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Measure Could Avert Pension Terminations

May 31, 2005
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Just days before United Airlines and the Pension Benefit Guaranty Corp. announced an agreement to terminate the airline’s pension plan, a bill was introduced that may save other airlines from the same fate.

On April 20, Sen. Johnny Isakson, R-Georgia, presented the Employee Pension Preservation Act of 2005, which would allow airlines to spread the funding of their pension plans over 25 years, instead of the current four, as long as they freeze new benefit accruals or pay for them upfront. The bill, which was co-sponsored by Sen. Jay Rockefeller, D-West Virginia, would require airlines to get union approval before taking this action.

The proposal is particularly welcomed by the airline industry, given the uproar in the wake of United Airlines’ decision to terminate its pension plan. On May 10, a U.S. bankruptcy judge approved the airline’s plan to transfer all four of its underfunded pension plans—amounting to $9.8 billion in liabilities—to the PBGC. The termination has been met with fierce opposition from unions, which have threatened strikes.

Andrea Newman, senior vice president of government affairs at Northwest Airlines, says the bill would help airlines avoid going into bankruptcy and having to renege on their promise to workers. “United has shed enormous liability, and what you would expect to happen is that more legacy carriers will have to do the same thing,” she says. Northwest’s plan is underfunded by $3.8 billion.

Delta Airlines, which worked closely with Isakson’s staff on the proposal, sees the bill as essential, says Benet Wilson, a Delta spokeswoman. Delta froze its defined-benefit plan, which is underfunded by $5.3 billion, to new employees in 2003 and just last month warned that it expects to report substantial losses for the rest of the year and could be forced to seek bankruptcy court protection.

For unions, the legislation could mean more bargaining room. “For an employer to do this they need consent from the union, and that means the union would be able to extract something else for that consent,” says Norman Stein, a law professor at the University of Alabama. This kind of bargaining power is a valued commodity, particularly in light of the United situation, where workers found themselves battling the bankruptcy of their company or losing their pensions. The Air Line Pilots Association says it supports the plan.

The International Association of Machinists and Aerospace Workers, however, is against the proposal because it would restrict the type of retirement plan that it could negotiate for its members, union spokesman Joe Tiberi says.

If future benefits are frozen, the only plan employers would be able to offer are defined-contribution plans, Tiberi says. “We believe there are ways to deal with the companies’ issues while still securing retirement income for the workers.”

The PBGC has not taken a position on the legislation. “We’re willing to look at any proposal that would keep unfunded liabilities off of the government’s books, but we have to be sure that plan participants and the pension insurance program are protected,” says Randy Clerihue, a PBGC spokesman.

The proposal comes as the Bush administration is discussing a complete overhaul of the pension funding system. And some say that despite the United situation, the bigger pension reform may take precedence over a proposal focusing solely on the airlines. Isakson, however, says that the two proposals go hand in hand. “My bill is industry-specific, but the components are still the same,” he says. “The sense of urgency that our bill portends is good for everyone.”

Jessica Marquez

 

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