Bankruptcy Court Lets United Out of Pension Promises

UNITED NO MORE

The latest chapter in the 29-month-old reorganization of United Airlines is likely to wield enormous impact on the fate of its fellow legacy airlines, and could possibly trigger a wider national crisis over employee pensions.

In approving an agreement between United and the Pension Benefit Guaranty Corp. (PBGC), terminating defined pension plans for four unions, Judge Eugene R. Wedoff of U.S. Bankruptcy Court set off a chain reaction of protest and strike threats from labor, followed by calls for reform of U.S. law governing bankruptcy and pensions.

By terminating these plans, United shifts the assets to the PBGC, which takes over responsibility for payments due employees from a guaranteed base of $6.6 billion, estimated to be on average 25% less than anticipated. United is expected to offer defined contribution plans as substitutes, such as the 401(k), that will have less impact on its bottom line. The shift of the defined benefit plans to the PBGC will relieve United of obligations to pay $4.5-billion to the defined benefit plans over five years, and demonstrates that this alternative under bankruptcy protection is both legal and viable. US Airways shed itself of defined pension obligations last year against objections of the Air Line Pilots Assn. and through negotiations with other unions.

Terminating the plans--underfunded by $9.8 billion--was a difficult, necessary and unavoidable step, according to United Chief Financial Officer Jake Brace.