United Airlines Defaulting on Pensions

United Air Wins Right to Default on Its Employee Pension Plans (NYT)

United Airlines, which is operating in bankruptcy protection, received court permission yesterday to terminate its four employee pension plans, setting off the largest pension default in the three decades that the government has guaranteed pensions. The ruling by Judge Eugene R. Wedoff of Federal Bankruptcy Court came after a lengthy hearing in a crowded Chicago courtroom, near where United is based. Despite pleas by union lawyers, Judge Wedoff sided with United, which had insisted that it could not emerge from bankruptcy protection with its pension plans in place.

The ruling releases United, a unit of the UAL Corporation, from $3.2 billion in pension obligations over the next five years. The federal agency that guarantees pensions, the Pension Benefit Guaranty Corporation, will assume responsibility for the plans, which cover about 134,000 people. Some retirees could see sharply lower pension payments as a result; others will see little change in benefits, depending on a variety of factors. Some retirees at US Airways, which has terminated its plans, have seen benefits drop by as much as 50 percent. The airline, which has been in bankruptcy protection since December 2002, has been pushing to end its pensions since losing its bid for a federal loan package last year. But unions representing United’s employees fought the action, threatening to strike if the pensions were set aside.

Along with raising that prospect, the action has significant implications for the airline industry, which has lost more than $30 billion since 2000, and perhaps for other industries like automobiles, with similarly heavy legacy costs. Analysts have predicted that if United won its case, there could be a domino effect as other airlines are forced to seek bankruptcy protection to bring their pension costs down to United’s levels. That move would probably swamp the pension agency, which was created in 1974.

Lovely. While I understand the rationale behind the federal guarantee of pensions, it makes little sense to allow businesses to simply waive the contractual obligations it has made with its employees.

Update: Bryan notes in the comments that the PBGC is not technically funded by the taxpayers, although that’s the backup position. True:

PBGC is not funded by general tax revenues. PBGC collects insurance premiums from employers that sponsor insured pension plans, earns money from investments and receives funds from pension plans it takes over. PBGC pays monthly retirement benefits, up to a guaranteed maximum, to about 518,000 retirees in 3,479 pension plans that ended. Including those who have not yet retired and participants in multiemployer plans receiving financial assistance, PBGC is responsible for the current and future pensions of about 1,061,000 people.

More:

The maximum pension benefit guaranteed by PBGC is set by law and adjusted yearly. For plans ended in 2005, workers who retire at age 65 can receive up to $3,801.14 a month (or $45,613.68 a year). The guarantee is lower for those who retire early or when there is a benefit for a survivor. The guarantee is increased for those who retire after age 65.

So, clearly, the United employees had a rather sweet pension plan if they were retiring with pensions in the $90,000 plus range.

Bryan has more at AWS.

FILED UNDER: General
James Joyner
About James Joyner
James Joyner is a Security Studies professor at Marine Corps University's Command and Staff College and a nonresident senior fellow at the Scowcroft Center for Strategy and Security at the Atlantic Council. He's a former Army officer and Desert Storm vet. Views expressed here are his own. Follow James on Twitter @DrJJoyner.

Comments

  1. bryan says:

    Technically, the taxpayers wouldn’t be billed unless the pension guaranty corp. went under. It’s funded like an insurance agency, so all the other pension funds will end up paying higher premiums.




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  2. bryan says:

    Also, the $3.2 billion figure is low, from what I’ve heard. Perhaps limiting the amount to five years cuts down on the number, but I’ve seen anywhere from 6.6 billion to close to 10 billion.




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  3. DC Loser says:

    First pensions, next will be health insurance. When big companies realize they can push their health care liabilities off to the government, it’ll be the event that’ll convince the GOP to adopt universal health care.




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  4. bryan says:

    From what I’ve heard, the pilots were going to be the ones who really get shafted, as their plans and pay are significantly higher than other unions and also the PBGC max.




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  5. Dave Schuler says:

    One of the problems with the PBGC is that premium payments are too low. Another problem is that efficient, well-managed companies are subsidizing inefficient incompetently managed companies like UAL.




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  6. herb says:

    Here we go again, a judge has put the screws to the retiree. What about managements role in this whole bankruptcy. Where is thier responsibility? A Judge has let management off the hook of responsibility. Now that UAL is 3.2 mil better off, it’s back to the same old story, Bad Mnaagement gets a break to do the same thing all over again, and sooner than later, the taxpayer will end up with the bill.

    It’s not only UAL, its Delta, US Air, Northwest and a host of others that has management managing their stock price rather than manageing their company. How much longer will Uncle Sam let this continue????




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  7. Alan Lidstone says:

    It’s amazing. Corporations don’t make mandatory payments for benefit pension plans when the stock market is up from 1994 thru 1999, then plead poverty and don’t make contributions when the market is down. And the financial planners for the corporations tell us the President’s recommendations to trust the market for our retirement is the way to go.




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  8. Alan Lidstone says:

    It’s amazing. Corporations don’t make mandatory payments for benefit pension plans when the stock market is up from 1994 thru 1999, then plead poverty and don’t make contributions when the market is down. And the financial planners for the corporations tell us the President’s recommendations to trust the market for our retirement is the way to go.




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  9. FRAN says:

    HOW WILL THE OTHER AIRLINES BE ABLE TO COMPETE WITH UA,THIS GIVES THEM THE EDGE OVER THE OTHER COMPANIES THEREFORE THEY WON’T BE FAR BEHIND IN DOING THE SAME AS UA,THE MANAGEMENT OF UA SHOULD BE MADE TO RESIGN WITHOUT ANY BENEFIT NOW.




