By MARY DEIBEL
Scripps Howard News Service
June 23, 2005
"The airline industry has received substantial relief from its pension-funding obligations from Congress in 2004 and 2005," Bradley Belt, head of the Pension Benefit Guaranty Corp., told lawmakers.
That relief didn't stop United from shedding its $9.8 billion pension liability in bankruptcy court and US Airways another $3 billion, Belt said.
Yet most of the other legacy airlines are seeking to extend the relief for up to 25 years, Belt said, even though proposals to delay solving pension shortfalls "may actually encourage companies to act more irresponsibly."
United's pension default is not only the largest in U.S. history, but the $6.6 billion that the PBGC will pick up will still leave 120,000 United employees and retirees facing a record $3 billion loss in pension benefits, Belt said.
By law, the PBGC guarantees a maximum annual pension benefit ($45,613.68 for 2005) for workers who retire at age 65 that is far less than pilots and other six-figure senior United employees stood to collect. And pilots - who must retire at age 60 under federal law - can only collect the agency's $29,649 maximum for people who retire at 60.
Belt's testimony before the House Transportation Committee came as Patricia Friend, president of the 50,000-member Association of Flight Attendants, which is fighting the United bankruptcy court order, endorsed a six-month moratorium on pension-plan terminations by United and other airlines.
"It allows time for the employer and the unions to honor the collective bargaining process and seek out alternative solutions," said Friend, a former United attendant.
Rep. John Salazar, D-Colo., a moratorium sponsor, added that the six-month delay "would give United workers time at the bargaining table to save what they worked a lifetime for - their retirement security - and during this time, Congress should work towards meaningful pension reform legislation."
An alternative introduced by Sen. Johnny Isakson and Rep. Tom Price, both Georgia Republicans, would let airlines stretch out payments for unfunded pension liabilities for up to 25 years. That proposal is backed by the Air Line Pilots Association and other airlines, including Delta and Northwest.
Delta CEO Gerald Grinstein and Northwest CEO Douglas Steenland warned Congress earlier this month that pension obligations put them at a competitive disadvantage with United and could force their carriers into bankruptcy, saddling the PBGC with billions more in pension costs.
Wall Street analyst David Strine of Bear Stearns & Co. told the House panel that he ranks the following carriers' pension risks, in descending order from high to low, because of the industry's "miserable financial condition": Delta, Northwest, Continental, AMR (American Airlines' parent) and Alaska.
Neither the six-month moratorium nor the 25-year delay is in a pension-reform bill a House work-force subcommittee approved Wednesday to put new restrictions on poorly funded plans, whether they are airline pensions or other plans:
- Companies would see annual premiums to the PBGC rise gradually to $30 an employee, up from $19. Pension plans that are less than 80 percent funded and at risk of default would see premiums jump over three years, while better-funded plans would have five years for the premium hike.
- If a plan's assets drop below 80 percent of liabilities, the company couldn't raise pension benefits until its funding levels improved.
- If assets fall below 60 percent of liabilities, the company must freeze benefits until the assets better matched the liabilities.
Rep. John Boehner, R-Ohio, chairman of the House Education and the Workforce Committee and chief author of the pension-reform bill, said his goal is "to never again allow plans to be so underfunded that if a company gets in trouble, their employees get left holding the bag."
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