PBGC to Assume Responsibility for Pilots Pension Plan at UAL
FOR IMMEDIATE RELEASE
December 30, 2004
WASHINGTON-The Pension Benefit Guaranty Corporation announced today that it is moving to assume responsibility for the pensions of more than 14,000 active and retired pilots at United Airlines. Participants in the company's other pension plans are unaffected. Today's action follows the agreement the pilots union entered into with the company on Dec. 17 regarding the termination of the defined benefit plan in exchange for other benefits and considerations.
"The PBGC will protect the pension benefits of United Airlines' pilots up to the limits set by law," said Executive Director Bradley D. Belt. "Retirees will continue to receive monthly benefit checks without interruption, and other pilots will receive benefits when they retire."
The United Airlines Pilot Defined Benefit Pension Plan is 49 percent funded on a termination basis, with $2.8 billion in assets to cover $5.7 billion in benefit liabilities, according to PBGC estimates. Of the $2.9 billion in underfunding, the PBGC expects to be liable for approximately $1.4 billion in guaranteed benefits, making the United pilots plan the third-largest claim in the history of the insurance program.
"Ideally, the company would maintain all four of its pension plans and honor fully the promises it has made to its employees," Belt said. "However, in conjunction with the company's bankruptcy proceeding, PBGC's financial advisers have come to the conclusion that United Airlines can afford at most only three of its pension plans."
By stepping in now to assume the pilots plan, the PBGC protects against the possibility of up to $140 million in additional losses. The termination of the pilots plan also gives the company a greater financial capacity to maintain the remaining plans.
"With a $23 billion deficit and more than 1 million workers and retirees directly dependent on us for their pension benefits, the PBGC must be vigilant in guarding against unnecessary losses," Belt said. "The decision to take over a pension plan is never made lightly, especially in situations where participants won't get everything the company promised but failed to fund. I hope the plight of participants in airline pension plans puts an exclamation point on the need for Congress to strengthen the funding rules for defined benefit plans."
With the termination of the United pilots plan, five of the 10 largest claims in PBGC's history are now from airline companies. Overall, the airline industry accounts for nearly 20 percent of total PBGC claims but fewer than 2 percent of insured participants. Losses suffered by the pension insurance program must be covered by premiums paid by other companies that sponsor defined benefit pension plans. The PBGC receives no general tax revenue and is not backed by the full faith and credit of the U.S. government.
Under federal pension law, the maximum guaranteed pension at age 65 for participants in plans that terminate in 2004 is $44,386 a year. For now, the United Airlines Pilot Defined Benefit Pension Plan remains under the sponsorship of the company. General information about the PBGC's pension insurance program is available at www.pbgc.gov. Workers and retirees with additional questions may contact PBGC's Customer Service Center toll-free at 1-800-400-7242. For TTY/TDD users, call the federal relay service toll-free at 1-800-877-8339 and ask for 800-400-7242.
The PBGC is a federal corporation created under the Employee Retirement Income Security Act of 1974. It currently guarantees payment of basic pension benefits earned by 44 million American workers and retirees participating in more than 31,000 private-sector defined benefit pension plans.
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PBGC No. 05-18