FT: PBGC steps in to bail out UAL pension

PBGC steps in to bail out UAL pension
By Dan Roberts in New York and Norma Cohen in London

Financial Times
Published: December 30 2004 16:26

Pension insurers in Washington seized the initiative in the US airline
crisis on Thursday by stepping in early to take control of $5.7bn in
liabilities for pilots at United Airlines.

The Pension Benefit Guaranty Corporation (PBGC), set up by the government to
protect employee pensions, said it had been forced to take pre-emptive
action to protect its own finances.

The corporation's bail out of the scheme covering 14,000 active and retired
pilots at United is the third largest rescue in its history. It does not
affect three other plans for employees at the bankrupt US carrier.

Bradley Belt, PBGC chairman, said: ³Ideally, the company would maintain all
four of its pension plans and honour fully the promises it has made to its
employees. ³However, in conjunction with the company's bankruptcy
proceeding, PBGC's financial advisers have come to the conclusion that
United Airlines can afford at most only three of its pension plans.²

The PBGC says that by stepping in now it will save up to $140m in additional
losses that would have been owed to pilots if the scheme were not rescued
until next year.

However, the PBGC's pre-emptive strike may jeopardise an agreement between
the airline and its pilots union which assumed the extra money would cushion
the blow of closing the scheme.

Mr Belt argued the sacrifice was necessary to protect the PBGC's own fragile
balance sheet.

³With a $23 billion deficit and more than one million workers and retirees
directly dependent on us for their pension benefits, the PBGC must be
vigilant in guarding against unnecessary losses,² he said.

The move is also likely to raise pressure on Congress to address the rules
which govern the level of contributions that employers must make to their
defined benefit pension schemes.

In 2005, a rule will expire that allows employers to measure their
liabilities using a discount rate higher than many believe is prudent. The
American Benefits Council (ABC), a body which represents companies that
sponsor pension plans, has urged that the rule be extended.

The ABC and other industry groups have lobbied heavily and so far,
successfully against changes to PBGC rules that would force employers to put
more money into under-funded schemes, to do so more quickly and to pledge
company assets as collateral when the contributions cannot be made.


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