MEC CODE-A-PHONE UPDATE
March 14, 2003
This is Roy Freundlich with a US Airways MEC update for Friday, March 14.
The MEC held an informational conference call yesterday evening and received reports from ALPA’s staff actuaries, benefit attorney, and the MEC’s independent actuary consultant, from Hewitt and Associates, on the results of actuarial verifications and pension plan funding scenarios.
The actuaries reported that its analysis of the actuarial model and assumptions produced results within 1% of the Company’s actuarial calculations from Towers-Perrin concerning the projected funding obligations over the next seven years.
The MEC’s independent consultant actuary also reported that, absent new legislation, it would be unreasonable to extend the IRS waiver that increases the liability interest rate multiple from 105% to 120% beyond the sunset conditions of the waiver, which expires at the end of 2003. This is consistent with ALPA’s actuaries and the Bankruptcy Court’s findings on this matter. Recall that this interest rate waiver relaxes funding obligations by increasing the liability interest rate. The waiver expires in 2003, contributing to the projected funding obligation spike in 2004 and 2005.
The actuarial analyses included running various scenarios for freezing the plan to determine if sufficient savings could be achieved to preserve it. A retroactive freeze of the plan to 1/1/2002 suggested a funding obligation reduction of approximately 600 million dollars over a seven-year period. ALPA actuaries, benefits attorney, and independent actuary advised, however, that a retroactive freezing of the plan is not feasible considering the requirements to process such a plan modification (minimum 6 months for IRS approval), the very low likelihood of IRS approval for our situation, indefinite suspension of benefit accruals for active pilots, and requiring Company consent.
Despite these challenges the Negotiating Committee proposed this scenario to management since the opportunity to utilize the anti-cutback exclusion to do a retroactive freeze this year expires this week. The Company responded that it would not consent to a retroactive freeze because of the cost increase and the reasons it argued against a retroactive freeze in court during the hearing on its motion for distress termination.
The actuarial analyses report to the MEC concluded that there was no viable cost saving scenario that provided a feasible opportunity to preserve the current defined benefit plan through further plan modification or reasonable actuarial assumptions. This combined with the Bankruptcy Court’s ruling approving the distress termination of the plan and the Court’s position on the Company’s inability to sustain operations in Chapter 11 or emerge from bankruptcy without plan termination, requires that the distress termination of the plan be included in achieving a reasonable settlement of the pension issue.
At this point the MEC will be focusing on the negotiating effort to obtain an acceptable follow-on defined contribution plan, resolve fairness issues, and obtain settlement terms as well as pursuing a legislative solution that includes retroactive provisions to apply any industry or national restoration or other pension funding solution to US Airways. Such retroactive provisions would restore the plan after plan termination. Recall that the restoration funding process required the plan be terminated first and then restored under a modified and extended funding arrangement. This process of plan termination and restoration to extend funding obligations makes a retroactive legislative solution the most feasible option for possible future plan preservation under the current circumstances.
Preserving already earned pension benefits will remain the focus of both the negotiation and legislative activities.
The Negotiating Committee also gave the MEC an update yesterday evening on the state of negotiations with management on the pension plan.
Management provided the Negotiating Committee with a counterproposal to ALPA’s proposed Letter of Agreement. Their positions include:
· Snapback proposal: Management told the Negotiating Committee that they did not consider responding to ALPA’s snapback proposal due to the Company’s cost structure. ALPA included the snapback as a fairness issue, since it was provided to other labor groups and is in management’s own compensation plan.
· Regaining retirement payments: Management said that since ALPA did not raise a problem with the 35 million dollar payments paid to Stephen Wolf, Rakesh Gangwal, and Larry Nagin prior to the time when it was announced on Neil Cohen’s cross-examination during the pension plan hearing, that ALPA cannot raise it as an issue now.
· Grievances: Management that the issue regarding the staffing of Midway aircraft would be addressed and the use of ACARS would be continue under the status quo. In exchange, management proposes that the MEC agree to withdraw the Mesa grievance, Improper Furlough grievance, and the lump sum payment grievance.
· Retired pilot insurance: Management proposed effective January 1, 2004, and subject to insurability, a retired pilot under 65 may purchase life insurance as long as there is no adverse impact from its cost.
· LTD: Management proposed that LOA 41, LTD AGE 57, be amended for additional concessions to the Company.
· Expenses: Management agreed to pay reasonable fees for expenses incurred in connection with an agreement on the pension issue.
Management also presented their view of a follow-on DC plan. While this modified plan captures 100 out of the 150 pilot “outliers†who would not reach the full target benefit level under the Company’s original proposed DC plan, the plan is essentially a revamped version of their previous plan that, as explained in the MEC’s February 7 letter, has serious shortcomings.
The Company stated that if the DB plan is terminated, and restoration funding legislation is then passed, the pension plan would revert to the previous pre-termination plan. If no legislation was passed by the end of 2003, the Company would implement a DC plan. There position is that they are not going to fund the DC plan until late 2003, to avoid possible double funding payments, which exposes pilots to the risk of the un-funded portion of the DC plan during that period.
The Committee characterized management’s counterproposal as backtracking and unproductive for resolving the issues.
Negotiations are continuing and updates will be provided as information becomes available.
Please remember we have 1,827 pilots on furlough.
Thank you for listening.
