The PBGC and airline pension funds

[shon7]

With the whole USAirways and the depleted pension fund - I'm wondering what role, if any, the (PBGC) Pension Benefit Garuntee Corp. will play. Didn't they step in or at least try to when Icahn was chairman of TWA and pretty much dried up the pension fund.

Lastly, as pilots do you support using the pension fund for investment - I say just buy treasury bonds or notes some other secure investments. The funds might not grow but you get a steady return and none of theses fiascos. What are your opinions?

 

[CitationLover]

It's the govt limiting not USAir

Couple of Facts to straighten out the pension mess. Keep in mind these only apply to defined benefit plans and the rules have been generalized.

1) No company can ever reduce someone's ACCRUED pension benefit. If you've earned it and are vested it is yours.

2) A company can only reduce future benefit accruals.

3) The assets for the pension are a separate legal entity and cannot be used by the company in any way until the plan is terminated.

4) A company can terminate a pension at any time. When this happens the assets are checked to see if they can cover the plan's liabilities. If they can, then all benefit accruals are frozen and the assets are used to pay out the liabilities with the company keeping the difference (of course they are taxed heavily on this).

If the plan does not have enough assets, then the PBGC steps in and the plan's liabilities are broken down into six categories. The first category's liabilities are measured and the assets are used to pay out these liabilities (I believe the first category is existing retirees). It then moves on to the second/third/fourth until the assets are exhausted.

What the pilot's union is stating about benefits being cut is that the PBGC limits benefit amounts (and negotiated benefit increases within the last 5 years) in the first active category to $44,000/yr. If this category is covered by the assets, then the participant's total benefit is prorated by the remaining asset pool.

Thus if an active pilot has an accrued $80,000/yr benefit he may only receive $44,000. This is the "cut" that the current articles are talking about. It is the govt cutting the benefit. Even if the pension wasn't terminated, in bankruptcy, the govt could step in at any time at force the plan to terminate.

Of course this is only for defined benefit plans. Defined contribution plans (401k's, etc) have no protection. It's hard to feel sorry for those pilots who will earn only $44,000/yr when people at Enron received nothing.

 

[FoxHunter]

That $44,000 is for people that retire at age 65. Since airline pilots are required to retire at age 60 I think you will find the correct number is around $28,000. There is also a further reduction for survivor benefits if the plan includes that. They all do!

http://www.pbgc.gov/services/descriptions/guarantee_table.htm

 

[Ty Webb]

Re: It's the govt limiting not USAir


Of course this is only for defined benefit plans. Defined contribution plans (401k's, etc) have no protection. It's hard to feel sorry for those pilots who will earn only $44,000/yr when people at Enron received nothing.


You have got to be kidding . . . So the people that worked at Enron got completely screwed . . . . that is supposed to make this situation somehow- more acceptable-?

Maybe you should re-think or re-state your postion on this!

 

[tredding@swa]

enron & 401ks vs. greed.....

ANYone who has a 401k has been; 1. told by the manager of the plan (stockbroker) or 2. IF they actually read the enrollment package, to DIVERSIFY the holdings in their account.

If you don't understand DIVERSIFY it means DO NOT PUT ALL OF YOUR MONEY IN ONE INVESTMENT. Say perhaps - company stock???

Sorry guys & girls - I spent 6+ years in the business of investment advice, I told 100s of folks that the tech boom would become the next BUST - those who would not listen get NO SYMPATHY!!! You ARE the weakest LINK!!

Those who had the pension plans crash - however - shoul get all of the $$ that was due them!! Make the CEO & all of the other Rat Ba$tards pay up or go to jail!!!

 

[CitationLover]

a) of course there is a reduction in benefits due to retiring early, spousal survivor bft, etc. the benefits on average will be extended and thus a reduction is applied to "equalize" a benefit beginning at 60 with one beginning at 65.

b) USAir is bankrupt, where is the money gonna come from? Yes it is an outrage for your benefits to be reduced, but you will received something. What's even worse is you can bet that mgmt's unfunded exec pension will be paid in full to those idiot execs that ran the company into the ground.

c) diversity also applies to the SOURCE of your income. don't place all your hopes on soc sec (haha) or a company pension. personal savings should have been made to cover this contingency.

d) all this concern of pensions brings up a more important point: retirement medical. if usair has retirement medical, they can shut that off, legally, without any repurcussion (there was a lawsuit in the 9th circuit on this recently i believe though). your retirement medical is worth 3x as much as your pension.

e) ALPA (or any union for that matter) typically do not "care" as much about retirees as they do about active members (i.e. those who still pay dues). Unions usually throw pension demands on the table during negotiations knowing that they will be cut. once cut, it is viewed as the union making a concession during negotiations. besides younger union members could care less about pension/retirement benefits.

of course it is horrible that the pensions are in risk, however you are still receiving something. some pensions are not even "underfunded". the pbgc uses an artificially low interest rate in calculating the liabilities (a lower rate increases the liabilities). couple this with the current market situation (markets losing money and thus the assets underperforming) and you have an "underfunded" plan. this is why on the books the company can show a pension being "funded" due to the fact that the liabilities use a market rate (sometimes as much as 3% higher than the pbgc rate).

 

[reepicheep]

We US Airways pilots understand the pension is probably gone and if the money's not there, it's not there. The primary source of outrage is the extent to which ALPA has been singled out for the brunt of the concession burden. We now have some of the highest paid aircraft cleaners and tug drivers and some of the lowest-paid pilots in the industry. And no one else's pensions are being terminated. And of course it's been revealed that right before filing Ch. 11 the company saw fit to hand $35 million in lump-sum retirement money to outgoing execs. I guess getting in the "go to college/spend $$$$$ on ratings/starve for 10 years/finally get airline job" line right after high school was a dumb move. Still, liquidation helps no one and I suspect a resolution will be found. But you'll have a bunch of really pissed pilots pretty much forever, whatever that's worth.

 

[CitationLover]

My guess is the garbage/cleaner pensions are in as much crap as the pilots, yet the media I think focuses on the pilots. Their pensions must also use the same interest rates, etc.

I agree that $50-60k for an airplane cleaner is ridiculous. No wonder USAir price gouges here in CLT.