UAL execs face cuts
If workers' pensions go, officials' plans to be slashed, too
By David Kesmodel and David Milstead, Rocky Mountain News
October 19, 2004
As executives at United Airlines prepare to take a knife to the company's employee pension plans, they do so knowing they would be inflicting deep wounds on their own retirement benefits in many cases.
More than 100 current and former United officials would see their pension benefits cut dramatically if the carrier ended its plans, leading to life-style changes for some but saving United tens of millions of dollars.
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These officials, able to qualify for rich pensions based on their years of service and high annual pay, would join the airline's pilots as the workers and retirees facing the biggest hit from pension terminations.
The giant carrier says it likely will end its four pension plans, which are severely underfunded, and replace them with less-generous retirement benefits to emerge from bankruptcy and become a viable business.
Only one senior United executive - Chairman and CEO Glenn Tilton - has a retirement benefit with special protection from creditors in the bankruptcy, the airline said.
A $4.5 million trust was set up for Tilton when he was hired in 2002 "in consideration of projected retirement benefits" he forfeited by leaving ChevronTexaco Corp., United has said in regulatory documents.
Those foregone projected benefits could have totaled about $500,000 annually for the rest of his life, the Rocky Mountain News estimates.
Tilton, 56, whose trust has been opposed by the union representing United flight attendants, would lose all the pension benefits he has accrued as a United employee because he hasn't worked the five years required to be vested.
Many current and former United executives, including Chief Financial Officer Jake Brace and Chief Operating Officer Pete McDonald, would see very steep cuts in pension benefits because their high salaries have made them eligible for a supplemental retirement plan that United, the operating unit of UAL Corp., began in 1987.
The plan was set up to provide benefits to executives whose salaries exceed the Internal Revenue Service's caps for traditional retirement benefits. This year's cap is an annual salary of $205,000.
In effect, the executives would face a double hit. Their regular pension benefits would be pared because the benefits they have accrued exceed maximums on insurance from the Pension Benefit Guaranty Corp., the quasi-federal agency that pays benefits when plans fail. The cap in 2004 for a 65-year-old is about $44,000 a year, a fraction of what some executives have earned.
The supplemental benefits are not insured by the agency and are not protected in a bankruptcy proceeding. They would amount to unsecured claims, and the current and former executives would stand to get little or nothing for them, according to bankruptcy experts.
That contrasts with a controversial, bankruptcy-proof program that Delta Air Lines arranged for senior executives in 2002.
It's only fair that United brass join the rank and file in suffering retirement losses, said Thomas J. Salerno, a Phoenix bankruptcy lawyer.
"They have to bleed with everyone else," said Salerno, who is in charge of the bankruptcy group at Squire Sanders & Dempsey LLP, an international law firm. "You can't keep going to the rank and file and saying, 'Bleed a little more.' "
Chicago-based United declined to say precisely how many current and former executives, officers and directors are part of its supplemental plan. It said only that the figure is more than 100. "We have not made a decision about whether to terminate and replace the plan," spokeswoman Jean Medina said.
In bankruptcy papers the airline filed on its pensions, and that later were thrown out by the court for procedural reasons, United said it "will concomitantly terminate" the supplemental plan if it scraps any of its four employee pension plans.
The company also said it might have to dissolve a separate supplemental plan for pilots under that scenario. According to the pilots union, 338 active pilots have supplemental benefits and 538 retired pilots do. Some pilots' pay, like executives' pay, exceeds IRS thresholds.
United, Denver's biggest carrier, already has achieved significant savings by killing supplemental pension benefits for some former executives. In May 2003, as part of efforts to stay aloft, it ended supplemental benefits for all nonunion employees who had left United prior to its Chapter 11 filing in December 2002.
This affected 146 retirees, including former CEO and company lifer James Goodwin, and saved the airline $29.4 million. Lawyers for one former executive, Stuart Oran, said in court papers criticizing the move that Oran's total yearly retirement benefit from United would be slashed to $20,000 from $300,000.
United said in court filings that the action was "painful" for the airline, "particularly because it affects the benefits of former employees who have provided (it) with years of dedicated and loyal service."
For older current executives and retirees, supplemental benefit terminations "will be a substantial blow," even though they may get little sympathy from lower-paid rank-and-file workers, said veteran corporate turnaround consultant William Brandt, who heads Development Specialists Inc. in Chicago.
"There's a host of United retirees living lives of leisure with these" supplemental benefits, he said.
