PBGC has received numerous inquiries about restoring the United Airlines (UAL) pension plans that were terminated in 2005 during UAL’s Chapter 11 bankruptcy proceeding. While UAL is now profitable, UAL cannot be forced to take back its terminated pension plans.
On April 22, 2005, while UAL was still struggling to reorganize in bankruptcy, PBGC and UAL entered into a settlement agreement. The basic terms of the agreement called for the termination of UAL’s four pension plans, which were then underfunded by more than $10 billion, and the resolution of PBGC’s claims against the bankrupt airline. In exchange for settling its claims, PBGC received consideration valued at approximately $1.6 billion from the UAL bankruptcy. As provided by law, PBGC has shared its recoveries with the UAL plan participants.
Of particular relevance, PBGC agreed in the settlement to waive its rights under section 4047 of the Employee Retirement Income Security Act of 1974, as amended (ERISA), to seek restoration of the UAL pension plans. UAL had informed PBGC that this term of the agreement was necessary because UAL could not obtain the financing that it required to exit from bankruptcy with the threat of pension restoration hanging over its head. This term of the agreement, like all the other terms, was approved by the bankruptcy court during UAL’s bankruptcy, and that decision was subsequently affirmed by the Seventh Circuit Court of Appeals. The agreement, including the waiver of the restoration right, remains binding on PBGC and is unaffected by UAL’s current profitability.
PBGC’s decision to agree to the termination of the UAL pension plans and to enter into the settlement with UAL was not taken lightly. The UAL terminations remain to this day the largest liabilities that PBGC has taken on under the federal pension insurance program. PBGC reached its decision only after a careful and exacting examination of UAL’s financial condition showed, to PBGC’s satisfaction, that UAL could not possibly reorganize in bankruptcy while continuing to sponsor its defined benefit pension programs.
PBGC’s settlement with UAL and the termination of UAL’s pension plans were the subject of intense scrutiny. The U.S. Bankruptcy Court in Chicago, and the U.S. District Courts and U.S. Courts of Appeals in the D.C., Fourth and Seventh Circuits all reviewed one or more aspects of the settlement and terminations, and all of those courts approved PBGC’s actions. The settlement was a critical component of UAL’s confirmed plan of reorganization. The resolution of the bankruptcy case and the settlement with PBGC cannot now be undone. PBGC cannot restore the UAL pension plans, even though the economic situation for the airline has improved.