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  10. James Wallace says:

    I used to fly with U.A. on routes west of California. I’m truly appalled that a judge could outright “screw” upwards of 134,000 workers that made U.A.L. I can honestly say that i will never fly on another U.A.L. jet and if i worked for them i would go on strike against them and let management ride the company right into the ground. That’s where it is anyway. First it’s your pension guarantee —– next it’s your insurance benefits—– maybe you should just come on in and work for free. Start messing with our politicians pensions and get ready for 40 days and nights and probably much more of something that smells a lot like piss. You’ve got to stand for something or you will fall for everything.




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  11. Terry Kozma says:

    Lets compare pension plans at Jet Blue and Air Tran before we make comments about what UAL was forced to do.




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  12. James Cambre says:

    The United Airlines retirement “bust” is a shame. How can executives in charge of such large corporations allow this to occur? But, the bust did not occur due one hiccup. A combination of hiccups brought the house of cards down, e.g., rising fuel costs, union bargainings for higher concessions, hefty pension checks to name a few. I sure am empathetic to all the United employees both retired and not retired. Life will certainly be much different and certainly more leaner.




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  13. brad says:

    You neglected to mention the fact that the federal pension guarantee corp currently has a $23 BILLION deficit…..care to guess who is going to pay for this ?????




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  14. Andrew says:

    I have a Lawsuit in S.D.N.Y. (US District Court) Fed. Court against UNITED AIRLINES, and am hopeful to pull its officers and directors in for depositions …etc.

    Its Case No. 05 CV 0581 vs. UAL Corp. and its Corporate Management and about 10 Directors.

    UAL Corp. claims to not have money to pay its bills, yet it is has $$thousands to pay New York and Chicago CORPORATE LAWYERS to play games, to try and have the judge not allow my case proceed, so that the Directors of UAL won’t have to answer uncomfortable questions:

    1. Why’d they go bankrupt when they company had well over $1 billion positive net worth and unemcumbered assets when they did a “VOLUNTARY BANKRUPTCY”?

    2. Why’d they choose Bankuptcy instead of say merging with another big airline to consolidate operations and CUT OVERHEAD? Exxon and Mobil merged in recent years and saved over $1 billion per year in Costs. UAL Corp. is going B/K to make sure every one of its $200,000/ yr. pilots (some get paid even more), that they shouldn’t be laid off in a “consolidation”, and instead the U.S. Taxpayer should have to do CORPORATE WELFARE to the tune of over $6 billion to cover UAL Corp’s obligations?

    3. UAL Corp.’s Pilots and Mechanics were among the highest paid in the industry… higher paid than the “market price” for their work. Their wages and pensions… (and pay even for some of them barely working on furlough)… were set by a Board of Directors that had “CONFLICTS OF INTEREST” in that many of their Board Members also were the UNION CHIEFS of the Pilots Union, Mechanics Union…etc. AFTER IN EFFECT “SELF-DEALING” PAY THAT WAS TOO HIGH FOR THE LONG-TERM SURVIVAL OF UAL CORP. (higher pay and benefits costs than JetBlue pays its employees) UAL VOLUNTARILY CHOSE TO GO BANKRUPT AND NOW ONE CHICAGO FED. JUDGE DUMPS $6 BILLION OF COSTS ON ALL US TAXPAYERS (rather than letting UAL and its Union-Bosses on its Board, have to make a deal that works in the real world which means if your company doesn’t earn enough money either your employees take less rich pay, or you have to lay some of them off, or you go fully out of business and liquidate). INSTEAD, UAL CORP. AND ITS DIRECTORS AND ITS UNION EMPLOYEES (remember several of its Directors are Union Bosses) TOGETHER HAVE FIGURED A WAY TO “RAID THE U.S. TREASURY FOR $6 BILLION TO SUPPORT THEIR HIGHER THAN INDUSTRY AVERAGE PAY AND BENEFITS! [Gee, why don’t we all go into business, pay our employees more than competitors and make the U.S. Government pick up the Pension Cost!]

    UAL Corp’s. dumping its Pension Obligations on the US Taxpayer to the tune of over $6 Billion, is one of the largest “ripoffs” of the U.S. Taxpayer in History!

    I am alone up against Big Corporate Lawyers. I need help of Academics and Law Professors to hold back UAL’s High Paid Corporate Lawyers, who have played games with me, in their bid to keep their Managers and Directors from answering questions under oath such as :

    -Why did UAL CORP. Voluntarily go B/K, when Delta Air, Continental Air, and American Air all avoided bankruptcy, and their employees took paycuts (didnt’ raid the U.S. Treasury)

    -Why didn’t UAL Corp. sell itself to another airline, which would have consolidated operations and cut costs, before dumping its obligations on US Govt.?

    -How did UAL Corp. go Bankrupt (voluntarily, no creditor pushed them into it), when its Auditors never issued a “Going Concern Warning Letter” in any of their Filings with the U.S. SEC (Securities Exchange Commission) — even the tiniest 2-bit Nasdaq concept stocks issue “going concern warning letters” before going Bankrupt! UAL Corp’s. Auditors couldn’t issue such a letter because the company had nearly $1 billion of positive net worth when it went bankrupt!

    -How do you go bankrupt when you have Positive Net Worth?

    -WHY why why, did UAL Directors approve “asset stripping” of UAL Corp, about 1/2 year before they voted to do VOLUNTARY BANKRUPTCY, giving I think it was Xhundred million of UAL Corp’s real estate and cash to one of its Unions funds?

    **Please have law professors interested in helping with this case to proceed vs. UAL, e-mail me: AIWAL1@yahoo.com




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