Us Pension Agency Warns United On Payments

[Hatu]

The U.S. agency that insures pensions warned United Airlines on Monday that its plan to stop pension payments while it tries to escape bankruptcy was counter to federal law.

It also said that both the Internal Revenue Code and the Employee Retirement Income Security Act required regular pension plan contributions.

A strategy by United not to make these payments prior to exit from bankruptcy would be "inconsistent" with these laws, Belt said.

http://biz.yahoo.com/rf/040726/airlines_un..._pension_1.html

 

[blueskies4ever]

Here is some more from Bloomberg

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United Plan to Stop Pension Contributions Challenged (Update2)
July 26 (Bloomberg) -- UAL Corp.'s United Airlines violated federal laws by agreeing with bankers to halt contributions to its employee pension plans under terms of a new bankruptcy loan, the U.S. Pension Benefit Guaranty Corp. told the airline.

The agency, which pays benefits when corporate pension plans fail, told UAL Chief Executive Glenn Tilton in a letter that United's failure to pay $72.4 million due July 15 and plan to skip more than $500 million this year is ``of great concern.'' A United pension default would be the agency's biggest.

Chicago-based United, the world's second-largest airline, secured an additional $500 million for operations during bankruptcy on condition that it suspend pension payments. Internal Revenue Service rules and the Employee Retirement Income Security Act prohibit such agreements, the letter said.

``Please provide a detailed explanation of how the company's business plan will enable it to meet these obligations,'' Bradley Belt, executive director of the agency, said in the letter released by the agency. ``If UAL intends to terminate any of its defined benefit pension plans, the PBGC and plan participants should be made aware of that fact as soon as possible.''

The agency said it wants the issues discussed at a meeting Thursday with United. United spokeswoman Jean Medina said a mutually agreeable date for a meeting still needed to be set.

United Response

``We believe we are taking the steps necessary to retain liquidity and flexibility as we work to arrange exit financing,'' Medina said.

A UAL default would be the biggest in the pension agency's 30- year history, spokesman Randy Clerihue said Friday. The agency estimates it may be liable for $5 billion of UAL's $7.5 billion in outstanding pension benefits, he said. United retirees would likely lose $2.5 billion if the company didn't replace some of the benefits.

The agency, financed by companies with defined pension plans and not taxpayers, has had more than 70 percent of its claims filed by airlines and steel producers, Clerihue said.

After UAL was turned down for a federal loan guarantee last month, Standard & Poor's Philip Baggaley and other analysts said the airline would likely have to consider reducing its pension obligations and other costs to attract alternative financing. UAL had hoped the guarantee would secure $2 billion in exit financing.

The pension agency took over the US Airways Group Inc. pilot pension plan after the airline ended benefits for almost 7,000 active and retired pilots in March 2003 while in bankruptcy proceedings. Ending the plan helped US Airways cut $1.9 billion in costs and exit bankruptcy the following month.

US Airways

Arlington, Virginia-based US Airways obtained $1.24 billion in financing that was conditioned on termination of the retirement plan. The U.S. government provided a guarantee for $900 million of the post-bankruptcy financing.

The pension agency pays up to $44,000 annually in benefits to a 65-year-old retiree who has earned at least that amount or more in a corporate plan that the agency takes over. Younger retirees get less. Pilots, who are paid more than other airline workers, stand to lose the most while lower-paid workers, such as attendants, would lose less, or nothing at all.

Terminating the pension plans would cut pension benefits for about a third of United's Association of Flight Attendants members, according to preliminary union estimates. The union represents 21,000 workers and 4,000 retirees.

`Powerful Move'

``I think that's going to be a powerful move on the part of the PBGC,'' said Greg Davidowitch, president of the United Association of Flights Attendants. ``That sums it up to say that United is not going to get away with this.''

UAL shares fell 5 cents to $1.26 in over-the-counter trading at 3:55 p.m. UAL, which was 55-percent owned by employees before the bankruptcy filing, has said the shares aren't likely to have any value after the reorganization.

UAL told the bankruptcy court Friday that it had received the additional bankruptcy financing through the middle of next year from J.P. Morgan Chase & Co., Citigroup Inc., CIT Group Inc. and a General Electric Co. unit. The company declined to say when it plans to exit bankruptcy.

Missing the payments makes UAL subject to monetary penalties, though recovery is difficult when a company is in bankruptcy, Clerihue said. The company is expected to report a second-quarter loss on Thursday.



To contact the reporter on this story:
Lynne Marek in Chicago at [email protected]

To contact the editor responsible for this story:
Steve Geimann at [email protected]

Last Updated: July 26, 2004 17:45 EDT

 

[Dizel8]

As someone else said a while back, it looks like UAL is lining up to get money from the goverment regardless of the guarantee. This time it will the PBGC footing the bill.

It looks like UAL is heading towards terminating the retirement and the PBGC sees the writing on the wall.

 

[jimntx]

This issue really has me "on the ropes." On the one hand, I'm thinking, "You go, PBGC. Don't let the bankers screw the employees out of their pensions."

On the other hand, I'm thinking, "Well, if the bankers withdraw the loans because United has to make the pension payments and the company goes under for lack of financing, then what?" The retirees have their pensions and another 100,000 people are out of work?

Hang in there, guys. There must be a solution to this one.

 

[The Ronin]

``I think that's going to be a powerful move on the part of the PBGC,'' said Greg Davidowitch, president of the United Association of Flights Attendants. ``That sums it up to say that United is not going to get away with this.''

