Pension Issue

[Walmartgreeter]

WorldTraveler:



Perhaps "The Feds" (and you) need to be reminded that the PBGC exists to ensure that participants in defined-benefit pension plans receive at least some minimal pension payment, not that they be thrown out of work by the tens of thousands! IMHO, I believe that the Judge will make sure that the PBGC understands this pretty basic concept.

[post="173140"][/post]​

Thanks Cosmo..you are so correct. The PBGC has a poor memory. I guess they forgot all the monthly fees they have gotten over the years ....aka..insurance payments..and somehow feel they are above all this. Throw in the fact that for the past 26 years the taxpayers (aka the government) have BLOCKED the business plans of said carriers for years through regulation and taxes..and you get what you deserve. NO doubt about it..the Usair termination was windfall for a lot of steelworkers. Plenty of money to go around after giving 50 somethings pilots at U the basic benefit (remember..subtract 3 years before applying benefits!) I hope beyond all hope the UAL pilots don't get their plans terminated...but I also look forward to the taxpayer getting the shaft on the whole deal. Best to you all. Greeter. (Looks like Tropical Storm UAL is about to hit the mainland as a hurricane!)

 

[Borescope]

I guess they forgot all the monthly fees they have gotten over the years ....aka..insurance payments..and somehow feel they are above all this.

[post="173150"][/post]​

Since 1974 UAL corp has paid 50 Million in insurance premiums to the PBGC. That hardly a lot of money considering at least 5 Billion is owed and maybe more. Wouldn't it be great if we could all get insurance for 1%?

 

[Walmartgreeter]

Since 1974 UAL corp has paid 50 Million in insurance premiums to the PBGC. That hardly a lot of money considering at least 5 Billion is owed and maybe more. Wouldn't it be great if we could all get insurance for 1%?

[post="173156"][/post]​

Hmmm. Maybe an number cruncher can do the math...50M over 30 years with NO payouts. By the way..based on payouts of current term life policies, they, the industry, are doing just fine. You ARE getting better than 1%. Greeter.

 

[Ukridge]

Fly is correct Cosmo - you certainly add a fine voice of reason to the proceedings. It was always enjoyable to see you level your cognitive skills against that blighter Chip, but am pleased to see that you are still here to address the latest issues with the same level of practised insight. It will indeed be interesting to see how this "huffing and puffing" by your PBGC plays out before the judge.

Along another line, has it been determined how much benefit United gains from working in harness with USAirways and what impact that would have if the later carrier went off to the great UCT in the sky? Would United be able to protect itself?

Cheers

 

[WorldTraveler]

WorldTraveler:

Perhaps "The Feds" (and you) need to be reminded that the PBGC exists to ensure that participants in defined-benefit pension plans receive at least some minimal pension payment, not that they be thrown out of work by the tens of thousands! IMHO, I believe that the Judge will make sure that the PBGC understands this pretty basic concept.

[post="173140"][/post]​

The PBGC will provide UAL employees their guaranteed benefits regardless of whether UA survives or not and probably the same will happen for US as well. As has happened on more than one issue, UA is being used as an example because its size and the size of its problems are more than the government wants to digest. The government does not want any other legacy carrier that has the possibility of surviving to get the idea of dumping their pension plans and then staying in business. Doesn’t necessarily make it fair that the PBGC took US’ pilots pension but that may be the last airline pension plan the PBGC takes over unless the company is in chapter 7.

 

[atabuy]

Since 1974 UAL corp has paid 50 Million in insurance premiums to the PBGC. That hardly a lot of money considering at least 5 Billion is owed and maybe more. Wouldn't it be great if we could all get insurance for 1%?

[post="173156"][/post]​

Hi all, Hope your summer was good.

That is how premiums work for all insurance. It is a very exact science which is calculated on probability.

If Ual does go bk they will increase premiums to the rest of the companies to compensate for it.

Mal-practice insurance is a good example of what will happen.

Maybe a change in leadership will help us out.

Fly, I love that icon.

 

[The Ronin]

Just a little REHASH on the subject

Business Week Online
Close Window
AUGUST 26, 2004

NEWS ANALYSIS
By Amy Borrus

Pensions on a Precipice
What could happen if UAL offloads its retirement plan on the feds? Let's take a look
The threat by UAL, parent of struggling United Airlines, to walk away from its four pension plans has set off shock waves throughout the airline industry. Thousands of pilots, flight attendants, and mechanics are sweating possible drastic reductions in their retirement benefits. And if UAL were to make such a move, other ailing old-line carriers such as Delta Air Lines (DAL ), Northwest Airlines (NWAC ), and US Airways Group (UAIR ) might also slash pension costs to remain competitive.

