United's Pension Woes
Sunday May 15, 2005
Reflecting what may be the tip of a financial iceburg, United Airlines has joined the growing ranks of American corporations that have punted support for their pension program to a federally-created insurance fund. No "truth in advertising" here: underfunded by $9.8 billion, United has the largest pension default ever. Yet United CEO Glenn Tilton (since December 2004) took home $1.1 million last year (including a $366,000 bonus).
In the batter's box ..... waits Boeing and Delta Airlines and maybe even firms like General Motors, which has had its pension and health costs trumpted in per-auto-built data recently. San Diego (the city) recently discovered its pension plan has a deficit of $1.4 billion that "threatens to bankrupt the city."
According to the San Diego Union-Tribune:
How did this happen? United (like other corporations and Congress with Social Security) have shifted retirement fund monies to other uses : dividends, stratospheric executive salaries, other operations/overhead. United joins a list of firms from the 90s (high profile steel mills, for example) who succeeded in persuading bankruptcy judges to let them shift their obligations.
But can PBGC handle these defaults? Not according to Forbes (as cited in the Washington Post): it faces a gap of $23.3 billion between assets and liabilities.
The San Diego Union-Tribune also highlights the plight of a 60 year old United pilot (they must retire at age 60) who has been flying for the company for 26 years. He "expects to lose 80 percent to 85 percent of his retirement benefits as a result of the ruling, which shifts responsibility for Schuck's pension to a government agency."
PBGC will pay a maximum of $45,614 per person per year for any plan it assumes in 2005. If you retire before age 65, the maximum payout is reduced.
See Newsweek, NY Times (via IHT), NY Times (via IHT), San Diego Tribune, Washington Post
In the batter's box ..... waits Boeing and Delta Airlines and maybe even firms like General Motors, which has had its pension and health costs trumpted in per-auto-built data recently. San Diego (the city) recently discovered its pension plan has a deficit of $1.4 billion that "threatens to bankrupt the city."
According to the San Diego Union-Tribune:
A survey last July by Pension & Investments found that the nation's 100 largest corporate pension plans were underfunded by almost $89 billion in 2003, a 41 percent decrease from $151 billion in 2002.With bankruptcy court blessing, United shifted $6.6 billion of its obligations to the Pension Benefit Guaranty Corp., established in 1974. In 1994, Congress raised the rates that corporations must pay for this insurance.
Boeing ranked No. 1 with the largest shortfall – $6.7 billion – and United Airlines ranked second, with $6.2 billion in unfunded pension liabilities. Other plans at the top of the journal's underfunded list were: Delta Air Lines, $5.7 billion; Delphi Automotive Systems Corp, $3.9 billion; Northwest Airlines, $3.7 billion; United Technologies, $3.7 billion; Raytheon, $3.5 billion; and Lockheed Martin, $3.5 billion.
How did this happen? United (like other corporations and Congress with Social Security) have shifted retirement fund monies to other uses : dividends, stratospheric executive salaries, other operations/overhead. United joins a list of firms from the 90s (high profile steel mills, for example) who succeeded in persuading bankruptcy judges to let them shift their obligations.
But can PBGC handle these defaults? Not according to Forbes (as cited in the Washington Post): it faces a gap of $23.3 billion between assets and liabilities.
The San Diego Union-Tribune also highlights the plight of a 60 year old United pilot (they must retire at age 60) who has been flying for the company for 26 years. He "expects to lose 80 percent to 85 percent of his retirement benefits as a result of the ruling, which shifts responsibility for Schuck's pension to a government agency."
PBGC will pay a maximum of $45,614 per person per year for any plan it assumes in 2005. If you retire before age 65, the maximum payout is reduced.
See Newsweek, NY Times (via IHT), NY Times (via IHT), San Diego Tribune, Washington Post