- Oct 15, 2003
- Total Time
- 2 much
House votes against UAL pension default
Friday June 24, 6:03 pm ET
By Susan Cornwell
WASHINGTON (Reuters) - The U.S. House of Representatives voted on Friday to block bankrupt United Airlines from defaulting on its pension plans and shifting them to the nation's pension insurer, the Pension Benefit Guaranty Corp. (PBGC).
Critics said the vote would have no practical effect, because the provision was attached to a government spending bill, while the PBGC does not spend government money. Under an agreement with United, the PBGC has already taken over one of United's four "defined benefit" pension plans.
But supporters said the vote was a strong rebuke for United and other struggling airlines that might be tempted to follow United's lead by swamping the PBGC with their pensions -- which could force a taxpayer bailout of the agency.
Thirty-one Republicans joined 187 Democrats and one independent in voting for the measure, 219-185. Sponsored by California Democrat Rep. George Miller, it said the PBGC could not spend government funds to carry out a court-approved agreement to take over pensions from the bankrupt airline.
"This amendment is absolutely necessary if we are going to stop the dumping of pension obligations on the taxpayers of the United States," said Rep. David Obey, a Wisconsin Democrat. "Without this amendment, Uncle Sam is being Uncle Sucker."
United and the PBGC reached an agreement in bankruptcy court this spring to terminate the airline's four big plans covering 120,000 current and former workers.
The airline says terminating the plans, the largest pension default in U.S. history, would save it $645 million annually and help lift it out of Chapter 11.
Benefit promises of United's retirement plans exceed assets by nearly $10 billion. The government will insure $6.6 billion of the shortfall, meaning most workers face benefit cuts. The PBGC already has assumed the ground workers' plan.
No. 2 United said the congressional action will have no immediate impact on its 2-1/2-year restructuring effort although it comes as it tries to attract investors.
"Given the complex and lengthy process, it is inappropriate for the House to single out United and interfere now, especially since the pension issue has been consensually resolved with every union other than (the Association of Flight Attendants)," United spokesman Jean Medina said.
A PBGC spokesman said the agency was examining the House move.
The PBGC charges companies premiums to insure pensions, then bails out plans when they fail. But the agency is $23.3 billion in the red as a result of defaults by US Airways, United and others.
Some Republicans argued Congress should not interfere. Rep. Mark Kirk, whose state of Illinois is home to United, said the pension deal was helping to keep the airline flying and 62,000 people in jobs.
But the House action was greeted enthusiastically by flight attendants.
"In the battle between corporate America and working people, the House of Representatives today sided with the people," Greg Davidowitch, president of the Association of Flight Attendants, said in a statement.
Michael Roach of Roach & Sbarra Airline Consulting in San Francisco said odds are small Congress could actually block pension termination. But he said there is a chance that it could disrupt the carrier's campaign to attract investors needed to step out of court protection. "This is a very large issue that must be resolved," Roach said. (Additional reporting by Kyle Peterson in Chicago)