United Airlines’ plan to terminate its employees’ pension plans

[adios]

No I don't think the new laws effected Chapter 11's. They basically put most personal bankruptcies in chapter 13 instead of chapter 7. In order to sell a re-org in Chapter 11, both sides get to present their cases to a judge and a judge decides. What could be fairer than that?

[player24]

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A federal bankruptcy judge approved United Airlines’ plan to terminate its employees’ pension plans on Tuesday, clearing the way for the largest corporate-pension default in American history.

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MSNBC

Can someone explain to me what this means. Does it mean that noone will get any pension money from the corporation? If so, how on earth can that be legal? If pension is part of my benefits, how can the company back out? I know they could not do it around here.

Or does it just mean that no more money will be put into the pension fund? And if so, doesn't your employment contract specify how much pension money you should receive?

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UAL is turning their pension liabilities over to the Pension Benefit Guarantee Corporation (PBGC). The PBGC has a formula which they apply in determining the extent to which each retiree will be affected (in this case, benefits are being reduced by an average of 27%). The PBGC then becomes a creditor in the UAL bankruptcy case and looks to recover a share of their costs. Ultimately, the portion of the cost which the PBGC does not recover is paid for by US taxpayers.

If UAL had been forced to liquidate, the pension claims would have to compete with other creditors of the estate (banks, bondholders, etc...) in order to try to recover some value. In this case, retirees are better off than they would be under a liquidation of UAL, but worse off than they would have been if UAL had remained financially solvent. UAL retirees were promised certain benefits form the company - the same way that bondholders were promised that they would receive coupon payments and princial on the loans they made to the company - each of these constituents are essentially creditors, and each will suffer financial impairment.

UAL will emerge from bankruptcy, eventually, with a level of liabilities which is consistent with their ability to generate cash flow. If the UAL unions decide to strike to protest the reduction in retiree benefits, the company will probably end up in liquidation and most employees will be worse off (although the retirees will continue to receive pension benefits promised by the PBGC). In general, what we are witnessing in the US airline and automotive sectors is payback for all of the years in which employees were grossly overcompensated because of the strength of their labor unions and the incompetence of mananagement teams which agreed to such extravagant compensation packages. There will most likely be a domino effect in the airline sector in which other airlines attempt to alter their retiree benefit packages, probably through bankruptcy (USAIR and Delta are next in line...). The same thing has already played out in the steel industry. And the automotive industry is next.

[lehighguy]

gp

Just getting paid more doesn't create any value. Unless the employee creates enough value for the company to justify higher pay the only way to recieve higher pay is for the company to pile up debt.

[blatz]

Just wait a year until GM has to ask for the same.

That is why SS 'reform' is looked at by the Republicans as very important now, because once Americans take a hit like that, it's gonna be off the table.

[QuadsOverQuads]

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In general, what we are witnessing in the US airline and automotive sectors is payback for all of the years in which employees were grossly overcompensated because of the strength of their labor unions and the incompetence of mananagement teams which agreed to such extravagant compensation packages.

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Funny how it's always the average working guy who's "overpaid" (thanks to the horror of Those Evil Unions!), rather than the guy in the executive suite with his eight-figure salary and his golden parachute.


q/q

[lehighguy]

Executives are often overpayed as well. Doesn't change the fact that workers in those industries have been overcompensated due to strong unions.

My dad is a teamster and is paid too much for his work. One day there will be enough immigrants in my area that they will break the union. That's life.

[Il_Mostro]

woohaa now cowboy, why all the aggression? I find this to be very strange indeed, but I don't regognize myself in the description you give here.

My pension is in two different systems, one via taxes guaranteed by the state and the other "private", that is, the company I work for pay a certain percantage of my salary to a pension fund/funds of my choice. No matter what happens to my company the money they payed for my pension, which basically is part of my salary, cannot be taken away.

I simply don't understand why the company should be able to withdraw my pension money, no matter what.

Now, Sweden also has all sorts of problems with the pensions, since the system was designed so that the current taxes should pay for the current pensioners, not good. But that does not mean I don't find this case (and others like it) strange.

[adios]

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woohaa now cowboy, why all the aggression? I find this to be very strange indeed, but I don't regognize myself in the description you give here.

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I wouldn't call my comments aggressive and some of them were meant in response to the cynical replies you received. I should have specified which comments applied to your original post and which ones applied to the cynical comments you received. When posters complain how the system is rigged because a judge has decided a certain way that they don't like and deride others who criticize court decisions that they support then I think that's just beyond the pale. The important thing is that there is a judge presiding over the case and makes decisions after aggrieved partys have had their say. There also is a safety net provided by the US government. Don't know why some who responded would complain about such a thing.

I would suggest reading up on Chapter 11 and how GM's pension liabilities are funded because they're probably explained better elsewhere than I could.

[lehighguy]

Your right, they shouldn't be able to take away your pension. It's morally repugnant and completely shits on property rights.

But then again we already [censored] on property rights. A politician got up and talked about how when people get in too much debt they can't get out and look at what a rough spot thier in. So they invented bankruptcy laws. Now you could run up all the debt you want and then reneg on it by hiding behind bankruptcy.

So if an individual can do it, why not a corporation? When you start to disregard property rights and contract law it becomes one giant special interest grab bag. If there are no fundamentals to hold you down you can come up with arguements for anything no matter how repugnant (like screwing these employees out of thier pensions).

[MtSmalls]

There was an amendment to the recent Bankruptcy bill sponsored by Dick Durbin of Ill. that would have exempted pensions and defined benefit plans from companies filing Chapter 11. That is the benefits would still have to be paid. It was shot down on a party line vote.

The PBGC will take over payments for the United plan, according to a formula, however the maximum benefit is capped at around $40,000 per year. This means for most retired pilots, their pensions will be cut in half. For current employees, they will effectively get nothing. The PBGC also gets a sizable equity stake in United, should they emerge from Chapter 11.

I, and many United employees I'm sure, would sure like to know what the difference is between United defaulting on their pension plan, and the average consumer filing for personal bankruptcty. Under the new law, the consumer in virtually every case is going to be responsible for their debts, but United isn't???