Agency Apologizes and Begins Back Payments to Affected United Retirees; 82% of United Retirees Unchanged
WASHINGTON— The Pension Benefit Guaranty Corporation announced today that it had completed its review of United Airlines pension assets. The review found that, in 2008, PBGC had undervalued United’s pension assets by about three-fourths of one percent. As a result, PBGC will increase slightly the benefits of some United retirees and will be making back payments with interest to those who have already been underpaid. The vast majority of United retirees were already slated to get their full pension amount and PBGC’s corrective actions will not affect them.
“Unfortunately, PBGC let the people of United Airlines down, but we’re determined to put things right,” said PBGC Director Josh Gotbaum. “We’ve gone back and redone the work. Anyone we’ve underpaid, by even a dime, is getting paid back with interest and an apology. And we’re making other changes, so this doesn’t ever happen again.”
The agency began sending letters today to affected retirees. Corrected payments and back payments will begin in September.
Gotbaum noted that this review was due to the efforts of Congressman George Miller (D-CA) and the agency’s inspector general. Two years ago, Congressman Miller raised concerns about PBGC’s handling of United pensions. The agency’s inspector general then found that the firm hired to value the assets had done a poor job, and that the agency had failed to supervise them.
PBGC Redo of UAL Pension Valuation Work
PBGC responded by hiring accounting firms to redo the work. For the review of United Airlines pension assets, the agency hired KPMG, an internationally recognized CPA firm with pension asset experience. From the review, it became clear that the original valuation had relied on the accounts furnished by the pension trustees, and that in a few cases those numbers were out of date or weren’t adjusted to reflect the fact that PBGC was taking over the pension. After several reviews, PBGC determined that the United pension plans had been undervalued by about three-fourths of 1 percent ($58 million out of $7.3 billion).
Most people were not affected by this error because, for most people, PBGC pays their full pension and asset values don’t affect their benefit. But asset levels do matter for those who earned a benefit above what the agency is legally allowed to pay. At United, less than 1-in- 5 or 18 percent of retirees were affected by the change in asset estimates. For those who were shortchanged, in almost all cases, it was by less than 1 percent. PBGC has a policy of correcting all mistakes that reduce benefits – no matter how small -- and making back payments with interest.
For more information on the United Airlines asset evaluation see our FAQs here.
Other PBGC Changes to Prevent Future Errors
In 2011, PBGC also began a review and reform of its benefits payment department. So far, the agency’s begun to make the following changes:
- New management is being recruited
- Asset valuation is being reformed. A new group of asset evaluation specialists is being created and more professional valuation procedures will be put in place
- Procedures are being revised to improve quality and accountability. A quality management group is also being formed.
- Other changes will be implemented by the new department management
PBGC protects the pension benefits of 44 million Americans in private-sector pension plans. The agency is directly responsible for paying the benefits of more than 1.5 million people in failed pension plans. PBGC receives no taxpayer dollars and never has. Its operations are financed by insurance premiums and with assets and recoveries from failed plans. For more information, visit PBGC.gov.