U.S. to Take Over UAL Pilots' Pensions

[Dennis Miller]

Thursday December 30, 11:49 am ET



WASHINGTON (Reuters) - The U.S. pension agency on Thursday said it would take over the retirement plans of pilots at bankrupt United Airlines, which are underfunded by $2.9 billion.

The Pension Benefit Guaranty Corp., which insures traditional retirement plans, said it would likely be liable for about $1.4 billion in guaranteed benefits, the third-largest claim in the history of the agency's program.

"Retirees will continue to receive monthly benefit checks without interruption, and other pilots will receive benefits when they retire," PBGC Executive Director Bradley Belt said.

The plans cover more than 14,000 active and retired United pilots and comes after a deal between the airline and pilots over concessions. The pension plans of the airline's other employees were not affected, the PBGC said.

United Airlines, the No. 2 U.S. airline and a unit of UAL Corp., has been trying to cut labor costs by $725 million a year beyond concessions already made by employees.

United has asked a bankruptcy court judge to allow it to terminate labor agreements and pension plans to preserve funds that would enable the airline to continue flying and attract financing so it can exit bankruptcy protection.

Pilots have promised not to contest United's bid to terminate their pension plan in return for various pledges, including contribution requirements and $550 million in convertible notes that could sweeten a future replacement retirement account.

Under federal law, the maximum pension payout for participants age 65 in plans that end in 2004 is $44,386 a year.

The PBGC saw its deficit more than double to $23.3 billion in fiscal 2004 that ended Sept. 30. The agency blamed the transportation, communications and utilities sectors.

 

[michael707767]

ouch. Stand by for the rest of the majors to move to do the same thing.

 

[philo beddoe]

In twenty years, a google search for 'pension' will return the phrase:

"...did you mean penchant?

 

[Snoopy58]

Wow. Sigh.

I've never preached at anyone about "lowering the bar," and I actually think it's somewhat of a specious concept, but I will say this:

NO United pilot EVERY AGAIN, in light of what just happened, has ANY right to preach to ANYONE about their (past) glories in "raising the bar" (for all of what, 2 or 3 years, before it became manifestly unsustainable), nor to EVER chastise ANYONE -- not Jet Blue, not Mesa, NO ONE -- for actions that "lower the bar" for the profession.

I don't preach "hold firm, take a stand, sacrifice yourself for the 'good of the profession,'" and I'm not condemning the United pilots for what they did -- they made a rational decision in the face of really crummy circumstances. But I will say that they have forever lost all moral high ground to preach to others about "taking a stand for the profession" and "don't lower the bar" with what just happened. This is a very, very bad thing for pilots throughout the industry.

 

[Huggyu2]

Snoopy,
I'm not arguing with you, but I'm curious what you thought the UA pilots should have done. Stand firm? Try a different compromise? I'm not very educated on the options available, but tell me what you think.

 

[skykid]

G4G5, I'm confused. You posted on this board several times how the government would sooner liquidate UAL than take over their pensions. I tried to let you know that was not going to be the case. Any explanations?

 

[FDJ2]

Is anyone surprised by this. UAL has been in Ch11 for over 2 years now, the ATSB, after having given loan guarantees to several LCC, denied the UAL request, setting up the ultimate termination of the UAL pilot's pension.

Does anyone know what UAL's defined contribution will be, if any?

 

[Snoopy58]

Huggy,

I'm not condemning the pilots' decision; they made a rational decision in the face of crummy circumstances. They didn't have a good option that they ignored; they made the least bad choice available to them (as they saw it, and I'm not second-guessing them). BUT, in making that choice, IF you believe in the concept of "the bar," (and as I said, I generally don't), they dropped the bar a long, long, long way, and in a manner that will hurt a LOT of pilots. That's why they lost all right to preach on that subject.

If I held to the idea of "sacrifice yourselves, don't lower the bar," then I'd condemn them for their action. I don't hold to that idea, and I don't condemn them.

But I don't ever want to hear any United pilot preach at me on that subject ever again.

Snoopy

 

[michael707767]

I realize that as part of their new deal, the United pilots agree not to fight the termination and in return they get 550 mil worth of convertable bonds to offset the pension losses but.........How long before UAL cries poor again and tries to get out of that?

 

[lowecur]

Domino Effect

Not unexpected. They had budgeted for UAL & UAIR pensions.

The real question is how quickly can Congress act to defer the pensions of DL, AMR, and NWA. DL needs quick relief, probably by June at the latest. If Congress doesn't act, look for DL to head into BK for relief. AMR and NWA can hold on longer, and they will get their relief somewhere down the line.

 

[getonit]

I have a question.

Why should the government guarantee anybody's pension?
I have never and probably never will get one. I am on my own, with my 401K and own personal responsibility to take care of myself. As it is the companies can promise whatever they want and what the unions can get and hope everything works out and if it doesn't the government will take care of the screwups. It is not fair to companies that "play by the rules", it will simply force the other majors to declare bankruptcy to get the weight off of their necks.

