Monday June 13, 2005
UNITED WE FALL:
My father retired from United Airlines in November 2002 after 34 years with the company as a pilot. Like thousands of other United retirees across the country, he stands to lose a substantial chunk of his pension (more than 80% in his case) as a result of the recent bankruptcy court ruling allowing United to terminate its pension plans.

This comes in addition to the hundreds of thousands of dollars my dad saw evaporate from his portfolio as the value of his shares of United stock (acquired in 1994 when United's employees gave up $5 billion in wage cuts in exchange for a 55% stake in the company) went from over $100 per-share at their peak in 1998 to about $1 per-share in early 2003 when he dumped them.

Unfortunately, as I said, my father's story is far from unique. But there's an extra element of tragedy to Ellen Saracini's story, whose husband Vic was the captain of UAL Flight 175 that crashed into the WTC on September 11. (Click here to read the text of a letter Ms. Saracini sent to Congressman George Miller describing the details of her situation.)

What's being done to United's retirees is total disgrace, one made that much more shameful by the fact it's been perpetrated completely within the bounds of the law. Here is what Bradley Belt, the head of the Pension Benefit Guaranty Corporation (PBGC), told John McLaughlin on May 12:

"As I testified last year, United stopped making contributions into its pension plans last summer, beginning last summer, notwithstanding the fact that the ERISA [The Employee Retirement Income Security Act of 1974], the law we talked about that created the PBGC and the Pension Insurance Program, would have required them to put in that money. However, since they were in bankruptcy, the Bankruptcy Code trumped their legal obligations under ERISA and did not require them to put those monies in.

But the other important point to note is that United, up until that point in time, had actually made all the minimum contributions that were required by law.

The problem is with the laws themselves. There are on the books laws that are supposed to keep -- make sure that companies keep their pension plans reasonably well-funded. Those laws have failed us. Those funding rules have failed us. That's the reason we have a $10 billion gap at United alone. The funding rules are not stringent, they're full of loopholes, and that's what the president is committed to addressing."

In other words, what we have is another example of CEOs and CFOs of major corporations pushing accounting practices and utilizing all available loopholes to comply with the letter of the law even while violating its spirit.

United is the largest and most visible example of retirees being put at risk by executives playing fast and loose with ERISA, but they certainly aren't alone. To put this emerging fiscal train wreck in context, the PBCG estimates there are currently 30,000 defined benefit pension plans in the United States that are under funded by a total of $450 billion. That's nearly three times the amount it took to bailout the S&L industry.

In addition to United's $9.8 billion default, The Washington Post reports that 20 other companies have defaulted on pension plans in the last three years to the tune of $100 million. Northwest and Delta are standing on the PBGC's doorstep with billions more in default. It's only a matter of time before the Big Kahuna - General Motors - comes knocking.

Two quick points worth making. The first is that one of the driving forces behind this crisis is union contracts. My father earned a good wage with good benefits under the pilot's union contract (as did other members of United's unionized workforce) but those contracts ultimately played a big part in United's inability to be competitive with non-unionized low-cost carriers which, along with September 11 and soaring gas prices, caused the airline to go belly up. Looking back, most United retirees would probably have rather earned a slightly lower annual wage if they had known that the trade-off would be United going bankrupt and then reneging on a big chunk of their pension nest-egg.

Second, United is a textbook example of why Social Security should be at least partially privatized. For decades employees like my father faithfully paid into a pension system in return for assurances that a certain amount of money would be there for them when they retired. When push came to shove, however, and the company ran out money, those promises were broken.

If United's employees had instead put that money into a 401K account, it would still be sitting there. They would own it, be able to see it, control it, and spend it or invest it as they liked.

Social Security is nothing more than a big defined-benefit pension plan. Now that we're getting a glimpse of what the future Social Security tragedy is going to look like, it seems immoral for Democrats to resist the idea of allowing people the option to control a portion of their own Social Security contribution.

I don't know that anything can be done to rectify the injustice being done to United's retirees. The only two possible options I see - liquidating the airline's assets or some sort of tax-payer subsidized bailout mandated by Congress - seem untenable both economically and politically.

Perhaps the only good that can come from the United debacle is that new laws will be put in place to prevent companies with defined benefit plans from using loopholes to under fund them. That would certainly benefit future retirees, but it's a very small consolation to my father and many more of the 50,000 lifelong United employees who are watching their retirement dreams go up in smoke. - T. Bevan 1:00 pm Link | Email | Send To A Friend

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