For executives such as Brace, 47, "the promise to pay ain't there, and he may be young enough to find a way to make that up" in his career.
Under United's pension plan for executives, a 30-year employee who works until age 65 and averages a base salary of $400,000 late in his or her career would qualify for $195,600 in annual pension benefits in retirement.
In 2003, the three highest-paid executives at United after Tilton had base salaries ranging from $443,000 to $582,000 and had years of service ranging from 10 to 33 years. They are Brace; Douglas Hacker, executive vice president of strategy; and McDonald.
According to United's 10-K annual report in March, Hacker, a 10-year employee, was scheduled when turning 50 in the next couple of years to have his service time roughly doubled, automatically, to 25 years. If he stayed five more years, to the age of 55, he would get 10 more years of service credit, giving him 35 years.
Tilton's $4.5 million trust at United was approved by the bankruptcy court in 2003. The Association of Flight Attendants has opposed the trust and other aspects of his compensation.
In a statement to the News, Greg Davidowitch, the head of the United branch of the union, said, "It's ironic that the people who are making decisions to terminate pensions for thousands of dedicated airline employees are the same ones who have gone to extraordinary lengths to ensure millions of dollars in protected pension trusts and golden parachutes for themselves."
He said the union supports a bill introduced this month by U.S. Rep. George Miller, D-Calif. The legislation would bar companies from paying special pensions to top executives for five years if they scrap their pension plans while in bankruptcy.
Special pension protections for executives have erupted into big controversies in the airline industry in recent years. Delta arranged bankruptcy-proof pension plans for more than 30 executives in 2002, while its regular employee pensions were deeply underfunded. It later canceled the program, but only after making trust payments totaling $45 million that executives could keep.
A similar plan at American Airlines cost ex-CEO Don Carty his job.
When Tilton left ChevronTexaco, where he was vice chairman, he was eligible for an annual pension in the range of $550,000 to $600,000 and certain other compensation of about $1.2 million.
Had he stayed through the end of his contract in November 2004, however, his annual pension would have been about $1.1 million, the News estimates, based on ChevronTexaco disclosures with the U.S. Securities and Exchange Commission.
"It doesn't bother me," Douglas Baird, a professor in bankruptcy law at the University of Chicago, said of Tilton's trust at United. "If I were the workers, I would worry a lot less about how much he is paid and worry more about whether he's doing a good job."
Tilton would have rejected the CEO job at beleaguered United in 2002 if he didn't receive compensation for potential benefits he forfeited at ChevronTexaco, he said.
Said Baird: "(Tilton) said, 'Guess what: I'm not going to come work for you losers until you pay me for this.' "
United's four pension plans are underfunded by about $8.3 billion, the pension agency says. The agency says it would cover $6.4 billion. United has 120,000 workers and retirees.
United employees, retirees brace for more cuts
• United has warned it will terminate its employee pension plans, resulting in an estimated $1.9 billion in lost benefits for plan participants.
• United is reportedly consi- dering cutting another 6,000 jobs, or about 10 percent of its work force.
• United said Friday it will seek additional labor-cost savings from workers, which likely will include wage and benefit cuts.
• The airline says it is pursuing more than $1.1 billion in annual cost savings above the $5 billion it already has achieved in bankruptcy.
How it would affect some of the top officers
• If United Airlines ends its pension plans, the move will dramatically reduce benefits for more than 100 current and former United officials. These executives would face a double whammy:
1. Their regular pension benefit would be cut because it exceeds insurance caps from a quasi-federal agency.
2. They have a supplemental pension benefit that has no protection in the bankruptcy proceeding.
Glenn Tilton
Chief executive
• Outlook: He has a $4.5 million bankruptcy-proof trust to compensate him for forfeiting potential benefits at Chevron-Texaco, his former employer. Tilton would lose pension benefits as a United employee because he isn't vested.
James Goodwin
Former CEO
• Outlook: He already has had his supplemental pensionbenefits terminated by United, a significant blow. He also would see his regular benefit reduced if United terminates the four employee plans.
Others affected
• Three senior United executives-Chief Financial Officer Jake Brace, Executive Vice President of Strategy Doug Hacker and Chief Operating Officer Pete McDonald-are among those facing steep potential cuts. McDonald had 33 years of service at United as of its 10-K annual report in March.
• Under United's pension plan for executives, a 30-year employee who works until 65 and averages a base salary of $400,000 late in his or her career would qualify for $195,600 in annual pension benefits in retirement.
