have said once the trigger on a merger has been pulled, they'd retire.

Your understanding is wrong.

(warning lots of actuarial speak)
The "frozen" part of the CAL A plan is the benefit accruals. The pilots benefits were frozen at the freeze date, but the sponsor still has to FUND the obligations through quarterly contributions. The obligations are funded by a cost method dictated by the IRS (unit credit). Even though the benefit is frozen, the liability (which is really being funded) is growing as the person ages towards expected retirement age. The liability spikes once the participant is eligible for early retirement (typically 10 years before "normal" retirement - typically age 60 in airline pensions). I don't even know if most plans were amended to reflect the new age 65 FAA mandatory requirement or if they still use the old 60 as normal retirement.

The A fund, by federal law (ERISA), is ALREADY a third party. It is it's own entity with its own taxpayer id # (EIN #) from the IRS. The plan sponsor (CAL in this case) still retains that even with new management. Again, I do not know if the CAL A plan is in receivership with the PBGC, but UAL's A plan is. This complicates it as the plan sponsor will have to coordinate with the government (PBGC) if they want to merge the two A plans so odds are they won't.

B funds by their very nature are "fully funded" 100% of the time and can be merged very easily. For instance, Republic simply merged our old Midwest B plans right into their 401k administrator while I still retained all my old 401k match and Pilots Supplemental Fund amounts.

Whats important to note is the collectively bargained benefits are still available to each party (CAL/UAL) until a new collective bargaining agreement is reached. At that point the accrued balances will transfer over if they merge the B plans. A plan mergers are covered under SFAS 87 accounting.

As far as the lump sum option versus annuities, it's all relative and a personal choice. Recent pension legislation however has now mandated the elimination of single sum payments if the funding ratio (you should have just gotten a funding notice within the past couple of weeks) falls below a certain threshold.

Distribution Restrictions for Underfunded Plans. Annual distributions to a participant may not exceed the periodic payment that would be payable under a single life annuity (plus any Social Security supplements) under a plan with a funded ratio less than 60%. [IRC §436(d), added by PPA §113] In particular, a plan participant would not be permitted to receive a lump sum distribution of the full value of accrued benefits. If the funded ratio is at least 60% but less than 80%, the permissible distribution can be the lesser of 50% of the unrestricted distribution or the present value of the benefit guaranteed by the PBGC, but only one such distribution may be made in any two consecutive years during which the distribution restrictions apply. If the plan is maintained by an employer in bankruptcy, the funded ratio threshold is increased to 100%, with no special rule permitting payment above the floor level. Also note that the new distribution restrictions do not eliminate nor preempt similar distribution restrictions applicable to the highest 25 paid employees if the plan’s funded ratio is less than 110%, as prescribed under Treasury Reg. §1.401(a)(4)-5(b).

For purposes of the distribution restriction triggers, the funded ratio is adjusted by adding the amount of annuity purchases for nonhighly compensated employees during the preceding 2 plan years to both the numerator and denominator of the funded ratio. If the funded ratio exceeds 100% (phased in from 92% beginning in 2008) without reducing plan assets by the plan’s credit balances, then the distribution restrictions do not apply. Conversely, if the plan’s funded ratio without reducing assets by credit balance is less than 100%, but would exceed the distribution restriction funded ratio threshold without the credit balance reduction, then the employer is forced to reduce the credit balance to the extent necessary to avoid the distribution restriction.

The distribution restrictions do not apply to any plan under which all accruals have been frozen since 9/1/2005, regardless of the plan’s funded ratio. These rules apply beginning in 2008, with a delayed effective date applicable to collectively bargained plans.
http://fuguerre.wordpress.com/2006/08/01/ppa-lump-sum-distributions/

Hope this makes sense or helps.