is this pension cancellation allowed by pbgc? nytimes

mikeson

Newbie
Dec 21, 2002
6
0
January 30, 2003
US Airways Seeks Reworking of Pilots'' Pension Plan
By MARY WILLIAMS WALSH
S Airways is planning to ask the government to take over its pension plan for pilots, a step that would sharply reduce their benefits, but the airline is
also pledging to give the pilots a rich new retirement plan after reorganizing to make up for the loss.
The airline has told the pilots that it will take steps either today or tomorrow to begin terminating the underfinanced plan, a step intended to help the
airline emerge from bankruptcy. The proposed combination of steps will meet pilots'' retirement security needs and expectations, David N. Siegel, US
Airways''s chief executive, wrote in a letter to the pilots.
Similar attempts to restore employee benefits after transferring insolvent pension funds to the government have been tried by other companies in recent
years — the LTV Corporation and Wheeling Pittsburgh are examples — but have been rejected by the Supreme Court.
If the package being developed by US Airways was approved, it could be a model for other troubled companies seeking some form of relief from their
pension obligations without stripping employees of promised retirement income. The airline''s efforts to devise such a solution, and the government''s
response, are being closely watched by other companies — particularly airlines — as well as by unions.
Seven of the nation''s eight biggest airlines have traditional pension plans, and none of them have the assets to pay all the benefits they have promised. A
recent report by Fitch Ratings estimated these airlines'' total pension shortfall at more than $18 billion. As recently as 1999, they had a surplus of $1
billion.
A default by US Airways would transfer more than $500 million in unfunded liabilities to the government agency that guarantees pensions. That
agency, the Pension Benefit Guaranty Corporation, has been weakened by a succession of pension defaults by steel companies and is expected to
disclose today that it has exhausted its surplus.
US Airways has said repeatedly that unless it sheds its obligations to the more than 7,000 pilots, retired pilots and pilots'' widows covered by its pension
plan, it is unlikely to survive.
We absolutely must solve this pension issue, Mr. Siegel said in the letter, if the airline is to get financing to emerge from bankruptcy by March 31, as
it hopes.
The pension agency was created in 1974 to insure company pension plans, much as the Federal Deposit Insurance Corporation protects depositors when
a bank fails. It is financed by companies that offer pensions through insurance premiums, not by general tax revenues.
When a pension plan collapses, the agency takes over the current and future payments, up to certain limits. Its current maximum is about $42,000 a year
for people who are 65 or older at the time of default. Younger employees receive less when they retire. A worker who is 43 when a plan fails, for
example, can receive only about $9,000 a year upon retirement.
These limits have deeply embittered the employees of companies that have gone bankrupt — particularly the pilots at airlines like Pan American. Pilots
are well paid and can easily build up pensions of $100,000 a year, far more than the federal insurance limits.
In addition, the Federal Aviation Administration requires pilots to stop flying at 60 so they cannot work long enough to qualify for the maximum
payout. The pension agency now limits payments to about $27,900 for workers who are 60 when their plans default.
To assuage workers upset by such reductions, reorganized airlines and other companies have tried in the past to create what they call follow-on
pension plans. These efforts have usually involved creating a retirement package that would bridge at least part of the gap between the government
maximum and what the employees would have received under their defunct plan.
The government has consistently fought such programs, saying they abuse the insurance program by permitting companies to walk away from their
pension responsibilities, then to offer their employees similar benefits with the agency''s paying most of the cost.
The pension agency took its challenge of one such pension, created by LTV, the steelmaker, to the Supreme Court in 1990, and won a ruling that plans
that substantially replace the benefits of a failed pension plan are prohibited.
After the ruling, the agency returned LTV''s original pension obligations to the steelmaker. LTV began issuing pension checks again but wound up back
in bankruptcy court several years later.
US Airways provided few details of how it hoped to win government approval for its follow-on plan, though it said it had been discussing the plan with
the pension agency. It envisions a defined-contribution retirement plan, rather than the defined-benefit plan that it will probably terminate.
Defined-contribution plans are exempt from the financing requirements that govern traditional defined-benefit plans.
The most common type of defined-contribution plan is the 401(k), in which employees themselves manage the money, even the corporate contributions.
US Airways did not describe how it would contribute but said its goal was to build up a fund big enough to let a pilot retiring after 30 years'' service
receive annuity income of about $100,000 a year for the rest of his or her life when added to the government payout. US Airways said that was about
what the pilots would have received under the existing plan, after concessions last year.
The agency has generally looked more favorably on defined-contribution models for follow-on plans but continues to hold to the standard that plans
that substantially replace previous benefits are prohibited.
 

