Pensions.......

[synchronicity]

-------------------------------------------------------
Actually, Bankruptcy does not wipe out the ability of the IRS to recover taxes owed so why should the PBGC be treated any differently?

With the PBGC, it will come down to a taxpayer bailout of one sort or another.

Elevate the status of the PBGC to that of the IRS, at least the US taxpayer will recover some portion and future lenders will consider the funding status of the pension in question in determining the credit worthiness on a case by case basis.

As for wishing for a Ferrari and finding a Prizm, we could wish that the personal assets of Corporate Officers would be subject to seizure for failure to fund the balances and that the Bankruptcy Court must consider the funding status of all pensions any time a KERP/SERP payment request is presented.

[post="268268"][/post]​

Because the PBGC is the Pension Benefit Guaranty Coirporation, they act as a guarantor of defined benefit pension plans in the event that they fail. That is why they exist. Just like your bank savings are only insured thru FDIC up to 100K if the bank fails, your defined benefit pension is only guaranteed to the PBGC limits if the company fails.

And by the way, it's NOT a taxpayer bailout:

http://www.pbgc.gov/about/default.htm

PBGC is not funded by general tax revenues. PBGC collects insurance premiums from employers that sponsor insured pension plans, earns money from investments and receives funds from pension plans it takes over [ emphasis added ]

Payment of taxes owed generally takes precedence over most other obligations to other parties. It's that way in personal BK, and the same in corporate BK. Always been that way, for various reasons. Sorry if you're upset not to get the same priority as the IRS.

As for non-qualified pension benefits, at least some such benefits are not protected from the claims of creditors. Since I don't know the specifics of UAL's non-qualified plans, I don't know how they have been affected (if at all) by BK. But yes, at least some "executive benefits" can be seriously adversely impacted by BK.

As for "failure to fund the balances", you do realize that UAL's defined benefit pensions were actually overfunded until A) the market decline reduced the amount of assets in the plans, and B) the low interest rates increased the amounts needed to be put in the plans to meet actuarial requirements.

So what was UAL supposed to do, just yank a few billion more in cash out in 2001 or 2002 to fund the pension plans. I mean, they had so much free cash just floating around then...

-synchronicity

 

[767jetz]

UA employees cannot help but be peeved at what has happened today... and I sympathize completely with them.

[post="268269"][/post]​

What on Earth are you talking about? Almost every employee expected this from the day UA entered BK. In fact many were crying... "let the judge decide!" Well the judge decided. There will be very little shock in the morning. Nothing has really changed since yesterday, except that it is now official. Most employees were ready for this almost 2 years ago.

 

[aafsc]

From a legal standpoint; doesn't a company have to follow the nine bankrutcy rules prior to contract abrogation? And isn't one of those rules that the company has to negotiate in good faith with the unions? I would hardly call negotiating a deal with the PBGC behind the union's back good faith negotiating. And pensions are part of the collective bargaining agreement.

 

[Flying Titan]

As for "failure to fund the balances", you do realize that UAL's defined benefit pensions were actually overfunded until A) the market decline reduced the amount of assets in the plans, and B) the low interest rates increased the amounts needed to be put in the plans to meet actuarial requirements.

So what was UAL supposed to do, just yank a few billion more in cash out in 2001 or 2002 to fund the pension plans. I mean, they had so much free cash just floating around then...

-synchronicity

[post="268290"][/post]​

What was UAL supposed to do??? How about proper management and oversight of the pension fund? While we see many pension funds in trouble right now, this is by no means the case for all of them. Some fund managers actually pay attention to the simple philosophy of buy low, sell high. When these funds were flying high (pardon the pun), why didn't these managers diversify - hedge against downturns in the market??? Those that did aren't in this mess right now. Good management, that's what they were supposed to do.

