U.S. to Take Over UAL Pilots' Pensions

[CitationLover]

Taxpayer's would only be on the hook if the PBCG goes BK and congress approves a bailout. IMO, a complete overhaul of ERISA is a more likely solution than a direct taxpayer bailout of PBGC. Also keep in mind that these large deficit projections can change drastically and quickly with improvements to expected market and interest rate returns.

amen to that. after 7yrs in the pension consulting world, i got sick of it. and yes these can change overnight also. the late 90's most analysts were complaining that pensions were providing too much INCOME (not expense) to companies.

ERISA was enacted when a lot of plans went insolvent (Studebaker, i think, was the trigger). who knows, perhaps this will trigger new legislation. i doubt it though, considering any legislation might impact 401k plans, which are the new law of the land.

FYI, UAL's plan will be subject to a PBGC 4044 asset allocation when it is terminated. basically, the PBGC will split the liabilities into buckets (six if I remember correctly). each bucket is assigned a priority. the first couple buckets deal with current retirees above/below the PBGC max mo bft. the rest split up the active population via max bfts, integrating bft improvements over time, etc. the PBGC then starts with bucket #1 and uses assets to cover it. then onto bucket 2/3/4/etc until the assets are gone. usually it to about the actives @ pbgc max bft category and thus current employees have benefit reductions.

also the PBGC age 60 max bft is an "actuarially equivalent" amount to the age 65 one. in theory the adult male will die at age ~75 and thus the age 60 benefit needs to be reduced for the 60 extra monthly payments they will receive during their lifetime, of course on average.

 

[I.P. Freley]

I guess the retiring pilots had better hope they drop dead on their 75th birthday, since that's their breakeven point. If they live another ten years beyond that, they will gross an additional 300K while the retiring senior F/A will make 450K, if I understand this properly.

Seems fair.

 

[CitationLover]

I guess the retiring pilots had better hope they drop dead on their 75th birthday, since that's their breakeven point. If they live another ten years beyond that, they will gross an additional 300K while the retiring senior F/A will make 450K, if I understand this properly.

Seems fair.

ya lost me on that. here is an over-simplistic example.

ret a starts $1/yr at 65 and dies at 75 gets $10
ret b starts $1/yr at 60 and dies at 75 gets $15

thus a reduction of .6667 (10/15) needs to be made to b's benefit to make them actuarially equivalent due to b's longer life, and thus payment, span. thus b's benefit at age 60 will be $.67/yr. of course, actuarial tables do not end at 75 (they usually goto 110 or 120), with 75 just being the avg life expectancy. this is how lump sum rates are also calculated, ie a's lump sum factor would be 10 and b's would be 15 but reduced by .6667 to 10. of course real life is a lot more complicated than this (m/f differences, different mortality tables, different early retirement rates, etc etc).

in doing these calculations the pbgc has a set of reductions and the plan has its own set. both are used/applied and the lower, if memory serves me, is applied.

 

[vc10]

Not true, or not true yet. Pension plans pay premiums into the PBGC---that's where its funding comes from. However, in the event that the PBGC cannot cover its obligations, it is widely expected that the govt would step in---that's where taxpayer money potentially comes in.

So taxpayers wind up footing the bill for airline pilot pensions? Well, that pretty much sucks.

 

[michael707767]

Looks like the PBGC will not allow any sort of deal that will allow the pilots to be compensated to not fight pension termination.

I think you are right. I also think if true the UAL pilots will vote down their TA.

 

[CitationLover]

Not true, or not true yet. Pension plans pay premiums into the PBGC---that's where its funding comes from. However, in the event that the PBGC cannot cover its obligations, it is widely expected that the govt would step in---that's where taxpayer money potentially comes in.

There are two premiums into the PBGC.

A flat $19/participant premium is paid with a variable rate (calculated on the pbgc form schedule a) premium paid by "underfunded" plans. in theory the plans more at risk of pbgc intervention subsidize the pbgc. of course in reality, plans try to avoid pbgc premiums as much as possible, they view it as throwing money away.

 

[G4G5]

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?

I have more time to digest this now that more information is available. Why do you think the PBGC did this?