Yet UAL's crisis could spread well beyond airlines. Already it has renewed worries about the shaky financial health of the quasi-governmental agency that insures old-fashioned "defined benefit" pensions for 44 million Americans, the Pension Benefit Guaranty Corp. With the PBGC already $10 billion short of what it needs long-term to pay promised benefits, some experts fear the situation eventUALly may require a multibillion-dollar taxpayer bailout.

Here's a primer on what could happen if United or other airlines dump their underfunded pension plans on the PBGC.

Can UAL simply stop making payments to its pension plans?
That's a matter of contention. UAL, which is seeking new financing to emerge from bankruptcy protection, missed a July payment of $72 million owed to three of its plans and says it will skip more than $500 million in payments due in September and October. A bankruptcy court judge so far has not ruled on the PBGC's request that UAL make the payments, which are required under federal pension law.

But UAL is under intense pressure to pony up. Treasury Secretary John W. Snow, who sits on PBGC's board, told BusinessWeek on Aug. 23 that he agrees that UAL must pay. Says Snow: "Those are binding obligations, and they have to be taken seriously."

How would a pension dump work?
To offload its pensions onto PBGC, United would have to prove it is under severe financial distress. That shouldn't be hard, since the carrier has been in Chapter 11 since 2002, and its financial condition remains weak. The PBGC would assume the assets and liabilities of the plans, which the insurer estimates are underfunded to the tune of $8.3 billion.

That would be the largest corporate pension default ever, far surpassing the $3.6 billion that Bethlehem Steel Corp. saddled the agency with in 2002. PBGC could petition for more of UAL's assets, but it would fall in line behind many other creditors.

What would United's workers and retirees get?
Collectively, $1.9 billion less than they expect now, since the PBGC would cover only $6.4 billion of the underfunding. That's because the PBGC's payments to retirees are capped by law at $44,386. And that maximum annual payout is far less than most pilots and some attendants and mechanics have been promised.

Pilots face a double hit: Not only are they big earners, but by law they must retire at 60. Yet the PBGC reduces its payouts for those who retire before age 65. That means a 60-year-old senior pilot at United, who could expect a yearly pension of $100,000, would receive just $28,500. Little wonder that some pilots at United and other older carriers who can take lump-sum pension payouts if they retire now, are calling it quits.

Would other carriers follow United's lead?
Very likely. If United can offload its pensions, it would add hundreds of millions in annual cash flow. That would enable it to boost spending on facilities and planes, and lower fares to compete with upstart carriers that don't offer traditional pension plans. Such a move would give UAL a huge edge, thus compelling Delta and us Airways to do the same, says Roger E. King, senior analyst at CreditSights Ltd., an independent debt research firm.

But handing pension plans over to the PBGC would essentially require airlines to file for Chapter 11, an unappealing step. That's why Standard & Poor's credit analyst Philip A. Baggaley thinks it's more likely that UAL's old-line rivals would use United's pension termination as a cattle prod to win big concessions from pilots and other employees. From their perspective, "even if concessions are bad, bankruptcy is far worse," says Baggaley.

So would ditching pension plans help the airline industry restructure?
Knocking out costly pensions alone won't offset the traditional carriers' triple whammy of the post-September 11 travel drop-off, high fuel prices, and the proliferation of low-cost carriers. And terminating plans can be a two-edged sword. "There is always the danger that the unionized workers who lose their pensions will want some sort of quid pro quo—reduced productivity or more flexible work hours," says Stuart Klaskin of aviation consulting firm Klaskin, Kushner & Co. in Miami.

Consider the fate of US Airways. The carrier looked like it might pull out of its tailspin 17 months ago, when it filed for Chapter 11 and dumped its pilots' pension plan, underfunded to the tune of $2.5 billion, on the PBGC. But today it is again fighting off bankruptcy. At best, shedding pension plans would let the legacy carriers muddle along -- without sharply reducing bloated costs or eliminating the problem of too many carriers chasing too few passengers.

Can the PBGC withstand a raft of pension offloads from the airline industry?
In the short term, yes. The agency has $40 billion in assets and would inherit billions more up front from the carriers' plans to cover liabilities that would be paid out over decades.

Still, a funding crisis looms. Already, the PBGC is paying out $3 billion in benefits annually and taking in barely $1 billion in premiums. Investment income doesn't cover the gap. A string of corporate bankruptcies, many in the steel industry, have already hammered the agency. And the PBGC's premium base is shrinking as more employers switch from their insured traditional pensions to uninsured 401(k) plans, where employees bear the risk of making sure they save enough for retirement. Since the mid-1980s, in fact, the number of traditional defined-benefit plans has plunged by more than 72%.