 

[WorldTraveler]

767,
my coworker got rear-ended on the way to work yesterday. She knew she was going to get hit as she watched traffic keep moving towards her long after she stopped. Just because she knew it was coming did not eliminate the inconvenience or pain of having to sit in the middle of the interstate waiting for help to come.
UA employees are equally as hurt today as they were two years ago. The reason why your company succeeded at terminating your pensions is because you let them roll over you time after time again. It's perfectly obvious that your company has no regard for employees and will take as much as they have to keep the hope of UAL operating alive. If you have any doubts, just look at USAirways. There were alternatives to terminating the pensions, including the pension reform legislation that is working its way through Congress. But no, UA thinks it's cheaper to dump the pensions and alienate employees in a high-speed effort to get out of its obligations.
I commend management of the solvent four airlines - esp. DL who could easily go down the same path as UA - for recognizing that employee morale is worth something in a service business. UA's goals of having a loyal workforce and obtaining the majority of its revenue from premium passengers are incompatible. UA will not survive as an independent company for another three years.
All you are doing is providing incentive for the company to come after you time and time again when the end-game is already well-established. There's a reason why the mortality rate for airlines in bankruptcy is narly 100%. Shame on you for not having the self-repect to stand up and demand that you be treated for what you are worth.

 

[Boomer]

Because the PBGC is the Pension Benefit Guaranty Coirporation, they act as a guarantor of defined benefit pension plans in the event that they fail. That is why they exist. Just like your bank savings are only insured thru FDIC up to 100K if the bank fails, your defined benefit pension is only guaranteed to the PBGC limits if the company fails.

And by the way, it's NOT a taxpayer bailout:

http://www.pbgc.gov/about/default.htm

PBGC is not funded by general tax revenues. PBGC collects insurance premiums from employers that sponsor insured pension plans, earns money from investments and receives funds from pension plans it takes over [ emphasis added ]

Payment of taxes owed generally takes precedence over most other obligations to other parties. It's that way in personal BK, and the same in corporate BK. Always been that way, for various reasons. Sorry if you're upset not to get the same priority as the IRS.

As for non-qualified pension benefits, at least some such benefits are not protected from the claims of creditors. Since I don't know the specifics of UAL's non-qualified plans, I don't know how they have been affected (if at all) by BK. But yes, at least some "executive benefits" can be seriously adversely impacted by BK.

As for "failure to fund the balances", you do realize that UAL's defined benefit pensions were actually overfunded until A) the market decline reduced the amount of assets in the plans, and B) the low interest rates increased the amounts needed to be put in the plans to meet actuarial requirements.

So what was UAL supposed to do, just yank a few billion more in cash out in 2001 or 2002 to fund the pension plans. I mean, they had so much free cash just floating around then...

-synchronicity

[post="268290"][/post]​

----------------------------------------------------------
Synchro,

As matters now stand, yes, you are correct in that the PBGC is supposed to be self-funded through premiums collected from DBP plan sponsors; but, the PBGC has been in a deficit situation now for the better part of three years.

Though the recent attention has been focused on the funding status of the airlines, some $30 Billion underfunded, the total underfunding status for all DBP is estimated by the PBGC at around $400 Billion using 2004 PBGC numbers.

While no one wants to have to pay for mismanagement through taxes; there is ample precedent for a taxpayer bailout: remember the FSLIC?

As to what UAL should have done or could do? As a taxpayer, I would like to see any DBP plan sponsor that defaults to the PBGC be forced to pay up their shortfall over the next twenty five years with the PBGC as a secured creditor.

 

[WorldTraveler]

The reason why Washington does not want to help airlines is because they are afraid they will end up doing it for all industries. Well, guess what? What the airlines are proposing - freezing current DB plans and stretching out the timeframe for catching up on obligations - is a very reasonable alternative and one that other industries will probably also have to do. It is time for American workers to realize that companies will not and cannot afford to guarantee a pension to every worker just because they showed up for 30 years. The world is too unstable and, more significantly, business is too competitive for old world companies to compete w/ huge legacy costs while competing against lower cost startup companies. And I'm not just talking about airlines. GM and Ford will be asking for the very same thing the airlines are asking for before long because no other carbuilders pay the kinds of pension costs that US automakers have to pay. We can slowly wind down DB pension plans in the USA in an orderly fashion or we can continue to watch American jobs shipped overseas where pension and healthcare costs are much lower - if the employer even bears any responsibility at all.

