PBGC Calls for Pension Protections
FOR IMMEDIATE RELEASE
September 14, 2004
WASHINGTON-The Pension Benefit Guaranty Corporation said today it will guarantee the basic pension benefits of workers from US Airways and United Air Lines should the plans of those companies terminate, but it will also ask Congress for reforms to help ensure that corporations meet their pension obligations.
"The PBGC will protect workers' pensions, but we must have the tools going forward to require companies to meet their obligations," said PBGC Executive Director Bradley D. Belt. "We need fundamental reforms to improve the financial health of the defined benefit pension system, to protect participants' benefits, and to shore up the federal pension insurance program."
The PBGC is recommending specific changes that could be made in the bankruptcy context to better protect workers and retirees. The pension agency should be able to perfect a lien in favor of the pension plan when companies in bankruptcy skip their legally required contributions, and companies should notify participants within 30 days of a bankruptcy filing of the plan's funded status on a termination basis and of legal limits on PBGC's guarantees.
The airlines in bankruptcy protection have said they won't make required contributions to their pension plans. In response, Belt said, "Failure to act will increase the risk that participants will lose promised benefits and that the pension insurance program will suffer larger losses. We need to make clear that pension contributions are required whether a company is in bankruptcy or not."
When a company outside of bankruptcy skips legally required pension contributions, the PBGC is able to perfect a lien against the company's assets. In bankruptcy, companies and certain courts have held that pension contributions do not have to be made despite the increased risk to plan participants and the pension insurance fund.
United Airlines announced last month that it would not make roughly $500 million in contributions due to its pension plans this year. US Airways said yesterday that it will not make roughly $100 million in contributions due to its pension plans tomorrow. In its bankruptcy court filing, US Airways said it would be "irrational" to make pension contributions because it "provides no benefit to the estate.
"That is a remarkable statement," Belt said. "The company is saying it's irrational to keep your pension promises and to comply with federal pension law. Bankruptcy should not be the path of least resistance to deal with your pension obligations."
The PBGC is a federal corporation created under the Employee Retirement Income Security Act. It currently guarantees payment of basic pension benefits earned by 44 million American workers and retirees in more than 31,000 private-sector defined benefit pension plans. The agency receives no funds from general tax revenues. Operations are financed largely by insurance premiums paid by companies that sponsor pension plans and investment returns.
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PBGC No. 04-65