18 May 2005
In mid-May, a US bankruptcy judge approved a United Airlines request to transfer its four underfunded major pension plans ($6.6 billion in liabilities) to the Pension Benefit Guaranty Corp. (PBGC). United enters the history books with the largest corporate pension default in the history of the 31-year-old program; it filed for Chapter 11 bankruptcy protection in December 2002.
Despite being one of the beneficiaries of $1.6 billion in pension relief in 2004 (doled out to steel and airlines), US Airways shifted its pension obligations in February. American, Continental, Delta and Northwest are lobbying for additional relief this session. There is also speculation about pension plan solvancy at venerable giants such as General Motors.
The news about corporate retirement programs comes at the same time that President Bush is pushing for Social Security reform and others are exploring spiraling health care costs, particularly Medicare, which also exists to protect retirees.
None of this is "new." Three-fourths of the claims paid from 1975-2000 have been to employees in the steel and airline sectors: National Steel (liabilities of $1.3 billion), LTV Steel ($1.9 billion), Bethlehem Steel ($3.9 billion), Eastern Airlines ($600 million) and Pan American Airlines ($800 million).
In mid-May, a US bankruptcy judge approved a United Airlines request to transfer its four underfunded major pension plans ($6.6 billion in liabilities) to the Pension Benefit Guaranty Corp. (PBGC). United enters the history books with the largest corporate pension default in the history of the 31-year-old program; it filed for Chapter 11 bankruptcy protection in December 2002.
Despite being one of the beneficiaries of $1.6 billion in pension relief in 2004 (doled out to steel and airlines), US Airways shifted its pension obligations in February. American, Continental, Delta and Northwest are lobbying for additional relief this session. There is also speculation about pension plan solvancy at venerable giants such as General Motors.
The news about corporate retirement programs comes at the same time that President Bush is pushing for Social Security reform and others are exploring spiraling health care costs, particularly Medicare, which also exists to protect retirees.
None of this is "new." Three-fourths of the claims paid from 1975-2000 have been to employees in the steel and airline sectors: National Steel (liabilities of $1.3 billion), LTV Steel ($1.9 billion), Bethlehem Steel ($3.9 billion), Eastern Airlines ($600 million) and Pan American Airlines ($800 million).
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What does this mean for United employees? According to the
PBGC (via the
LA Times ),
the hardest hit are United's 14,100 pilots; their plan is underfunded ($2.8 billion in assets versus $5.7 billion in promised benefits). Pilots routinely earn six-figure salaries and must retire at age 60. News reports suggest that pilots may receive as little as 20 percent of their promised retirement benefits.
United has 36,100 ground employees; their plan is underfunded ($1.3 billion in assets versus $4.0 billion in promised benefits).
Flight attendants? 28,600 with assets of $1.4 billion and promised benefits of $3.3 billion.
The management and administrative plan covers 42,700 employees and is also underfunded ($1.5 billion in assets versus $3.8 billion in promised benefits).
These data combine current and retired employees.
United has 36,100 ground employees; their plan is underfunded ($1.3 billion in assets versus $4.0 billion in promised benefits).
Flight attendants? 28,600 with assets of $1.4 billion and promised benefits of $3.3 billion.
The management and administrative plan covers 42,700 employees and is also underfunded ($1.5 billion in assets versus $3.8 billion in promised benefits).
These data combine current and retired employees.
Background
In the United States, American Express established the first private pension plan -- an employer-run retirement program -- in 1875. General Motors implemented the first modern plan in the 1940s. Then in 1963,
Studebaker closed the doors of its South Bend, IN plant; in the process, it terminated its employee pension plan (employees and retirees were among the highest paid in the automotive industry). Only a third of the 10,500 workers received full benefits; almost half received 15% and almost a third received nothing.
The aftershocks led to Sen. Jacob Javits (R-NY) to introduce pension reform in 1967. (He also introduced a national health insurance bill.) It took seven years, but in 1974, Congress passed the Employee Retirement Income Security Act (ERISA). President Ford signed the legislation, which created the Pension Benefit Guaranty Corp. (PBGC), guaranteeing workers' benefits in private pension plans. The law also required that pension plan assets must cover liabilities; in this manner, Congress positioned PBGC as be a last resort. Since ERISA began in 1974, more than 160,000 companies have voluntarily ceased honoring their pensions.
The PBGC is funded by insurance premiums from employers that offer employees with insured pension plans. In return, PBGC will pay monthly retirement benefits, up to a guaranteed maximum, should the employer default on the pension plan. It insures both single and multi-employer plans.
The maximum pension benefit, which is adjusted annually, is set by law. For plans that terminate in 2005, workers who retire at age 65 can receive up to $45,613.68 a year. Workers who retire before age 65 have their maximum annual benefit reduced; workers who retire after age 65 see their maximum annual benefit increased.
Currently about 44 million American employees (current and future retirees) are covered by the PBGC. Its assets are currently pegged at about $35 billion.
The aftershocks led to Sen. Jacob Javits (R-NY) to introduce pension reform in 1967. (He also introduced a national health insurance bill.) It took seven years, but in 1974, Congress passed the Employee Retirement Income Security Act (ERISA). President Ford signed the legislation, which created the Pension Benefit Guaranty Corp. (PBGC), guaranteeing workers' benefits in private pension plans. The law also required that pension plan assets must cover liabilities; in this manner, Congress positioned PBGC as be a last resort. Since ERISA began in 1974, more than 160,000 companies have voluntarily ceased honoring their pensions.
The PBGC is funded by insurance premiums from employers that offer employees with insured pension plans. In return, PBGC will pay monthly retirement benefits, up to a guaranteed maximum, should the employer default on the pension plan. It insures both single and multi-employer plans.
The maximum pension benefit, which is adjusted annually, is set by law. For plans that terminate in 2005, workers who retire at age 65 can receive up to $45,613.68 a year. Workers who retire before age 65 have their maximum annual benefit reduced; workers who retire after age 65 see their maximum annual benefit increased.
Currently about 44 million American employees (current and future retirees) are covered by the PBGC. Its assets are currently pegged at about $35 billion.
