"Feds Ask Court to Halt United's Plan for Pensions"

Saturday, August 14, 2004

U.S. Asks That Court Halt United's Plan for Pensions
By MARY WILLIAMS WALSH
The New York (NY) Times


The federal government said yesterday that the total shortfall in United
Airlines' pension plans had grown more than previously disclosed, to
$8.3 billion, and it asked the judge overseeing United's bankruptcy
proceedings to strike a recent loan agreement that requires the airline
to suspend its contributions to the plans.

In a motion that it filed in Federal Bankruptcy Court in Chicago the
Pension Benefit Guaranty Corporation said United's loan agreement was
invalid because the airline cannot fulfill it without violating the
federal pension law. By law, all companies that promise traditional
defined-benefit pensions to employees must set aside enough money to pay
the benefits and do so according to a regulated schedule.

The pension agency's motion highlights broader unresolved questions
about whether the pension law continues to be binding when a company is
in bankruptcy proceedings. Some bankruptcy courts, though not all, have
held that employees and retirees in pension plans have no more rights
than any other unsecured creditors if a company in bankruptcy defaults
on its pension obligations. Pension watchdogs fear this interpretation
of the law could enable companies to use bankruptcy proceedings as a way
to dump burdensome pension obligations onto the government.

When a pension plan fails, the Pension Benefit Guaranty Corporation
takes over the company's obligations to the workers. 

United, the operating unit of UAL Corporation, said last month that it
had replenished the financing it needed to operate while in bankruptcy,
but that the terms of the agreement would make it impossible for it to
make two pension contributions due this fall. About $575 million is due
to the plans in September and October. The money is owed in varying
shares to three pension plans that United operates for its unionized
ground employees, its flight attendants and its managerial,
administrative and public-contact employees. 

Yesterday, United said that its new bankruptcy loan was critical in
providing liquidity and stability to the company. 

"Our responsibility lies in successfully restructuring our business for
the benefit of all United stakeholders in a way that ensures that we can
thrive as a competitive, sustainable company post-exit'' bankruptcy,
Jeff Green, a spokesman for United, said in a statement.

United's machinists and flight attendants unions, meanwhile, filed
motions in the bankruptcy court in Chicago challenging the financing
package, which United lined up after its application for a federal loan
guarantee was rejected for a third time.

The unions also said they opposed United's effort to obtain four more
months to draft a restructuring plan. If granted, it would be the fifth
extension since the company filed for bankruptcy in December 2002. The
motions, like that of the pension board, will be heard in Chicago on
Friday.

In motions filed with the bankruptcy court, the International
Association of Machinists and Aerospace Workers maintained that it had
been shut out of financing discussions and wanted to play a role. The
union has also filed a separate motion seeking the appointment of a
trustee to run the airline.

The Association of Flight Attendants, meanwhile, said the airline had
deliberately ignored required pension payments in arranging the
financing.

Greg Davidowitch, president of the flight attendants at United, said
management was "making decisions that are simply reckless." The union is
conducting a no-confidence vote in United's chief executive, Glenn F.
Tilton, through its Web site. United's pilots union has not joined in
any of the motions but vowed earlier this week to use all available
legal means to fight the company's attack on pensions.

None of the money due this fall is owed to the pilots' pension plan.
According to the federal pension rules, that plan still has credits on
its books from some contributions above the minimum required amount that
United made several years ago, before its financial troubles began.
United does not have to contribute to the pilots' plan until the credits
are exhausted, and the airline says that will not happen until next
year.

Despite that cushion, the pilots' pension plan has the second-biggest
shortfall - $2.3 billion - of all four of United's big plans, according
to the pension agency.

The agency has a second way of measuring the solvency of a pension plan,
based on factors different from those used to determine the size of the
contributions a company must make. This second method does not include
any credits for contributions above the minimum in the past, for
example. Called the termination method, it can show a pension plan in a
very different light from the method used to measure a current pension
plan.

According to the termination method, the pilots' pension fund would have
$2.3 billion less than the amount it needs to pay benefits if it were
terminated immediately. United has said that it is studying a number of
options for its four employee pension plans, including terminating them.


The plan that would have the greatest shortfall if it were terminated
immediately is the plan for United's unionized ground employees. The
pension agency has determined that it would be $2.5 billion short of the
amount needed to pay benefits, according to a second motion it filed in
bankruptcy court yesterday. 

That motion also said that the administrative, managerial and
public-contact employees' plan would have a $1.9 billion shortfall if it
were terminated. And it said the flight attendants' plan would have a
$1.6 billion shortfall if terminated. 

The pension agency filed the new amounts to assert its claims as a
creditor of United. If all four of United's pension plans were to
terminate at the same time, the agency would absorb much of the $8.3
billion shortfall as a loss. 

Such a collapse would be the biggest by far in the agency's history. So
far, the biggest plan failure was that of Bethlehem Steel's pension plan
in 2002, which cost the pension agency $3.6 billion.

The agency filed a similar assertion of its claims in May 2003, but at
that time United's total pension shortfall was smaller on a termination
basis, about $7.5 billion. Each of the individual plans has fallen
further behind since then except the pilots' plan, which gained ground
slightly.


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