a320av8r

Veteran
Aug 20, 2002
1,429
2
www.usaviation.com
PBGC is about to go underfunded itself. I wouldn't count on any retirement except for what you do for yourself. George II is ready to go to war no matter what. He doesn't give a rats a-- about anything other than oil and the oil industry (Texas). The Senate has no true leadership nor does Congress. Its every man for himself in the good ole US of A. After all, thats what the free enterprise system is all about.
 

Hubturn

Member
Dec 23, 2002
16
0
The PBGC is foaming at the mouth to get at our assets so that they can use them to fund other terminated pensions. With only about 850 retirements in the next 5 years at the PBGC maximum, that is only about 37 Million. What a windfall, take in 1.2 Billion and pay out less than Fed Funds rate interest on the assets and still make money. Frankly, this looks more like an illegal taking than a termination and I am suspicious about it and what that implies.
 

A320 Driver

Veteran
Aug 24, 2002
3,358
2,319
www.usaviation.com
[blockquote]
----------------
On 1/30/2003 1:07:30 PM a320av8r wrote:

PBGC is about to go underfunded itself. I wouldn't count on any retirement except for what you do for yourself. George II is ready to go to war no matter what. He doesn't give a rats a-- about anything other than oil and the oil industry (Texas). The Senate has no true leadership nor does Congress. Its every man for himself in the good ole US of A. After all, thats what the free enterprise system is all about.
----------------
[/blockquote]

Don't be so quick to judge George II. We all saw what could be done by a few extremists on 9-11. If Saddam could launch a serious weapon on Israel, he would instantly become the hero of most of the Arab world. Maybe not so much the governments, but the people would dance in the streets shouting his name. That will force an exchange of weaponry like you have never seen. The entire middle eastern area would be thrown into turmoil. THAT is what threatens our oil supply. Such an exchange has to be avoided at all costs. The only way for George II to deal with it is to take steps to make sure it won't happen. We are dealing with a crisis not of our own making, but deal with it we must or face the consequences later.


Just my opinion,

A320 Driver
 

RowUnderDCA

Veteran
Oct 6, 2002
2,123
1
www.usaviation.com
I agree that it's possible that the PBGC might think that U's pilot pension takeover, might be less of a dog than others, because of the max payout system, but that's exactly how this risk pool is designed to work. We may not like it, but that's the system. Or wait, the system is to use whatever power and money one has to change the system to one's advantage.


Well, it seems that Mary Williams Walsh of the NYTimes understands this issue and did a very good job of explaining it in a short article.

Oh, but wait an expert (former official) said that the PBGC has the authority to run itself into the ground, financially, by letting plans shift all the costs to somebody else and retain the benefits (future stream of money) to themselves. And in the process sacrifice the stability of some poor pensioner that's been living off a meager PBGS pension for years... or the future pensioner who may become the next victim of money-manipulation. Funny, how the PBGC bureaucrats have the integrity to say, er 'no.' to that approach, until congress makes them say ok.

Hmm. You have to feign ignorance to make a 'principled' argument. It's inconceivable that ALPA was this in-the-dark about this situation.

But they can't come out and say, we want more money to our pension plan because, well that's what we want. They say it's about fairness, it's about what they were promised, it's about greedy executives and socialist flight attendants and mechanics with class envy.

News-flash: The definition of American politics is more and more about shifting the cost to your neighbor, while reserving the bucks to yourself.
I say this as someone who would personally benefit from the pension fairy leaving a put of gold at the pilots' feet.

And there is NO question that playing fast and loose with somebody's pension is truly despicable. And should never have been allowed to happen.

But the issue is money. The most obvious source of that money is in bankruptcy. Pretending that ALPA's search for any pot of cash is high principle, when it is totally venal, is why there is a credibility gap.

Luckily, some are realizing this and toning down the ineffective rhetoric.
 

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