U.S. to Take Over UAL Pilots' Pensions

[CatYaaak]

Don't worry. When it gets to the point of the taxpayers bailing out the PBGC, the public will have realized a huge benefit from the very inexpensive air travel that has killed airline pensions. It just proves that sometimes low prices have other unintended consequences (like when Wal-Mart comes to town).

Here is another thing to consider. We live in a multi-trillion dollar economy that is continuing to evolve to compete in a now globalized economy. Allowing corporate America to shed its pension obligations will be essential to remain competitive. What has happened in steel and the airline industry will happen to all the remaining industries with defined benefit plans. The cost of terminating and having the PBGC / taxpayers pick up the tab will be a drop in the bucket compared to the competitive benefit on a global scale for corporate America.

It's still taxpayer money, so it still sucks. Perhaps we should go back to all those who worked for companies that couldn't change with the times and dole some out to them as well? After all, being an "airline pilot" doesn't give one any superior moral standing when it comes to making a claim on someone else's money.

Horse-drawn transport benefited the economy and the public at large, but I'm sure there's descendents of buggy-whip makers who could use some cash, and let's not forget those poor souls who made the lousy decision to go to work for Wang Computers. I mean, even if you never bought a Wang computer, you still benefit from inexpensive computers, don't you?

The fact that individual carriers like United and others held onto Regulation-era business models (which include massive pension funds) in a de-regulated market, burying their heads in the sand for decades, is not the fault of the flying public, let alone the public at large. Competition and pissing-off their customer base lies at the heart of what ails them.

 

[AA717driver]

With the PBGC, you get what you get when you "retire". For pilots, there is no going beyond age 60. $28k/year is it.

The PBGC is in survival mode right now. They are almost bankrupt now and with UAL about to be dumped in their laps, they are on the verge of being insolvent. Congress is apparently unconcerned(they would be more concerned if THEIR pensions were secured by the PBGC...).

The PBGC allegedly went to the court earlier this year and threatened to shut down UAL if they terminated the plans. Again, it's nothing personal, just business.

BTW, I really hope the PBGC doesn't go belly up. I NEED that $109.00/month I'm getting from the terminated TWA plans. I'm counting on the UAL pilots to step up and do the right thing for the good of the industry.TC

 

[tarp]

Sooner or later. American taxpayers are going to get tired of this stuff.

Let's do those numbers again.

The PGBC is 23.3 Billion in the red (as of Sept 2004).

That doesn't count all of US Airways.

They just added UAL which is $2.9 "under funded" by UAL's accounting. However, UAL is probably stating numbers based on a UAL stock price near $60/share which would have a very nice ROI (if true). Usually in these cases, after review the funding and accounting are found suspect and you will see that number double or triple.

So 23.3 plus 6 equals 29.3 Billion dollars. Do you really think the fees paid by the existing and healthy defined benefit plans will pay this? No, sooner or later, the general taxpayer fund will have to be tapped yet again.

HSA, TSA, Prescription Drug Benefit, War in Iraq, War in Afghanistan, Disaster Relief for three Florida Hurricanes, Disaster Relief for Indonesia, Sri Lanka and India, ATSB defaults, Unemployment claims of at least one major and two smaller airlines in 2005 and then PGBC.

So, how's your pocket feeling - a little light? If you have a job and pay taxes in this country - you got to stop and ask - why am I paying 40 cents on the dollar to the government?

And remember, that's just the new stuff. You still pay for Social Security, the DOD, HUD, FAA, Interior, Immigration, Border Patrol, Congress, the Executive Branch, the Judicial Branch, State Department, Agriculture, Commerce, etc, etc.

The stockholders and Directors of United Air Lines thanks you for accepting their debt. You can be sure that in order to "compete", Delta, American, Northwest, etc will be joining the ranks very soon.
$29B, $39B, $49B. Oh heck, why should any American business pay defined benefits? $59B $69B, $79B. Hey nobody is paying "fees" anymore. $100B, $120B, $140B. So I work for a lowly LCC with no defined benefit and I work part time at another job because I can't make ends meet with just the flying gig. Working and paying taxes so others might live the dream. I had a dream once. It's gone.

 

[capt. megadeth]

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

Taxpayers are footing the bill for a lot of lazy people that reproduce in mass quantities and never contribute anything to society. Now THAT sucks! I would rather foot the bill for someone's pension who actually worked during their life.