 

[Hopeful]

Top Of The News
The End Of Pensions
Dan Ackman, 05.11.05, 8:35 AM ET



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NEW YORK - In the future, will any company offer a pension? The answer is probably not, and the future is getting closer all the time.

Yesterday a U.S. federal bankruptcy judge approved a plan by UAL (otc: UALAQ - news - people ), the parent company of United Airlines, to transfer its pension plans, which are underfunded by $9.8 billion, to the Pension Benefit Guaranty Corp., which is itself underfunded.

UAL's move is expected to spur similar actions by other so-called legacy carriers among the airlines, which are squeezed by high costs, competition from airlines without substantial pension obligations and, lately, by rising fuel costs.

More broadly, UAL's action takes place against a looming retirement crisis in which the relatively benign problems of the Social Security system are just a part (see "Retirement Doomsday").

The decline of pensions is likely well past the tipping point already. No so long ago, the defined benefit pension--guaranteed retirement income--was a prevalent aspect of the U.S. financial scene. But no more. In 1980, 38% of Americans had a defined benefit pension as their primary retirement plan. By 1997, just 21% of Americans had such plans, according to the Pension Benefits Council. That percentage is certainly lower now, and more and more plans have been passed off to the PBGC, a federal agency that insures pensions, but which does not necessarily pay the benefits retirees expected.

The ratio of active to inactive workers in existing defined benefit pension plans has fallen to roughly 1-to-1, down from more than 3.5-to-1 in 1980, according to the PBGC. This retirement math is starker than that faced by the Social Security system. The PBGC now pays the pensions of more than 1 million retirees.

While many more workers now have retirement savings plans such as 401(k)s, relatively few have sufficient assets to fund their retirements in a way that will maintain all or most of their pre-retirement incomes.

United's unions are preparing to fight the decision made by the company and permitted by the bankruptcy court, and they have threatened to strike. But with the defined pensions now a decidedly minority benefit, their partial loss is not likely to resonate politically or among United's customers.

More likely, the court's decision will encourage other airlines to follow suit. US Airways Group (otc: UAIRQ - news - people ), which, like UAL, is in bankruptcy, terminated the last of its pension plans earlier this year. Yesterday, Delta Air Lines (nyse: DAL - news - people ) said it might have to seek bankruptcy protection, too, adding that it expected a significant loss for 2005. The airline industry already has the second-most beneficiaries of any industry covered by the PBGC guaranties. Steel is by far the first. Unlike steel, however, the airline industry is not in a long-term slide in terms of total employment, despite its financial troubles over the past several years.

The PBGC guarantees corporate pension plans and pays benefits to retirees when company plans fail. When it takes over a plan, it receives its assets as well as its liabilities, and also collects insurance premiums from the plans it guarantees. So far, the agency has been able to meet its obligations, but currently it faces a $23.3 billion deficit between its assets and long-term liabilities. The takeover of the UAL pension plan is already factored in that number. Overall, it backstops the pensions of 44.3 million beneficiaries.

The bankruptcy court frees UAL from $3 billion in pension contributions over the next five years. But the shortfall between its pension plan assets and its liabilities is much greater, nearly $10 billion, according to PBGC estimates.

It is not immediately clear which beneficiaries will be paid less and by how much. The PBGC's maximum guaranteed benefit is adjusted yearly. This year, the maximum paid to most retirees is $45,614 for a 65-year-old, so those who are now due more or who retire earlier would be paid less.

UAL says unloading its pensions is critical to obtaining the $2 billion or more in debt financing it needs to get out of bankruptcy. However necessary, in a world where employer-paid pensions are increasingly rare, unloading pension obligations is likely to become increasingly common.

