When United Airlines went bankrupt, we became responsible for four of their pension plans. When this happened, we could not just accept UAL’s benefit, but had to do separate calculations using the rules in federal pension law. More than a year ago, we found out that one of those calculations (relating to how much the plans’ investments and other assets were worth when we took responsibility) was done badly. Since then, we have gone back and done the work more carefully, and found that we had undervalued the UAL pension assets slightly (by about one-half percent to one percent, depending on the plan).
This recalculation had no effect on most people’s benefits, but some people’s benefits will be raised slightly, generally by less than one percent.
Less than one in five (18 percent) will get any increase at all to their PBGC benefits. Even those who do will generally get an increase of less than one percent:
82% of UAL Retiree Pension Benefits Did Not Change. For the 18% Whose benefits did change... 8,247 people were underpaid on average less than one percent. How much will their benefits increase going forward? 65% will get 0.05% more. 9% will get 0.05% - 0.75% more. 25% will get 0.75% - 1.00% more. 1% will get an increase of more than 1.00%.
Because most people are already getting, or will get, the full amount of the pension they were promised by UAL. This change affects only those people whose pensions were more than the amount that PBGC guarantees.
People with benefits greater than we guarantee can still get more than the guaranteed amount, but how much more depends on how underfunded the plan is when we take it over. In those cases, the values of a plan’s assets and obligations (“liabilities”) affect benefits, so if we value those incorrectly, we’re not providing the right benefit.
In the case of the UAL plans, we slightly undervalued the plans’ assets at first. Now that we’ve re-done the work, some of the people whose UAL pensions were more than the PBGC maximums will get slightly greater benefits.
When Congress established PBGC, they set legal limits on the benefits we can pay, so some people’s pensions are above that limit.
When people’s benefits are higher than we guarantee, we use the assets we inherit from the plan to make up some of the difference. This helps some people in some plans, but is rarely enough to cover everyone’s full pension.
Most people were not affected by PBGC’s mistake and will see no change at all. For the less than one in five retirees who were affected:
- Pilots will get an average increase of about three-quarters of one percent.
- Participants in the management and administration plan will get an average increase of about two-thirds of one percent.
- Flight attendants will get an average increase of three one-hundredths of a percent.
- Participants in the ground employee plan will get an average increase of two one- hundredths of a percent.
We hired an internationally recognized certified public accounting firm experienced in pension plan assets to completely redo the asset valuations from scratch. (The initial work had been done by a non-accounting firm). We then conducted an internal review of the new asset valuations to check and re-check this work, ensuring that it is both accurate and complete.
The original contractor is no longer doing this work for us. We are going over the other plans that the contractor worked on to look for any other shoddy work that might have led to underpayments. In those cases, we’re redoing the valuations and correcting benefits for those who were underpaid.
To prevent these mistakes from happening in other plans in the future, we are:
- Completely reforming our asset valuation process.
- Changing the people within PBGC who are responsible. We’re hiring specialists in asset valuation, and making those specialists responsible for this work.
- Using certified public accounting firms when we contract for this work, instead of general government contractors.
Most People’s Benefit Didn’t Change. How You’ll Know If Your Benefit Will Increase
Most people were not affected by PBGC’s mistake. If your benefit will increase, we will send you a letter explaining how your benefit will change. Most retirees whose benefits increase by more than five dollars per month should get a letter in August; most of the others, generally with smaller increases, will be notified in the next several months. People with benefits subject to qualified domestic relations orders, and other special cases which require more complex calculations, will take longer.
Not necessarily. We have begun sending out letters, but will do so in stages. First we’re correcting the biggest underpayments to people who are already retired. We expect to notify everyone affected by the end of this fall, except for people with qualified domestic relations orders and other special cases that require more complex calculations. You can find out more about our progress on the home page for your specific pension plan.
On August 15, 2012, we began mailing letters to pilots whose benefits will increase. By this fall, we expect to have mailed letters to everybody with an increased benefit, except for people with benefits subject to qualified domestic relations orders and other special cases that require more complex calculations.
Please check your plan’s web page on pbgc.gov for current mailing status.
About Changes to Your Benefit
For virtually everyone, the increase is less than one percent. There are a handful of people for whom the increase is between one percent and two percent. The reason is that although the original valuation was done badly, the impact of the bad work was comparatively minor; the original asset valuations turned out to be more than 99 percent correct.
We will adjust benefits to the new amounts over the next few months. The letter we send you will tell you when your benefit will change.
Yes. If you have already retired and have been underpaid, we will send you a back payment to account for the total amount that we underpaid you plus interest.
In most cases, we’ll include the back payment at the same time you get your corrected benefit payment. In a few cases, the back payment will follow the changed benefit. The letter we send you will tell you when we will send your back payment.
If the back payment is smaller than the amount you owe PBGC, it will be applied to what you owe. It will reduce the amount you owe us, so your benefit payments will be slightly greater.
Everyone whose benefit is changed will see a slight increase, not a reduction. In your case, we had already reduced your payment because at first, we continued the payments you were receiving from UAL and we paid you more than we’re allowed to pay. Now that we have re-done the calculations, you are still repaying an overpayment, but it is less than it was before, so your monthly benefit will be slightly higher.
If your monthly benefit increases by five dollars or more, we will send you a revised benefit determination, and you will have the right to appeal that benefit determination. If your benefit increases by less than five dollars, we will send you a letter telling you about the change; however, there is no appeal right for changes that are less than five dollars.