“United
Airlines to terminate pension plans $9.8B default largest in U.S.
history”
A federal
bankruptcy judge approved United Airlines' plan to terminate its employees'
pension plans, clearing the way for the largest corporate-pension default in
U.S. history. The ruling, which carries broad implications for U.S. airlines
and their workers, shifts responsibility for United's plans to the
government's pension agency. That will save cash-strapped United an estimated
$645 million a year, part of the $2 billion in annual savings it says it needs
to emerge from Chapter 11 bankruptcy. (D. Carpenter OttCit D2; M. Maynard, M.
Williams Walsh NYTimes p.1)
The
end of pensions
In
the future, will any company offer a pension?
By
Dan Ackman, Forbes. Com,
Updated: 11:59 a.m. ET May 11, 2005
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.
Tuesday
a U.S. federal Bankruptcy judge approved a plan by UAL, 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 percent
of Americans had a defined benefit pension as their primary retirement plan.
By 1997, just 21 percent 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, which, like UAL, is in bankruptcy, terminated the last of its
pension plans earlier this year. Tuesday, Delta Air Lines 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.
http://www.msnbc.msn.com/id/7816539/