This professor's comments make good sense to me. Sorry if it was already posted....
Testimony of Dr. Teresa Ghilarducci, Ph.D.
Associate Professor of Economics and Director of the Monsignor Higgins Labor
Research Center
University of Notre Dame
To Congressman George Miller's Online Hearing:
HYPERLINK
"http://edworkforce.house.gov/democrats/unitedtestimony2.html
orce.house.gov/democrats/unitedtestimony2.html
THE UNITED DECISION WAS NOT THE PBGC's ONLY CHOICE
The PBGC’s decision to allow United Airlines to end their pension plans
constituted a decision that shifted all the costs of poor management
decisions and competition to the oldest and most loyal workers. By losing
their pensions, airline workers are paying for factors out of their control
and shareholders, customers, and managers benefit.
The PBGC’s decision had other choices. What is happening in airlines
happened in railroads in the early 1900s. The first private defined pension
plans were established by railroads in 1865, they were the airlines of their
day. In 1919, the maturing defined benefit railroad pension plans were
threatening to default for two familiar reasons. Workers were beginning to
retire in large numbers and small start-up companies, that paid low wages
and provided no benefits, invaded the legacy railroad’s routes by slashing
haul rates. The nation could have chosen to allow what the PBGC and Untied
Airlines agreed to happen, let pensions default and have the workers pay for
the industrial restructuring. But the American decision makers viewed that
solution as unfair and the government mandated a multiemployer pension plan,
the Railroad Retirement fund that all railroads pay into. The rationale was
that the low-cost, start-up companies were taking advantage of the
infrastructure the mature, legacy railroads and their workers created and
needed to pay for the legacy benefits they were enjoying. To this day
railroad workers have a strong defined benefit plan portable anywhere in the
industry regardless of the death and birth of individual railroad companies.
SOLUTION
The PBGC should have had a different orientation in the United Airlines case
and sought a creative solution to the airline industry crises. The PBGC is,
by law, the advocate for the DB system. One good idea is to segregate the
airline liabilities from the other PBGC liabilities – the agency does this
occasionally with idiosyncratic bankruptcies like TWA. Since the airline
pension liabilities were created by industrial restructuring the industry
should pay off the debt incurred when the industry made its investments in
establishing air-travel as a popular and profitable business. All the
airlines, workers, customers and shareholders -- United and the low-cost
start-ups like Jet Blue etc – could pay a $1 - $2 surcharge on a plane
ticket – to restore the airline workers' pensions. (Congress and Sec. of
Labor Elizabeth Dole created a similar tax for coal to pay of miner’s health
liabilities.)
Another creative solution is to put all airline employees into an airline
retirement fund like the railroad workers. Delta and the airlines will keep
their DB plans, not forced to follow United and crash their plans. Once
airlines are out of the PBGC and into a multiemployer plan for the industry,
the rest of the defined benefit system will be in better shape.
I am mostly disappointed in the PBGC and the Bush Administration for not
living up to the law* that mandates the PBGC seek ways to strengthen the
defined benefit system. By siding with United Airlines, the PBGC, is
violating their statutory responsibility and weakening the DB system.
FUTURE OF DB SYSTEM
It would be wrong to take away the lesson from the United Airlines
bankruptcy and pension default that the idea of pension insurance is deeply
flawed or that defined benefit pension plans are extinct and of no further
use to employers. Companies sponsor defined benefit plans for vital economic
reasons – they help retain valuable employees, they provide long service
workers with a certain pension source that combined with Social Security and
some home equity and health insurance can carry a middle class worker into a
middle class retirement.
* The Employee Retirement Income Security Act: (Title 29 Chapter 18,
Subchapter 111 USC Sec. 1302) gives three duties to the the Pension Benefit
Guaranty Corporation. The first is “(1) to encourage the continuation and
maintenance of voluntary private pension plans for the benefit of their
participants.”
Testimony of Dr. Teresa Ghilarducci, Ph.D.
Associate Professor of Economics and Director of the Monsignor Higgins Labor
Research Center
University of Notre Dame
To Congressman George Miller's Online Hearing:
HYPERLINK
"http://edworkforce.house.gov/democrats/unitedtestimony2.html
orce.house.gov/democrats/unitedtestimony2.html
THE UNITED DECISION WAS NOT THE PBGC's ONLY CHOICE
The PBGC’s decision to allow United Airlines to end their pension plans
constituted a decision that shifted all the costs of poor management
decisions and competition to the oldest and most loyal workers. By losing
their pensions, airline workers are paying for factors out of their control
and shareholders, customers, and managers benefit.
The PBGC’s decision had other choices. What is happening in airlines
happened in railroads in the early 1900s. The first private defined pension
plans were established by railroads in 1865, they were the airlines of their
day. In 1919, the maturing defined benefit railroad pension plans were
threatening to default for two familiar reasons. Workers were beginning to
retire in large numbers and small start-up companies, that paid low wages
and provided no benefits, invaded the legacy railroad’s routes by slashing
haul rates. The nation could have chosen to allow what the PBGC and Untied
Airlines agreed to happen, let pensions default and have the workers pay for
the industrial restructuring. But the American decision makers viewed that
solution as unfair and the government mandated a multiemployer pension plan,
the Railroad Retirement fund that all railroads pay into. The rationale was
that the low-cost, start-up companies were taking advantage of the
infrastructure the mature, legacy railroads and their workers created and
needed to pay for the legacy benefits they were enjoying. To this day
railroad workers have a strong defined benefit plan portable anywhere in the
industry regardless of the death and birth of individual railroad companies.
SOLUTION
The PBGC should have had a different orientation in the United Airlines case
and sought a creative solution to the airline industry crises. The PBGC is,
by law, the advocate for the DB system. One good idea is to segregate the
airline liabilities from the other PBGC liabilities – the agency does this
occasionally with idiosyncratic bankruptcies like TWA. Since the airline
pension liabilities were created by industrial restructuring the industry
should pay off the debt incurred when the industry made its investments in
establishing air-travel as a popular and profitable business. All the
airlines, workers, customers and shareholders -- United and the low-cost
start-ups like Jet Blue etc – could pay a $1 - $2 surcharge on a plane
ticket – to restore the airline workers' pensions. (Congress and Sec. of
Labor Elizabeth Dole created a similar tax for coal to pay of miner’s health
liabilities.)
Another creative solution is to put all airline employees into an airline
retirement fund like the railroad workers. Delta and the airlines will keep
their DB plans, not forced to follow United and crash their plans. Once
airlines are out of the PBGC and into a multiemployer plan for the industry,
the rest of the defined benefit system will be in better shape.
I am mostly disappointed in the PBGC and the Bush Administration for not
living up to the law* that mandates the PBGC seek ways to strengthen the
defined benefit system. By siding with United Airlines, the PBGC, is
violating their statutory responsibility and weakening the DB system.
FUTURE OF DB SYSTEM
It would be wrong to take away the lesson from the United Airlines
bankruptcy and pension default that the idea of pension insurance is deeply
flawed or that defined benefit pension plans are extinct and of no further
use to employers. Companies sponsor defined benefit plans for vital economic
reasons – they help retain valuable employees, they provide long service
workers with a certain pension source that combined with Social Security and
some home equity and health insurance can carry a middle class worker into a
middle class retirement.
* The Employee Retirement Income Security Act: (Title 29 Chapter 18,
Subchapter 111 USC Sec. 1302) gives three duties to the the Pension Benefit
Guaranty Corporation. The first is “(1) to encourage the continuation and
maintenance of voluntary private pension plans for the benefit of their
participants.”