 

[CatYaaak]

Taxpayers are footing the bill for a lot of lazy people that reproduce in mass quantities and never contribute anything to society. Now THAT sucks! I would rather foot the bill for someone's pension who actually worked during their life.

Ah yes, taxpayer-funded Airline Pilot Welfare reserved for those who rode the largest gravy train for the longest time for the most money in a private sector job. After sacrificing themselves in this altruistic endeavor, why, it's only right and fitting that they've earned their seat to feed at the public trough.

Of course, when you write "I'd rather foot the bill for someone's pension" you don't really mean "you". You mean you'd rather see everyone forced to do it, otherwise you'd take these poor downtrodden folks under your roof and take over their mortgage, car, boat, and alimony payments. And your stated criteria is "because they worked", so surely your opinion on this issue has absolutely nothing to do with the fact we're talking about pilots instead of former Wang Computer employees.

Call me selfish, but I'd rather keep more of my earnings in order to fund my own retirement so you don't have to.

 

[lowecur]

Maximum Monthly Guarantee from PBGC Web Site

I think you will find that if you wait to age 65 to collect your pension you will get $44,386. Since the FAA mandated retirement age is age 60 I'm not sure that is even an option, or wise since you would be getting no income for at least two years and only the reduced Social Security for the next three. In any case if you read the chart in the link you will find that at age 60 the max the PBGC will pay is $28,851.12 per year in 2004.

I'm not sure that the taxpayer will have to pay anything toward pilot pensions since although they are underfunded for the promised retirements of $100,000+ there may be no underfunding when these payments are reduced by 70-80%.

Actually, it looks like the younger guys will lose the most. The senior and middle retirees will probably lose very little if they were due to get $100,000 on their pensions. UAL already had $2.8B and the PBGC will just fund the shortfall.

The government calculates that United has promised its pilots pensions worth $5.7 billion but that the pension plan has just $2.8 billion in assets. United has put $55 million into the plan since 1996.

Of the $2.9 billion shortfall, the pension agency said it would shoulder $1.4 billion by taking over some of the benefits for the 14,000 participating pilots.

The remaining $1.5 billion will be borne by the pilots as reductions in their benefits. The government's pension insurance is limited, and many pilots have earned more than the maximum coverage.

The pilots will bear the losses differently depending on their age, years of service and other factors. The oldest, who have either retired or been eligible to retire for at least three years, may be able to get more coverage than the government's basic guarantees. This is because of rules that shift some of a defunct pension plan's assets toward retirement-age participants when the government takes over a plan. Just how much of a boon this will be for United's retirees is difficult to predict, though, because the amount of additional coverage depends on the makeup of an individual plan and its solvency.

United's younger, active pilots stand to lose a larger portion of their anticipated benefits. But United has agreed with the pilots' union to compensate them for their losses by granting them $550 million in notes, convertible to new stock after reorganization, and making larger contributions to a separate retirement plan that is not structured as a traditional, defined-benefit pension plan.

Those terms were reached about two weeks ago, as part of the same agreement in which the airline and union intended to postpone termination of the pension plan until May. The government's legal complaint asked only that the court terminate the pilots' plan immediately and did not address any of the agreement's other terms. But a spokesman for the pension agency said the government planned to file a separate motion in bankruptcy court by today opposing the pledges of convertible notes and enriched retirement plan to the active pilots. The agency does not want to set a precedent that would allow companies to dump their current pension obligations on the government and then set up new plans for their workers.

Delaying the pension termination until May would have been worth tens of millions of dollars to United's active pilots. They would have been able to keep building up their benefits during that time, and the ceiling on insurance coverage would have been higher because the pension agency raises its limits every year to account for inflation.

In addition, the pilots would have achieved the maximum insurance coverage for their most recent pension increase, which was granted as of April 2000. Whenever a company increases the terms of a pension plan, the government phases in its corresponding insurance coverage over five years to keep troubled companies from promising big increases, then defaulting and leaving the government to pick up the tab. By waiting to terminate the plan until May, United and the pilots hoped to have completed the phase-in period.

Meanwhile, however, United would be paying more than $100 million in benefits to existing retirees, probably without replenishing the money. That would lower the funded level of the plan, to the detriment of pilots who had reached retirement age and whose ability to exceed the insurance limits depends on the amount in the plan at termination.

Bradley D. Belt, the executive director of the pension agency, said the agency was operating with a record deficit and "must be vigilant in guarding against unnecessary losses."