[email protected] or 303-892-2514
If workers' pensions go, officials' plans to be slashed, too
By David Kesmodel and David Milstead, Rocky Mountain News
October 19, 2004
As executives at United Airlines prepare to take a knife to the company's employee pension plans, they do so knowing they would be inflicting deep wounds on their own retirement benefits in many cases.
More than 100 current and former United officials would see their pension benefits cut dramatically if the carrier ended its plans, leading to life-style changes for some but saving United tens of millions of dollars.
Advertisement
These officials, able to qualify for rich pensions based on their years of service and high annual pay, would join the airline's pilots as the workers and retirees facing the biggest hit from pension terminations.
The giant carrier says it likely will end its four pension plans, which are severely underfunded, and replace them with less-generous retirement benefits to emerge from bankruptcy and become a viable business.
Only one senior United executive - Chairman and CEO Glenn Tilton - has a retirement benefit with special protection from creditors in the bankruptcy, the airline said.
A $4.5 million trust was set up for Tilton when he was hired in 2002 "in consideration of projected retirement benefits" he forfeited by leaving ChevronTexaco Corp., United has said in regulatory documents.
Those foregone projected benefits could have totaled about $500,000 annually for the rest of his life, the Rocky Mountain News estimates.
Tilton, 56, whose trust has been opposed by the union representing United flight attendants, would lose all the pension benefits he has accrued as a United employee because he hasn't worked the five years required to be vested.
Many current and former United executives, including Chief Financial Officer Jake Brace and Chief Operating Officer Pete McDonald, would see very steep cuts in pension benefits because their high salaries have made them eligible for a supplemental retirement plan that United, the operating unit of UAL Corp., began in 1987.
The plan was set up to provide benefits to executives whose salaries exceed the Internal Revenue Service's caps for traditional retirement benefits. This year's cap is an annual salary of $205,000.
In effect, the executives would face a double hit. Their regular pension benefits would be pared because the benefits they have accrued exceed maximums on insurance from the Pension Benefit Guaranty Corp., the quasi-federal agency that pays benefits when plans fail. The cap in 2004 for a 65-year-old is about $44,000 a year, a fraction of what some executives have earned.
The supplemental benefits are not insured by the agency and are not protected in a bankruptcy proceeding. They would amount to unsecured claims, and the current and former executives would stand to get little or nothing for them, according to bankruptcy experts.
That contrasts with a controversial, bankruptcy-proof program that Delta Air Lines arranged for senior executives in 2002.
It's only fair that United brass join the rank and file in suffering retirement losses, said Thomas J. Salerno, a Phoenix bankruptcy lawyer.
"They have to bleed with everyone else," said Salerno, who is in charge of the bankruptcy group at Squire Sanders & Dempsey LLP, an international law firm. "You can't keep going to the rank and file and saying, 'Bleed a little more.' "
Chicago-based United declined to say precisely how many current and former executives, officers and directors are part of its supplemental plan. It said only that the figure is more than 100. "We have not made a decision about whether to terminate and replace the plan," spokeswoman Jean Medina said.
In bankruptcy papers the airline filed on its pensions, and that later were thrown out by the court for procedural reasons, United said it "will concomitantly terminate" the supplemental plan if it scraps any of its four employee pension plans.
The company also said it might have to dissolve a separate supplemental plan for pilots under that scenario. According to the pilots union, 338 active pilots have supplemental benefits and 538 retired pilots do. Some pilots' pay, like executives' pay, exceeds IRS thresholds.
United, Denver's biggest carrier, already has achieved significant savings by killing supplemental pension benefits for some former executives. In May 2003, as part of efforts to stay aloft, it ended supplemental benefits for all nonunion employees who had left United prior to its Chapter 11 filing in December 2002.
This affected 146 retirees, including former CEO and company lifer James Goodwin, and saved the airline $29.4 million. Lawyers for one former executive, Stuart Oran, said in court papers criticizing the move that Oran's total yearly retirement benefit from United would be slashed to $20,000 from $300,000.
United said in court filings that the action was "painful" for the airline, "particularly because it affects the benefits of former employees who have provided (it) with years of dedicated and loyal service."
For older current executives and retirees, supplemental benefit terminations "will be a substantial blow," even though they may get little sympathy from lower-paid rank-and-file workers, said veteran corporate turnaround consultant William Brandt, who heads Development Specialists Inc. in Chicago.
"There's a host of United retirees living lives of leisure with these" supplemental benefits, he said.
