Airlines, pensions, and taxpayers 3557

Rick++

PBGC is quite active. It now has made a statement on US Airways; don't be surprised to see a statement by it on Enron in another few days. The US Airways statement is repeated below. (The United statement was posted by me a long time ago.)

PBGC has lately been resorting to legal action to force companies to behave properly. PBGC doesn't want another pension dumped on it and the taxpayers.

This a case where a company (Enron) doesn't want a takeover. Why? It doesn't want to pay as much into the pension plan as the PBGC would order it to. If it had wanted to, it would have paid already rather than be subject to action by the PBGC.

Note that stock holders (401k retirees) get nothing. PBGC doesn't insure defined contribution plans.

Take a look at something else, too -- the need for more transparency and less underfunding of pension plans.

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Ironically, Enron's pensions actually are in better shape than other parts of the company. In most bankruptcy cases, the company doesn't have enough buttets left to make good on its pension obligations. Enron does, and the PBGC wants to make sure the company doesn't cut corners.

Once Enron sells its operating companies, the pension obligations will stay behind, paid out by a liquidating trust that also will pay off other bankruptcy creditors. If that trust comes up short, there's no way for more money to be added. Workers, in other words, will be stiffed again.

The PBGC can take over the pensions, but that may make the situation worse. The government guarantees some, but not necessarily all, benefits, so workers might get less than they expected under the government's care.

Besides, the PBGC already is running short by almost $10 billion, having buttumed pensions for bankrupt steel companies, and it's facing another $7 billion for United Airlines' underfunded pension that's about to fall in its lap. It doesn't want to add Enron to the pile.

A federal bankruptcy judge in New York yesterday denied Enron Corp.'s request to block a lawsuit by a federal agency seeking to take control of the company's pension plans.

The Pension Benefit Guaranty Corp., which acts as a safety net for corporate pension plans, filed a lawsuit in a federal court in Texas in June to take over the plans in a bid to make Enron pay the roughly $320 million owed to former employees under four pension plans.

"We are pleased with the decision and continue to hope that this will not result in PBGC taking over the plans but that Enron will make sufficient contributions to the plan so that no Enron employee loses any benefits," said Jeffrey Speicher, a spokesman for the PBGC.

Houston-based Enron has said it will pay the $320 million owed to the pension plans. The PBGC said the payments should have been made already.

Enron will pay creditors an average of 20 cents on the dollar as part if its plan to exit bankruptcy. Holders of shares, including those in the retirement accounts of Enron employees, will get nothing. The company filed what was then the largest bankruptcy in U.S. history in December 2001. The filing now stands as the second-largest bankruptcy, behind WorldCom Inc.'s 2002 filing.

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************************************************************************** Madrian said she expects old-fashioned pensions to be pretty much extinct within two decades, except for government employees. **************************************************************************

Just like the Enron Corp. scandal was a lesson on how 401(k) plans loaded with company stock are dangerous, United should serve as a wake-up call to workers who don't think defined-benefit pensions can be taken away, some labor experts said.

While United's plans are insured by the Pension Benefit Guaranty Corp., the government agency has expressed concern about the chance United will saddle it with about $6.4 billion in future pension obligations. In addition, its maximum payment to retirees is less than what some were scheduled to receive.

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PBGC

PBGC Calls for Pension Protections

Actions of US Airways and UAL underscore need for fix

The Pension Benefit Guaranty Corporation said today it will guarantee the basic pension benefits of workers from US Airways and United Air Lines should the plans of those companies terminate, but it will also ask Congress for reforms to help ensure that corporations meet their pension obligations.

"The PBGC will protect workers' pensions, but we must have the tools going forward to require companies to meet their obligations," said PBGC Executive Director Bradley D. Belt. "We need fundamental reforms to improve the financial health of the defined benefit pension system, to protect participants' benefits, and to shore up the federal pension insurance program."

The PBGC is recommending specific changes that could be made in the bankruptcy context to better protect workers and retirees. The pension agency should be able to perfect a lien in favor of the pension plan when companies in bankruptcy skip their legally required contributions, and companies should notify participants within 30 days of a bankruptcy filing of the plan's funded status on a termination basis and of legal limits on PBGC's guarantees.

The airlines in bankruptcy protection have said they won't make required contributions to their pension plans. In response, Belt said, "Failure to act will increase the risk that participants will lose promised benefits and that the pension insurance program will suffer larger losses. We need to make clear that pension contributions are required whether a company is in bankruptcy or not."

When a company outside of bankruptcy skips legally required pension contributions, the PBGC is able to perfect a lien against the company's buttets. In bankruptcy, companies and certain courts have held that pension contributions do not have to be made despite the increased risk to plan participants and the pension insurance fund.

United Airlines announced last month that it would not make roughly $500 million in contributions due to its pension plans this year. US Airways said yesterday that it will not make roughly $100 million in contributions due to its pension plans tomorrow. In its bankruptcy court filing, US Airways said it would be "irrational" to make pension contributions because it "provides no benefit to the estate."

"That is a remarkable statement," Belt said. "The company is saying it's irrational to keep your pension promises and to comply with federal pension law. Bankruptcy should not be the path of least resistance to deal with your pension obligations."

The PBGC is a federal corporation created under the Employee Retirement Income Security Act. It currently guarantees payment of basic pension benefits earned by 44 million American workers and retirees in more than 31,000 private-sector defined benefit pension plans. The agency receives no funds from general tax revenues. Operations are financed largely by insurance premiums paid by companies that sponsor pension plans and investment returns.