 

[WorldTraveler]

just saw the same article, Hopeful.

For those who think the pension termination gives UA the greenlight to keep going:
Remember that UAL’s primary intent in terminating pensions is to attract financing in order to get out of bankruptcy. UA still has well-above average unit costs despite having one of the highest percentages of international flights which should drive unit costs lower. Further, UA continues to be hammered by low cost competition, particularly by the irrationality of Independence at IAD. Despite the pension cuts, UA is still far from in a position to emerge as a viable company.

 

[synchronicity]

What was UAL supposed to do??? How about proper management and oversight of the pension fund? While we see many pension funds in trouble right now, this is by no means the case for all of them. Some fund managers actually pay attention to the simple philosophy of buy low, sell high. When these funds were flying high (pardon the pun), why didn't these managers diversify - hedge against downturns in the market??? Those that did aren't in this mess right now. Good management, that's what they were supposed to do.

[post="268346"][/post]​

As Boomer points out, UAL's pension situation is hardly unique currently (mainly for the reasons that I've already pointed out).

And FWIW, pension funds do hedge against downturns in the market, but there are limits to how much they can protect themselves without sacrificing returns. What, you think they should invest all their funds in a giant ladder of US treasuries and only make disbursements from funds that come available as they mature? Yeah, that would be just great, really pull in the big bucks that way.

In addition, there is the issue that as interest rates drop, a pension that was viewed as overfunded just a few years ago will be viewed as underfunded (discount rate used to calculate minimum necessary funding is lower, at 6% $1 today is worth $3.21 in 20 years, at 3% only $1.81). You do realize that interest rates in general were at their lowest level in 40 to 50 years just a few years ago? heck, in June of '03 1 yr Treasuries were at about 1%, last time they were that low was August of 1954 (data available at http://research.stlouisfed.org/fred2/data/GS1.txt ) If you'd like, you can poke around the FRED website (a terrific source for economic data of all types) and check other interest rates as well.

Funny thing about this is, I don't like UAL management one bit. I've seen lots of ludicrous bits during my wife's tenure there, as well as known other people who've had to deal with them at a "higher level" (my former employer leased two airplanes to them, and my father is a BK attorney whose firm was representing a few of UAL's many creditors) and their consensus view of UAL "management" is along the lines of "arrogant nitwits".

But drawing a line in the sand over the pensions is...well, it's an interesting decision, as the impact on most people in the unions making all the noise will be very small (especially when you factor in the proposed company match on defined contribution plans). The wage cuts and sick pay cuts will have FAR more impact, but it's the pension that gets people riled up.

-synchronicity

PS- I'm also generally not a big fan of the shift in the corporate world from defined benefit plans to (exclusively) defined contribution plans and (political tangent) not a fan of the proposals to "privatize" part of social security, so don't lump me in with that group, either.

 

[Fly]

just saw the same article, Hopeful.

For those who think the pension termination gives UA the greenlight to keep going:
Remember that UAL’s primary intent in terminating pensions is to attract financing in order to get out of bankruptcy. UA still has well-above average unit costs despite having one of the highest percentages of international flights which should drive unit costs lower. Further, UA continues to be hammered by low cost competition, particularly by the irrationality of Independence at IAD. Despite the pension cuts, UA is still far from in a position to emerge as a viable company.

[post="268366"][/post]​

You are so full of crap it's mind boggling. I've noticed you've been noticeably absent lately. Having trouble spinning your bs?? Don't come here and try to act as if you give a hoot about United or the employees here. You are a hateful, disgusting person.

So how's everything in Deltaland? Read that they aren't going to be able to avoid bk. I guess they'll be going out of business too, right? (Watch this folks, he'll come up with one of his spin routines......and it will never be less than a novel.) Just because you type a lot of words doesn't make it reality.

Thanks again for your less than heartfelt comments.

