C
chipmunn
Guest
US Airways provides ALPA, AFA, the IAM and some other employees defined benefit retirement plans. The CWA and FSA have frozen defined benefit plans as well as a defined contribution plan.
Pension plans have fund managers who make conservative investments, primarily in the bond market, some in the stock market, and occasionally like RSA in a more risky adventure like US Airways.
During the past three years the economy and stock market has retraced into a strong bear market. In response the Federal Reserve has cut interest rates to stimulate business, lower credit card rates, lowered mortgage interest, etc. However, as rates drop bond prices increase and the yield goes down. When the yield goes down there is less interest income for debt investments (bonds) and thus pension plans become underfunded.
Pension plan laws covered by ERISA never expected to have such a sustained bear market and thus 325 out of 360 company''s in the S&P 500 will have underfunded pension plans. When a plan becomes underfunded the law states that companies must refund their pension plans; however, in the case of most airlines and in our case US Airways they do not have the financial resources to restore the plans to 100 percent funding.
In the case of US Airways and UAL the problem is more compounded because these monies have to be accounted for in the 7 percent profit margin over the life of the federal loan guarantee program. Because the loan guarantee guidelines require US Airways to post the 7 percent profit margin, the bankruptcy Plan of Reorganization (POR)/ business plan must account for the pension plan restoration funding. The company believes with current market trends it will cost the airline $3.1 billion in restoration funding over the next six years, the remaining life of the loan guarantee to fully fund the defined benefit pensions.
US Airways reached agreement with the IAM and AFA and the union leadership recommended the TA''s be ratified the company would not change their pension plan, which account for about 24 percent of the company''s obligation. However, because the pilot pension plan is about 70 percent of the corporate obligation the company and ALPA agreed to change the multiplier from 2.4 percent to 1.8 percent and make some other changes.
This agreement was submitted to the PBGC last week, but the PBGC rejected the agreement. Today the company, ALPA, PBGC, Senator Specter, and senior members of the Bush Administration are meeting at the White House to discuss this issue to find a solution to the problem, which is no fault of US Airways, but the underfunding has been created primarily by the rise in bond market and the deep drop in interest rates.
Chip
Pension plans have fund managers who make conservative investments, primarily in the bond market, some in the stock market, and occasionally like RSA in a more risky adventure like US Airways.
During the past three years the economy and stock market has retraced into a strong bear market. In response the Federal Reserve has cut interest rates to stimulate business, lower credit card rates, lowered mortgage interest, etc. However, as rates drop bond prices increase and the yield goes down. When the yield goes down there is less interest income for debt investments (bonds) and thus pension plans become underfunded.
Pension plan laws covered by ERISA never expected to have such a sustained bear market and thus 325 out of 360 company''s in the S&P 500 will have underfunded pension plans. When a plan becomes underfunded the law states that companies must refund their pension plans; however, in the case of most airlines and in our case US Airways they do not have the financial resources to restore the plans to 100 percent funding.
In the case of US Airways and UAL the problem is more compounded because these monies have to be accounted for in the 7 percent profit margin over the life of the federal loan guarantee program. Because the loan guarantee guidelines require US Airways to post the 7 percent profit margin, the bankruptcy Plan of Reorganization (POR)/ business plan must account for the pension plan restoration funding. The company believes with current market trends it will cost the airline $3.1 billion in restoration funding over the next six years, the remaining life of the loan guarantee to fully fund the defined benefit pensions.
US Airways reached agreement with the IAM and AFA and the union leadership recommended the TA''s be ratified the company would not change their pension plan, which account for about 24 percent of the company''s obligation. However, because the pilot pension plan is about 70 percent of the corporate obligation the company and ALPA agreed to change the multiplier from 2.4 percent to 1.8 percent and make some other changes.
This agreement was submitted to the PBGC last week, but the PBGC rejected the agreement. Today the company, ALPA, PBGC, Senator Specter, and senior members of the Bush Administration are meeting at the White House to discuss this issue to find a solution to the problem, which is no fault of US Airways, but the underfunding has been created primarily by the rise in bond market and the deep drop in interest rates.
Chip