"I hope the plight of the participants in airline pension plans puts an exclamation point on the need for Congress to strengthen the funding rules for defined benefit pension plans," Mr. Belt added.

The Bush administration is expected to issue a set of proposals for shoring up the pension system early in the new year.

 

[80drvr]

Ah yes, taxpayer-funded Airline Pilot Welfare reserved for those who rode the largest gravy train for the longest time for the most money in a private sector job. After sacrificing themselves in this altruistic endeavor, why, it's only right and fitting that they've earned their seat to feed at the public trough.

Of course, when you write "I'd rather foot the bill for someone's pension" you don't really mean "you". You mean you'd rather see everyone forced to do it, otherwise you'd take these poor downtrodden folks under your roof and take over their mortgage, car, boat, and alimony payments. And your stated criteria is "because they worked", so surely your opinion on this issue has absolutely nothing to do with the fact we're talking about pilots instead of former Wang Computer employees.

Call me selfish, but I'd rather keep more of my earnings in order to fund my own retirement so you don't have to.

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.

 

[FoxHunter]

Looks like the F/A, or IAM member will still be able to retire at almost $45,000 per year, yet the 747/777 Captain with 30+ years of service will get less than $29,000 because he is subject to the age 60 retirement.

 

[FoxHunter]

Statement by the United Master Executive Council, Air Line Pilots Association Regarding Today's Action by The Pension Benefit Guarantee Corporation
"We deplore the PBGC's ill-timed attempt to retaliate against the United pilot group in the United bankruptcy proceeding.

ALPA's tentative agreement with United does not permit the termination of the pilot pension plan without a final judicial determination that pension termination is necessary for the Company to emerge from bankruptcy or at any point prior to May 1, 2005. As the PBGC is well aware, there are no grounds for the termination of the pilot pension plan.

ALPA will vigorously oppose any effort by the PBGC to take over the plan before May 1, 2005 or to single out the pilot group for punitive and vindictive treatment in the United bankruptcy. Under the terms of the tentative pilot agreement, the Company has also agreed to oppose any attempt to terminate the pilot pension plan prior to May 1, 2005.

In addition, the tentative pilot agreement requires United to continue the pilot pension plan if any other United employee group maintains a defined benefit pension program following the bankruptcy. We will vigorously enforce that right against the PBGC or any other party that seeks to single out the pilot group for unfair treatment in the bankruptcy proceeding.

We are equally concerned about the timing of the PBGC action in the midst of a pilot membership vote over the tentative pilot agreement. We question whether the PBGC's action may be designed to confuse the pilot group, undermine the membership ratification process and deprive the pilots of the benefits and protections of the tentative agreement. If so, today's action is an outrageous ploy by the PBGC to harm the very employee interests that the agency is sworn to protect.

The pilots of United Airlines are critical to the reorganization of this Company and, by far have sacrificed the most to save the airline. We demand to be recognized and compensated for our unique contributions, and we will take every lawful action necessary to protect the interests of the United pilots against the PBGC or any other party in this proceeding."

Blah, Blah, Blah

The UAL MEC still fails to recognize events are no longer under their control. It is a far cry from the summer of 2000 when they brought managment to their knees and signed the contract that in many ways brought them to where they are today. Looks like the PBGC will not allow any sort of deal that will allow the pilots to be compensated to not fight pension termination.

 

[Mugs]

It's still taxpayer money, so it still sucks. Perhaps we should go back to all those who worked for companies that couldn't change with the times and dole some out to them as well? After all, being an "airline pilot" doesn't give one any superior moral standing when it comes to making a claim on someone else's money.


Horse-drawn transport benefited the economy and the public at large, but I'm sure there's descendents of buggy-whip makers who could use some cash, and let's not forget those poor souls who made the lousy decision to go to work for Wang Computers. I mean, even if you never bought a Wang computer, you still benefit from inexpensive computers, don't you?

The fact that individual carriers like United and others held onto Regulation-era business models (which include massive pension funds) in a de-regulated market, burying their heads in the sand for decades, is not the fault of the flying public, let alone the public at large. Competition and pissing-off their customer base lies at the heart of what ails them.

Oh yes you hit the nail on the head. It is all about the superior moral standing of airline pilots over you corporate guys. Good grief. Can we hear your dissertation on steel workers now? I trust you have been writing to your elected representatives about the injustice of federally insured pension programs for decades, since you saw this coming all along.

 

[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.