Can the PBGC's finances be propped up?
Not easily. It takes an act of Congress to raise the PBGC's premiums. A spate of airline pension terminations would juice the agency's campaign on Capitol Hill to switch to risk-based fees keyed to a company's credit rating and the funding level of its plan. Currently, the agency gets most of its premium revenue from a $19 annual charge for every worker whose pension is insured. The PBGC "is unable to control its own destiny" because it doesn't set its own premiums or control who it insures, says Steven A. Kandarian, PBGC's former executive director.

But lawmakers and businesses are likely to balk. "Risk-based premiums put the higher burden on those who can afford it least," says Baruch A. Fellner, a partner at Gibson, Dunn & Crutcher and former PBGC associate general counsel. And raising premiums for all would penalize companies that have continued to fund plans. General Motors (GM ) floated a $14.5 billion debt offering last year to shore up its $19 billion pension shortfall. Higher premiums on top of that would be unfair, says gm Chairman G. Richard Wagoner Jr.: "It falls into the 'no good deed goes unpunished' category."

The danger is that companies that have played by the rules get fed up and switch to 401(k) plans. Workers would get the retirement benefits they've accrued—but no new ones.

So what's the likely outcome?
Closing loopholes that let weak companies avoid making pension contributions would help to deter companies from overpromising benefits. So would raising the cap on tax-deductible contributions so companies could stash more in their plans in good times.

But such reforms, which require congressional approval, may not come soon enough. Many experts think taxpayers will end up footing the bill for a PBGC bailout. "Unless PBGC gets lucky, this will be the next savings and loan scandal," says Kent Smetters, associate professor of insurance and risk management at the University of Pennsylvania's Wharton School. Except in this case, no one can say they didn't see it coming

 

[crossfeed]

$44,300 maybe far less annual payout for the pilots, not sure about mechanics/flight attendants? I believe the pilots have additional pensions in place, including the 401K. There are a lot of pilots hired duriing the mid 90's who would sacrafice there pension for pay retention, and some job security, I would think? As far as the PBGC, some politicians came up with this program to show they care about the little guy, vying for votes, not sweating the details, (even though something should have been done), United has been paying into this program, and the PBGC needs to pay. I feel keeping the pension may jeopardize my pay, and dayshift status, (even though I am not sure if I will be around even if United is a functioning company). I have a ways to retirement so I have to save for it myself. I was told when I started here that you would be hard pressed to retire on United's pension. I look at this as a 8.3 billion dollar bill United can get someone else to pay, got to be good for me. Now what United dose with the windfall is another story, there track record on spending is not good. I like the part about if employees loss there pension they may demand reduced productivity, or more flexible work hours, United being the exception I would assume.

 

[Borescope]

$44,300 maybe far less annual payout for the pilots

[post="173900"][/post]​

It's only $28.000, since they are in the eyes of the PBGC, retiring early.(at age 60) They take an additional hit through no fault of their own. The rest of us can opt to hang on after 60 and retire at 65 with $44,300. :down:

 

[Dizel8]

"I look at this as a 8.3 billion dollar bill United can get someone else to pay, got to be good for me."

Wonder if I can get a credit card like that, you know I spend, they pay

 

[uafa21]

They will not get to walk away with a $8.3 Billion bill. If they do, then the Fed's will do everything they can to make U liquidate. They don't want other airlines following the same path.

You don't walk away from that kind of number without consequenses.

 

[atabuy]

This information might have been published before. If so, sorry for the dupes.
It looks like this criteria leaves a lot of wiggle room for any board, and I don't think Ual ever had a chance of getting approval.


Air Transportation Stabilization Board
Loan Guarantees

The purpose of the guarantees issued by the Board is to compensate air carriers for losses incurred as a result of the terrorist attacks on the United States that occurred on September 11, 2001.

Before entering into an agreement to issue a guarantee, the Board must determine that:

* The obligor is an air carrier for which credit is not reasonably available at the time of the transaction;
* the intended obligation is prudently incurred; and
* such agreement is a necessary part of maintaining a safe, efficient and viable commercial aviation system in the United States.

