Hall was perplexed. The letter came only a few days after a January 31 agreement between the airline and the Air Line Pilots Association that called for the pension plan to remain intact until May, which would give the union and company time to explore their options for future funding of the plan.

    "This seemed like a complete about-face," says Hall, who worked as a pilot for United for 34 years and is president of the 3,100-member United Retired Pilots Benefit Protection Association.

    After receiving about 100 such e-mails from pilot retirees, Hall finally received his own bad-news letter from United. It explained that the airline was terminating the plan and passing it on to the Pension Benefit Guaranty Corp., the government agency that insures private defined-benefit plans.

    "It was a wonderful letter," he says acidly. "It said ‘Dear Participant.’ The whole thing left a very bad taste in my mouth and showed a total disregard for the retirees and the contributions they made over the years."

    For United, the move to terminate its pension plan and pass it on to the PBGC is a last-ditch effort to get out of bankruptcy. What it means for retirees, however, is a mass reduction in pension payments. The PBGC only pays a fraction of what United would since it is only liable for the guaranteed amount.

    Hall estimates that his pension income will drop about 50 percent if the plan is terminated. While the retired pilots association is trying to figure out how much its members could lose in pension income, Hall says the calculations are easier said than done. "It’s as if someone tried to make this very complicated to figure out, and succeeded," he says.

    To add fuel to the fire, Hall says that the Air Line Pilots Association, which represents 6,400 active United pilots, has abandoned him and his fellow retirees by agreeing to not oppose United’s pension termination--in exchange for a $550 million convertible bond and the implementation of a defined-contribution plan.

    On February 18, ALPA joined the retired pilots’ association before U.S. Bankruptcy Court Judge Eugene Wedoff to oppose the March 1 reduction in pension benefits. They won, but Hall says that ALPA has made it clear that the retired pilots’ interests are not part of its agenda. "ALPA does not seem to be fighting very hard, or at all for that matter," Hall says. "They realized the position they were going to take was to not resist termination of the plan. And they knew the retired pilots were not going to be happy with that, so they basically stopped talking to us at that point."

    But for the pilots union, it’s not that simple, says Capt. Herb Hunter, a United pilot and spokesman for ALPA.

    "ALPA has never represented the retired pilots, and the reason is that it has never come up before. We have never had an issue like that," he says. Hunter, who is 56, says his members have a lot to lose. He has personally lost about $400,000 in the compromises the group has made over the years, he says. "My retirement plans would have been six figures, and now it’s going to be closer to $29,000," he says. Nevertheless, "the ultimate goal has to be to get the company out of bankruptcy," he says. "If we can’t do that, then the rest seems academic."

United offers a preview
    The predicament facing United and its pilots, both past and present, is one that will be more prevalent as the number of older workers and retirees begins to outpace the number of younger employees. At the negotiating table, both unions and employers are going to have to balance the conflicting interests of younger and older workers as the latter group grows and the number of retirees increases.

    "The younger employees’ fundamental objective is to keep their jobs, and while the pension security is important, it’s not the only consideration," says David Gregory, a labor law professor at St. John’s University in New York.

    The United situation is extreme because the company is fighting to get out of bankruptcy, but it depicts a generational dispute that is being pushed by the ailing pension system.

    On one side are the retirees who want to make sure their pension income continues as promised. Meanwhile, the active employees are fighting to keep their company above water--and if that means making sacrifices in pension benefits to have a job tomorrow, so be it, says Mike Kushner, an employee benefits attorney in the New York office of Coudert Bros.

    "This conflict is only going to increase unless the rates of return on pension investments go back to what they were in the mid-’90s," says Kushner, noting that such rates were "probably a once-in-a-lifetime proposition."

    As 79 million baby boomers begin to retire over the next four years and the number of workers shrinks, the pension system is going to be further strained because there will be fewer contributors to the system. That, some say, will cause this conflict to divide workers further.

    Evidence of this issue is already a much-debated element of the proposed Social Security reform. According to Social Security administrators, the ratio of working individuals to retirees collecting benefits will drop from 3.3-to-1 today to 2-to-1 by 2030.

    "The United pilots situation is a harbinger of things to come," Kushner says. "The problem will eventually come to roost in all industries, but first you will see it in those with highly paid employees because they have the most to lose in their pensions."

Divide and conquer
    Employers are keeping a close watch on how the United story unfolds to help them decide how to proceed in their own negotiations. Gregory believes that employers could use the friction within the unions to get the upper hand at the bargaining table.

    "In the short term, you will see it easier for employers to divide and conquer," he says. "However, in the long term that strategy could be a lose-lose because the employer risks negative publicity and a loss of consumer confidence."

    Steve Mirante, managing consultant in the New Jersey office of Watson Wyatt Worldwide, agrees that employers should do what they can to accommodate the retirees because "they are very powerful agents with a lot of influence." Eventually, as the number of retirees increases, observers expect to see more retiree associations, like the United Retired Pilots Benefit Protection Association, banding together for a stronger voice.

    United’s retired pilots are doing what they can to stay in the game. Since the group is not a union, it is not allowed to be part of the collective bargaining process. Wedoff, the bankruptcy court judge, did give the group permission to be an active participant in the proceedings on May 11, when the court will decide the fate of United’s pension plan. In the long term, the retired pilots association is considering what it can do to get its members’ voice heard on Capitol Hill.

    It realizes that its hands are tied in the United situation since it is a bankruptcy case, and by law the company has to do what it can to make its active employees whole first, Hall says. Nevertheless, he is trying to ensure that the retirees’ concerns are heard in the larger question of pension reform.

    "So far none of what has been proposed in the Bush administration’s pension reform (proposal) addresses our issues, yet we are the ones that are the most impacted," he says. "If somebody is going to take away your property, you should be allowed to get involved."