Pension Relief Passes Senate

[atabuy]

Peasant,
You are lucky to work for a company that can still fund your pension with profits.
For most of the legacy carriers pensions are a liability, that is to say, Ual will not get a loan from the astb unless they can carry a 7% profit margin.
Ual being an old and established airline has many pension and health liabilities new carriers have not reached.

Therefore, it is easier for a start-up to offer lower prices, and still make money.
Legacy carriers are hoping demand will go up in a few years and raise fares to cover their pension liabilities. Kind of like a balloon mortgage.

Most companies are getting away from defined pensions and matching a portion of 401K's. This might be a way for Ual to transition over from defined to this setup.

In the mean time all of us will probably take a hit. No one will like it, but will be easier to take if we all suffer equally.

 

[Fly]

You know what I don't get? If the legacy carriers want to change things, why not start with newer employees? Instead of "gently nudging" us out the door, they make it almost impossible to quit. I called HR this morning to ask if I were to quit, would I, after almost 20 years, be able to leave with some sort of package (passes only?). Of course, NOPE! I can retire at 55 but unfortunately, that means over 15 more years. Of course, if someone wants to quit...then quit. But my beef is this: If I were 55 years old, I could retire with ALL benefits after only 10 years of service. Because of my age, I'm forced to stay. This breeds bad employees. The unions will do everything to keep me on the payroll because they will collect dues which means it could take a long time for the airline to get rid of the "dead wood". My passes end effective my last day of work (so why on earth would I quit?) I can't be the only one with this thinking. I can drag this out for years. I would think it would be proactive for them to let people, such as myself, to leave with some sort of passes (since they cost nothing) and then hire young, enthusiastic flight attendants.

Anyone from United Management reading this??? Let us go!

 

[atabuy]

FLY,
You have a great idea here which can help Ual. Send your comment to Tilton if you are really serious about leaving. Even with a small monetary package to entice employees to leave would not be a bad idea. Between vacation, sicktime, and pension liabilities, new hires would more than make up for the difference.
Good luck.

ps.
I think it is [email protected]

 

[FWAAA]

Must admit, as a foreign observer, a bit confused by the pension relief.

My airline (Cathay) also had funding shortfall in p funds, so injected extra 650m HKD (over and above normal contributions) this year, which was significant (given that profit was only 1.3 billion)

So, you seem to be playing double or quits with the pensions, and the retirees. IF all goes well, United will still have to pay the piper in x years time. If it doesn't, you (and the current retirees) are shafted worse than otherwise, because no top ups.

Now, for a 35 year old, that is an acceptable gamble. But what do the 70 year olds think? Were they asked?

Part of your confusion may stem from the arcane pension actuarial assumptions underlying the "underfunded" nature of many US plans.

Right now our US government debt (even though there is too much) yields an impossible to believe low interest rate. Much lower than the historical returns earned by pension plans.

Our pension laws require (until this recent change) for the acturaries to use US government bond yields to compute whether the plan was sufficiently funded - even though the plans invest in lots of equities and will probably (over the long term) earn a much higher return than the ridiculously low government bond yields. Part of the change allows the use of corporate bond yields to influence the assumptions (which, of course, have a higher yield).

When you use too low a rate in the calculations, it looks like the plans are drastically underfunded even though they may not be.

Add to that the decline since 2000 in the US equities markets and pension plans LOOK very underfunded.

USA airlines are short one thing right now - CASH. This delay in funding requirements (as well as changing the actuarial assumptions) gives the airlines the breathing room they need to survive. And it might yield the right numbers in the end if equities markets recover and the airlines recover. Then again, it might not.

Not all that long ago many old companies had grossly overfunded pension plans - and corporate raiders recognized this: they took over the company, withdrew the overage, and profited handsomely. Subsequent changes in law made this much harder to accomplish.

Of course, your airline (Cathay) made large profits last year, just like British Airways. If the large USA carriers had been as profitable as Cathay, no way would these changes have been approved.

 

[Boeingguy]

Talk about your counterintuitive. Their eye-watering retirement plans are collapsing because the companies didn't put enough money in and so the solution they came up with was for the pilots to petition Congress to allow their companies to put even less money into the retirement plans. Something about the fact that if the companies were to pay the money they are supposed to they would collapse and take the retirement plans with them.

 

[peasant]

FWAAA, thanks for the reply, though must admit that Boeingboy's reply is closer to my thinking - that you are playing double or quits, which is fine for employees, but how about those who have already retired?

Actuarially, the important numbers are expected pay rises, and expected returns. With inflation at 1.6%, US government bond yields at 4.4% do not look unbelieveably low - until inflation took off in the 60's, treasuries did pay 3-4%, so it is likely that after a generation of inflation, we are getting back to normal.

Read that the new law will allow discount rate of 6.2% (based on investment grade corporate bonds but NOT top grade ones) 4.5% above inflation implies a fair amount of risk involved.

It is an interesting question - should DB plans be allowed to invest aggressively (60-70% equity) or should they be forced to go conservative? (80% bonds)

If I were a shareholder, would insist on going conservative - if I wanted to buy into an equity mutual fund, I can do so... BA is now considered in the UK to be a pension fund with an airline attached (10 billion pound pension funds, 2 billion pound market cap, i.e. good or bad performance by the pension fund trustees could more than outweigh performance of the airline)

Again, investing in equities is OK for a 35 year old, but for a 70 year old...?

FYI 1.3 bn HKD is only 167m USD, so not a large profit.