For executives such as Brace, 47, "the promise to pay ain't there, and he may be young enough to find a way to make that up" in his career.
Under United's pension plan for executives, a 30-year employee who works until age 65 and averages a base salary of $400,000 late in his or her career would qualify for $195,600 in annual pension benefits in retirement.
In 2003, the three highest-paid executives at United after Tilton had base salaries ranging from $443,000 to $582,000 and had years of service ranging from 10 to 33 years. They are Brace; Douglas Hacker, executive vice president of strategy; and McDonald.
According to United's 10-K annual report in March, Hacker, a 10-year employee, was scheduled when turning 50 in the next couple of years to have his service time roughly doubled, automatically, to 25 years. If he stayed five more years, to the age of 55, he would get 10 more years of service credit, giving him 35 years.
Tilton's $4.5 million trust at United was approved by the bankruptcy court in 2003. The Association of Flight Attendants has opposed the trust and other aspects of his compensation.
In a statement to the News, Greg Davidowitch, the head of the United branch of the union, said, "It's ironic that the people who are making decisions to terminate pensions for thousands of dedicated airline employees are the same ones who have gone to extraordinary lengths to ensure millions of dollars in protected pension trusts and golden parachutes for themselves."
He said the union supports a bill introduced this month by U.S. Rep. George Miller, D-Calif. The legislation would bar companies from paying special pensions to top executives for five years if they scrap their pension plans while in bankruptcy.
Special pension protections for executives have erupted into big controversies in the airline industry in recent years. Delta arranged bankruptcy-proof pension plans for more than 30 executives in 2002, while its regular employee pensions were deeply underfunded. It later canceled the program, but only after making trust payments totaling $45 million that executives could keep.
A similar plan at American Airlines cost ex-CEO Don Carty his job.
When Tilton left ChevronTexaco, where he was vice chairman, he was eligible for an annual pension in the range of $550,000 to $600,000 and certain other compensation of about $1.2 million.
Had he stayed through the end of his contract in November 2004, however, his annual pension would have been about $1.1 million, the News estimates, based on ChevronTexaco disclosures with the U.S. Securities and Exchange Commission.
"It doesn't bother me," Douglas Baird, a professor in bankruptcy law at the University of Chicago, said of Tilton's trust at United. "If I were the workers, I would worry a lot less about how much he is paid and worry more about whether he's doing a good job."
Tilton would have rejected the CEO job at beleaguered United in 2002 if he didn't receive compensation for potential benefits he forfeited at ChevronTexaco, he said.
Said Baird: "(Tilton) said, 'Guess what: I'm not going to come work for you losers until you pay me for this.' "
United's four pension plans are underfunded by about $8.3 billion, the pension agency says. The agency says it would cover $6.4 billion. United has 120,000 workers and retirees.
United employees, retirees brace for more cuts
• United has warned it will terminate its employee pension plans, resulting in an estimated $1.9 billion in lost benefits for plan participants.
• United is reportedly consi- dering cutting another 6,000 jobs, or about 10 percent of its work force.
• United said Friday it will seek additional labor-cost savings from workers, which likely will include wage and benefit cuts.
• The airline says it is pursuing more than $1.1 billion in annual cost savings above the $5 billion it already has achieved in bankruptcy.
How it would affect some of the top officers
• If United Airlines ends its pension plans, the move will dramatically reduce benefits for more than 100 current and former United officials. These executives would face a double whammy:
1. Their regular pension benefit would be cut because it exceeds insurance caps from a quasi-federal agency.
2. They have a supplemental pension benefit that has no protection in the bankruptcy proceeding.
Glenn Tilton
Chief executive
• Outlook: He has a $4.5 million bankruptcy-proof trust to compensate him for forfeiting potential benefits at Chevron-Texaco, his former employer. Tilton would lose pension benefits as a United employee because he isn't vested.
James Goodwin
Former CEO
• Outlook: He already has had his supplemental pensionbenefits terminated by United, a significant blow. He also would see his regular benefit reduced if United terminates the four employee plans.
Others affected
• Three senior United executives-Chief Financial Officer Jake Brace, Executive Vice President of Strategy Doug Hacker and Chief Operating Officer Pete McDonald-are among those facing steep potential cuts. McDonald had 33 years of service at United as of its 10-K annual report in March.
• Under United's pension plan for executives, a 30-year employee who works until 65 and averages a base salary of $400,000 late in his or her career would qualify for $195,600 in annual pension benefits in retirement.
[email protected] or 303-892-2514