The PBGC is pissed that the UAL pilots new TA gurantees that the PBGC will have to eat ALL of the unions pensions not just the pilots. (the TA requires that UAL mgt oppose any plan by the PBJC to take over their plan prior to 5/05) It also states that ALL of the unions will be treated EQUALLY( UAL can not come after the pilots for an uneven percentage of the comcessions) which has NEVER been the case. The TA gurantees that if UAL tries to terminate the pilots pensions ALL of the pensions must go, no group can be singled out.

The PBGC IMHO is trying to effect the outcome of the TA. They in essence have told EVERY airline including UAL that the only way we will take over your pensions is through liquidation.

From todays NY Times:
Alpa,
"As the P.B.G.C. is well aware, there are no grounds for the termination of the pilot pension plan," the statement said. If United does oppose immediate termination, it added, the process would move to bankruptcy court, which would end the plan only if it determines that the airline could not survive otherwise.

If United does oppose immediate termination. If the TA passes they are LEGALLY required to do so. That according to Alpa equates to liquidation

Unfortunatly, It looks to me as if I was correct after all. Do you read it differently?

 

[Boeingman]

The PBGC IMHO is trying to effect the outcome of the TA. They in essence have told EVERY airline including UAL that the only way we will take over your pensions is through liquidation.

Bingo!!!!!!!

Exactly what they did to EAL. I have been saying this for over a year this will be the catalyst to a UAL liquidation.

 

[skykid]

They in essence have told EVERY airline including UAL that the only way we will take over your pensions is through liquidation

.

You're getting that from what? I don't see how you stretched that from anything thing the PBGC has put out there.

The PBGC IMHO is trying to effect the outcome of the TA.

No foolin? The fact is the outcome of the TA vote will have ZERO impact on the fact that the defined pension is gone, just like yours is. It will be interesting to see how it happens but one way or another the pensions are gone. It will also be interesting to see if the other "legacies can do it w/o CH11. I don't see any way.

 

[G4G5]

Skykid,

Boeingman sees it, I see it and now the PBGC sees it. Answer me this simple question, Why did the PBGC go after the pension of the UAL pilots?

This was the PBGC's stance a week ago:
PBGC warns United Airlines on pension plan changes

By Jerry Geisel
December 20 15:14:00, 2004


WASHINGTON-United Airlines plan to terminate its existing pension plans and replace them with lower cost plans, could face opposition from the Pension Benefit Guaranty Corp.

The agreement, which still has to be ratified by the financially distressed airlines' pilots, calls for United to create new defined contribution plans for the pilots and to give the pilots $550 million in notes that could be sold in the capital markets. United then would terminate its pension plans, shifting the plan's $6.4 billion in guaranteed benefits to the PBGC. ButPBGC Executive Director Bradley Belt said the agency is concerned that the agreement could set what he describes as a "dangerous" precedent.

"The company is making generous new pension promises even as it is refusing to honor its old pension promises," he said in a statement.

"We will be scrutinizing this agreement very closely and will take all appropriate steps to protect the financial interests of the pension insurance program," Mr. Belt said.

The battle-verbal so far-between United and the PBGC is reminiscent of one that occurred in the mid-1980s when bankrupt steel manufacturer LTV Corp said it could no longer afford to contribute to its pension plans. The PBGC then took over the plans. After LTV set up new lower-cost defined benefit plans, the PBGC returned the original plans to LTV, an action ultimately affirmed by the Supreme Court.

In 2002, though, the PBGC ended up, once again, taking over the LTV plans, which had more than $2 billion in unfunded benefits, after LTV went out of business.



The new TA states that UAL MUST oppose this in court. ALPA is very clear :
"As the P.B.G.C. is well aware, there are no grounds for the termination of the pilot pension plan," the statement said. If United does oppose immediate termination, it added, the process would move to bankruptcy court, which would end the plan only if it determines that the airline could not survive otherwise.


This will force the matter to the BK court leading to liquidation. The PBCG is fully aware that they have NO LEGAL ground to do this. UAL will have to fight it or the pilots will not pass the TA. Either way the PBGC forces UAL into liquidation.

The PBCG is pissed that UAL has decided to dump the existing pilots pension on them only to agree to replace it (in the TA) with a new one.

So why did the PBGC all of a sudden decide to come after the pilots, with one day left in 2004?

It's a very clear message to every airline. Try to pass off your pension on us and we will force you into liquidation.