 

[Bear96]

Oh, they're "heartfelt" all right. Read between the lines he writes. In his heart, he really wants to whip up the UA employees into a frenzy of anger against UA and get them all to walk to shut UA down, so DL gets a little more breathing room as they keep on floundering along and lurch closer to BK with each passing month.

 

[767jetz]

It's perfectly obvious that your company has no regard for employees and will take as much as they have to keep the hope of UAL operating alive.

[post="268351"][/post]​

Well, Duh!!!! What do you think they want to do? Coddle the employees until the company dies? Of course they want to keep the company alive you moron. Guess what? So do most of the employees, so we can open up a can of "kick a$$" on people like you. People like you only motivate us to take our lumps now so we can come back swinging.

There were alternatives to terminating the pensions, including the pension reform legislation that is working its way through Congress.

[post="268351"][/post]​

This demonstrates your lack of knowledge of UA's affairs. You should focus more on your own house. Delta is it?

Legistlative reform was researched extensively by the company and ALPA. There were no significant benefits that would have been a benefit to UA in the time frame necessary to avoid pension termination and replacement.

UA's goals of having a loyal workforce and obtaining the majority of its revenue from premium passengers are incompatible.

[post="268351"][/post]​

Again, just words flowing from an uninformed person. UA has changed it's focus from exclusively premium passengers to a more balanced approach with products such as Ted. At the same time they are catering to the premium customer far better than the competition with products like PS service, onboard wi-fi, food service a cut above others, and small details like china and silverware in premium cabins.

Success of these and other initiatives is measured with continuing increase of "intent to repurchase" data by satisfied customers.

As for loyalty and moral, how can you speak to this when you are on the outside? UA employees have certainly had their difficulties. But fly around a bit, talk to frequent flyers who use various airlines regularly, and you will find that one consistent comment is that UA employees have maintained higher moral than the competition, even in the face of such adversity.

And by the bitter and scared sound of you, it is obvious that it's true.

UA will not survive as an independent company for another three years.

[post="268351"][/post]​

Obviouly this is your self serving hope and dream. Unfortunately it is not reality, and your time is coming.

All you are doing is providing incentive for the company to come after you time and time again when the end-game is already well-established.

[post="268351"][/post]​

Wrong again. Tilton is taking what he needs to steer this ship out of BK. No more. No less. In BK the banks with the money have the leverage. Once out of BK it is not as easy to extract concessions. (Don't worry... you'll understand this concept soon enough.) With BK exit on the horizon, this will be the last round of employee cuts.

Shame on you for not having the self-repect to stand up and demand that you be treated for what you are worth.

[post="268351"][/post]​

Tell you what, when your employer comes after you, we'll see how quickly(or not) you make a stand and sacrifice yourself for the good of the industry. :down:

 

[JungleClone]

Turning over the pensions to the PBGC doesn't mean the pensions are forever gone. The PBGC guarantees benefits up to about $44,000 per year I believe. So for most, they probably will not see much, if any reduction in benefits. Of course, the pilots and high level management will be the ones that take a bath. If the PBGC were to become insolvent and be unable to pay out any benefits, than everyone would lose. But as it stands now, they will pay out benefits by essentially taking over UA's current obligations.

It is an unfortunate reality that defined pension benefits are fast becoming a thing of the past. When you consider the competitive bloodbath that is the airline industry, it's only a matter of time before ALL carriers eliminate their pension plans.

 

[eolesen]

Turning over the pensions to the PBGC doesn't mean the pensions are forever gone. The PBGC guarantees benefits up to about $44,000 per year I believe.

[post="268391"][/post]​

That $44K has strings attached, including the age at which benefits commence. You also have double-dip provisions affecting Pan Am, Eastern, TWA, Frontier and Braniff survivors who were later hired on by United. The max for their combined pensions can't exceed the $44K. Not as huge of an issue for some people, but for the thousands of employees who were "bought" from Pan Am in 1985 and 1991, it could be.