What a bunch of idiots....they already have. United is going to put it plain and simple....shed the plan and MAYBE draw a paycheck or shed the plan AND the paycheck...

 

[737nCH11]

Ronin, my friend, once again you are right as rain. It's almost funny to see where this once glamourous industry is headed.

 

[cltvff]

Question for the finacial/lawyer types..... so what now? UAL makes the payments and risks the interim financing? Terminates the plans and pizzes off the employees? Does neither? Any ideas?

 

[spacewaitress]

It's almost funny to see where this once glamourous industry is headed.

Call it "SkyMart" or "Wal-Fly"...whatever. That's where the industry is headed, and United is blazing the trail for the legacy carriers.

With 20 years at UAL and on my way out (not soon enough though), it's going to be interesting to compare the product then and now when all the dust settles. Will it ever settle??

Anyway, the handwriting is on the wall(mart).

Wasn't it the employees who lobbied congress to pass the laws that in the end is enabling UAL to screw us yet once again by not making the pension payments? No good deed (or well intentioned one) goes unpunished I suppose.

 

[767jetz]

blueskies4ever posted:


"The pension agency pays up to $44,000 annually in benefits to a 65-year-old retiree who has earned at least that amount or more in a corporate plan that the agency takes over. Younger retirees get less. Pilots, who are paid more than other airline workers, stand to lose the most while lower-paid workers, such as attendants, would lose less, or nothing at all."



This is what I've been trying to say all along. I think everyone needs to calm down and let this play out. I'm not advocating termination of the pensions. All I'm saying is that many who are getting wound-up the most, will actually lose little or nothing in the end game.

 

[FWAAA]

Wasn't it the employees who lobbied congress to pass the laws that in the end is enabling UAL to screw us yet once again by not making the pension payments? No good deed (or well intentioned one) goes unpunished I suppose.

No, the recent laws permitting a longer catch-up of underfunded amounts (with specific help for the airline industry and a couple others) does not "enable" UAL to miss the payments. Skipping required minimum contributions has always been a no-no, and the recent amendments change nothing about this. Missing the payments usually means penalties and interest, but in bankruptcy the penalties will be difficult to get.

 

[WorldTraveler]

It is doubtful that the government is going to offer any further pension relief, esp. to the airline industry which has already been given special relief.

The PBGC clearly wants to make it perfectly clear to all airlines that they are not going to allow the entire industry to walk away from their defined pensions which is exactly what will happen if it allows UAL to terminate its defined benefit pension plans. I’m not sure if the PBGC took every action it could to protect its interests in US’ pilot termination but I suspect they will make every effort to make sure UAL doesn’t leave its pension problems to the government and set a precedent for other airlines to follow. Giving the shakiness of pensions across the United States, the PBGC is going to use every possible technique to prevent a repeat of the steel industry’s plan terminations.

I’m not sure if UAL can make the numbers work given the likelihood of a long, drawn-out process to resolve its pension issues. UAL would best not put all of its eggs in the basket of terminating pension plans or they may find themselves in exactly the same place they were with the ATSB loan – a lot of time spent on one plan that went nowhere.

 

[blueskies4ever]

WorldTraveler

It is doubtful that the government is going to offer any further pension relief, esp. to the airline industry which has already been given special relief.


Then what would be UAL's options in regards to ditching the pensions and its own
survival ? Pay the pensions somehow or chapter 7 ?

 

[FWAAA]

It is doubtful that the government is going to offer any further pension relief, esp. to the airline industry which has already been given special relief.

Then what would be UAL's options in regards to ditching the pensions and its own
survival ? Pay the pensions somehow or chapter 7 ?

UAL will probably cancel the plans with employee agreement (like USAir did to the pilots). That doesn't require any further government relief, just the approval of the bankruptcy court.

 

[ohcaptainron]

UAL does NOT need PBGC approval to terminate any of its defined pension plans. Like the world traveler would have you believe, their charter allows them to collect premiums and pay benifits, if a company fails to make the required payements, the PBGC can move to distress terminate, it gets a liittle more complicated with a company in BK. UAL simply must convince the BK court that a termination is necessary in order to exit. By some accounts this amount is close to 7.5 billion. All plans are under funded except the pilots. Which are current thru next year. The underfunded plans would not be impacted by a termination, that is flight attendents for example would receive essentially the same level of benifit either thru the current plan or the PBGC. Pilots on the other hand would be hurt the most. The PBGC should be concerned, if UAL terminates some or all of their plans, UAL will shift this huge financial black cloud to the goverment. This will inevitably force AMR, DAL and others to terminate their define benifit plans, raising the the PBGC liability to well over 25 billion. Forcing a goverment bailout of the PBGC.

I believe this has been UALs plan all along. If UAL does so there will be a very long line of people wanting to provide exit financing.

The 1.1 billion loan guarantee all of a sudden doesn't look so bad after all.

 

[Rampman]

How is terminating a pension plan not going to hurt us lower paid guys? (F/A Ramp CS). I have 10 years here and if they terminate the pension today then when I retire 25 years from now I will only get credit for 10 of those years on my pension. The next 25 years will not count to the multiplyer. So how am I not being hurt if I only get credit for 10 of my 35 years of service? True, people with 35 years today will be ok, but what about people with 5 to 15 years that have another 20 left to go? So 767jets please explain how this does not hurt me.