This is not a problem with just the airlines, wait until the American auto industry can't pay their bills on this, one will file BK and the others will have no choice but to do the same thing.

 

[redflyer65]

The government never was into backing pensions until there was a law passed by congress (some time back, the date escapes me), that said these large corporations didn't have to fund the pensions 100%. The companies I guess thought it was too much of a burden, and the cash could be used somewhere else, instead of what it was supposed to be used for. I can't believe it ever passed, but here we are. It amounts to fraudulent activity, just my opinion.

 

[Snoopy58]

Why should the government guarantee anybody's pension?

Ask the liberals. They're the ones that got the government into the insurance business. Sounds great, my savings account at the local S&L is government insured, and so is my pension. And even though the FDIC & FSLIC and the PBGC are quasi-governmental organizations, it doesn't cost the taxpayer anything because the costs will be covered by premiums the healthy banks / S&L's / pensions pay in. Mostly. When things are going well.

BUT... you get a LOT of S&L's all start failing at once, and then the choice is either to dump the costs onto the government, i.e. us taxpayers, or Ma and Pa find out that their "insured" savings account wasn't really so insured after all. We all know what happened there. Now the pensions are going the same way, with the situation worsened by the fact that even the healthy pensions are going away because companies see them as an albatross around their necks -- growing numbers of retured workers being supported by a business in a competitive environment. So fewer healthy pensions are paying premiums, more unhealthy ones are failing, and the rational competitive response for American, Delta, Northwest, etc is going to be to do just like United did and stick us taxpayers with paying off the promises they've made over the years.

It boils down to us now seeing the ultimate effects of a bad decision taken decades ago coming home to roost. Of course the government had no business insuring bank accounts or pensions... the competition of the free market is mighty good about setting costs for such things, and the free market sets far higher premiums to insure bank accounts or pension plans than what the government was charging. Free lunch? Nope. But the guys who started this debacle rolling decades ago have all retired now, and we're stuck with their mess.

Let this be a warning next time somebody has the solution of "let the government take care of that problem!"

 

[slowto250]

An old game with new players

It is much easier to play "Stiff the creditors", and " Let's lower our labor costs", than it is to create innovative business plans, or to include employees in incentive based business plans. Don't believe me ? Ask Frank Lorenzo. World class player.

 

[fatboyplt]

Gentlemen,

Might I interject that currently only the MEC has agreed to any of the TA. The pilots of UAL are currently in the process of voting and that will close on Jan 6th. So nothing has been cast in stone as of this moment. If you are flying the line with us then you will know that there is huge spectrum of opinions alot of which can not be uttered in polite society... Birdman

 

[canyonblue]

.....

 

[philo beddoe]

Where does the cash come from to pay the pensions?

 

[skykid]

FATBOYPLT, I agree that the thing hasn't even been voted on yet, but I would say whether the defined pension goes away or not has absolutely nothing to do with the vote. The big picture is that not United now, nor Delta and American and the rest of the airlines with defined pensions in the near future, are going to compete domestically with the LCCs that don't have defined pensions. Or maybe we should wait and see what Virgin USA's defined pension looks like.

You can argue over the details of the UAL tenative agreement with the pilots, but sooner or later it comes down to no pension-with job, or no pension-no job. There are two realities to come to grips with to fully understand this. First United is not coming out of CH11 with defined pensions. To deny this means disbelieving all the potential lenders. And the reason the lenders are insisting on shedding the pensions gets to reality number two. Even a fairly healthy defined pension plan right now, is not going to compete in this market with all the airlines that don't have them in the longer term.

I don't know if United will survive even if they can scrap all the pensions w/o too much upheavel. If you had told me oil would go over $50/barrell two years ago I would have said that's the end right there. We'll see.

 

[a320drivr]

It comes from you, the tax payer.

 

[fam62c]

What happens to the retirees?

I have a relative who is a retired UAL pilot and retired 18 years ago at the age of 60. What happens to his retirement at this point? Do the retirees get the same benefit they had before or do they get paid at a reduced amout? If the benefit is paid at a reduced amount is it a percentage or is there simply a flat amount that they pay to everyone who has a pension that's been taken over by the PBGC. Just curious how this works.

I fear that this is going to cause all of the majors to seek termination of their DB plans in order to be on equal ground with airlines that don't have them. It looks like DB plans will be a thing of the past for people that work in private industry. I'm worried that this is the first step towards employers eliminating ALL contributions to employee retirement including 401K matches. This is going to put airline pilots at a real disadvantage financially because we are forced to retire at 60 while other employees can work much longer. I wonder how long it will be before the PBGC starts lobbying for the end of the age 60 rule.