Air Transportation Stabilization Board
Loan Guarantees
Here are the minutes from the meeting that rejected the loan:
2
The meeting commenced with a discussion of administrative matters. The first matter discussed
was a proposed amendment to the ATSB regulations that would permit, in the event of a vacancy
in the position of Chairman of the ATSB, the remaining two members of the ATSB to call
meetings and take actions between meetings. The Board approved the proposed amendment and
gave staff the authority to publish the proposed amendment in the Federal Register and otherwise
make the amendment effective. In addition, the Board adopted a resolution appointing Ms.
Marguerite Owen as the Board’s Legal Counsel.
Chairman Gramlich asked the Executive Director to summarize the United Air Lines (“Unitedâ€)
loan guarantee application. The Executive Director provided an overview of United’s proposal
including an update on United’s most recent proposal to the Board, which included private
equity investment and other structural changes. The Executive Director stated that United would
have some access to the capital markets but there is uncertainty about how much capital the
carrier could raise to exit bankruptcy. Furthermore, he noted that private equity investors would
likely require further changes to United’s business plan. He also stated that the sale of assets
may also play a part in the carrier’s ability to raise enough capital to exit bankruptcy.
Following the discussion, Governor Gramlich asked the voting members to present their
positions on United’s application. Under Secretary Shane stated that the Department of
Transportation and the Department of the Treasury had in the past several days taken part in
discussions with United about structural enhancements to the carrier’s proposal that would
positively impact the proposed transaction. He stated that United had requested additional time
to explore these issues and that the Department of Transportation was in favor of deferring a
Board decision on United’s application by one week to accommodate the request.
Under Secretary Roseboro stated that the changes being proposed by United would not change
the Department of the Treasury’s view on the application. In reviewing the statutory criteria, he
stated that the Department of the Treasury determined that the loan guarantee was not a
necessary part of maintaining a safe, efficient and viable commercial aviation system in the
United States, specifically that United would not face liquidation and further that providing such
a subsidy to a high cost air carrier would lik ely have very negative long-term effects on the
industry and competition. Treasury also determined that credit is reasonably available to United,
particularly for a credible business plan. Finally, Treasury determined that the obligation would
not be prudently incurred, specifically that the underlying business plan was built on unrealistic
assumptions and that the restructuring was insufficient. He stated that the Department of the
Treasury would vote to deny the application.
Governor Gramlich stated that the most recent changes proposed by United would not change his
view on the application. He stated that United had made tremendous progress in bankruptcy and
that it was a much improved airline today compared to December 2002. However, he stated that
most of the airlines that received loan guarantees from the Board received them in 2001 and
2002 when an argument could be made that these airlines had very limited access to capital
markets. Although the capital markets have not fully rebounded for airlines, he stated that access
to capital markets for airlines has improved since right after 9/11. He also expressed the view
that there is a strong probability that United would successfully emerge from bankruptcy without
an ATSB guaranteed loan and therefore he was going to vote to deny United’s application.
The Chairman then called for a vote on the United application. Chairman Gramlich and Under
Secretary Roseboro voted to deny United’s application. Under Secretary Shane voted to defer a
decision on the application for one week, pending further Board discussions with United
regarding its most recent proposals. The Board’s decision is based on a determination that a
guaranteed loan to United is not a necessary part of maintaining a safe, efficient, and viable
commercial aviation system in the United States, a requirement of the Act. Given United’s
circumstances, a majority of the Board believes that the likelihood of United succeeding without
a loan guarantee is sufficiently high so as to make a loan guarantee unnecessary.
The Board discussed and approved a letter to United.
The meeting adjourned at 11:55 a.m.

 

[UAL_TECH]

More Info on this topic:

Airline pilots propose pensions safety net

B) UT

 

[UAL_TECH]

Hi all, Hope your summer was good.

That is how premiums work for all insurance. It is a very exact science which is calculated on probability.

If Ual does go bk they will increase premiums to the rest of the companies to compensate for it.

Mal-practice insurance is a good example of what will happen.

Maybe a change in leadership will help us out.

Fly, I love that icon.

[post="173526"][/post]​

Jim,

Sorry for being rude, I forgot to say 'Hi'!
Hope you had a nice summer .
Too bad you couldn't put UAL behind and move on, but since
your retirement medical has been increased and retirement
benefits are about to be hosed, I can certainly understand.
Here is some pension information from the AMFA Local 9 website
that you may want read:

PENSION ARTICLES

Take Care,
B) UAL_TECH

 

[atabuy]

Jim,

Sorry for being rude, I forgot to say 'Hi'!
Hope you had a nice summer .
Too bad you couldn't put UAL behind and move on, but since
your retirement medical has been increased and retirement
benefits are about to be hosed, I can certainly understand.
Here is some pension information from the AMFA Local 9 website
that you may want read:

PENSION ARTICLES

Take Care,
B) UAL_TECH

[post="176111"][/post]​

UAL_TECH,
Thanks for the info.