Pension Default Should Raise Red Flag
July 28, 2016 at 4:25 p.m.
I think the United Airlines pension default was under reported.
It was the largest pension default in U.S. history and it really didn't seem to bother anybody, except maybe some pension administration-type people.
And that's kind of strange because the pension default affects everybody - well, everybody who pays taxes, I should say.
And it certainly has the potential to affect everybody else indirectly as it ripples through the economy.
For the record, a federal judge, in a bankruptcy filing, allowed United to dump its pension obligation to 134,000 current and retired employees in the lap of the federal government.
That's because United's pension fund is upside down to the tune of about $6.6 billion.
That's right. United has pension obligations of $6.6 billion that they can't afford to pay.
So now the burden of paying for those pension plans falls on the federal government.
US Airways did the same thing not so long ago, only on a much smaller scale.
Airline pensions are known as defined-benefit pensions. Those pensions pledge that on retirement, a worker will get a set amount of money each month based on their earnings and how long they worked for the company.
There used to be lots more of those plans out there than there are now. Over the past 20 years or so, defined-benefit plans have dwindled. But there still are 30,000 of them. Those plans affect more than 40 million workers and retirees.
When United was allowed to default, the federal Pension Benefit Guaranty Corp. inherited the pension liability.
But there's a problem. You see, the Pension Benefit Guaranty Corp. doesn't have the money.
It has somewhere in the neighborhood of $40 billion. But the current liability is more than $60 billion.
Obviously, United's bailout didn't help matters.
You realize, of course, that the taxpayer is the one who foots the bill for all this.
Congress is thinking hard on this one. Lawmakers are considering raising employers' insurance premiums and tightening plan standards, but that might only press some borderline profitable companies to dump their plans, too.
Meanwhile, here's what United CEO Glenn Tilton told employees in a taped message:
"Although there is much more work still to do, we are nearing our restructuring objective to emerge from Chapter 11 as a viable and sustainable United Airlines. We are building a solid foundation that is opening opportunities for success and growth."
Yeah, and for his efforts - cutting his employees' pay and benefits and dumping a huge burden on the U.S. taxpayers - Tilton got a $366,000 bonus.
A nice pat on the back from his board of directors.
His total compensation last year was $1.1 million and he also has a retirement benefit with special protection from creditors in the bankruptcy. A $4.5 million trust was set up for him when he was hired in 2002.
Do you think all those United employees who are losing pension benefits have special protections set up for them?
United isn't the only company out there with a government-guaranteed pension plan. Remember, there are 30,000 other plans out there.
If you total them all up, the Pension Benefit Guaranty Corp. is looking at a liability of $450 billion.
Plans like United's are the ones you find in traditionally union-organized industries.
There is real and growing concern that other airlines will follow the examples of United and US Airways - dumping their pension plans to remain competitive.
There is also concern that the practice could spread into the automotive and steel industries.
General Motors lost a cool $1.1 billion in the first quarter this year. Ford hopes to break even this year. Steel companies are struggling.
No one is openly predicting that other companies are considering shedding pensions.
But if a judge says it's O.K., and boards of directors give CEOs a big fat bonus for doing it, it certainly puts the option on the table, doesn't it?
Is this free enterprise? Is this capitalism?
Seems to me, in a capitalist society, businesses that can't make money get weeded out, not propped up by tax dollars.
Maybe United Airlines should change its name to United States Airlines.
As taxpayers, I guess all we can do is hope that more companies like United don't abandon pension liability.
With all this talk about the solvency of Social Security, Medicare and Medicaid, I wonder why more people aren't talking about the solvency of the Pension Benefit Guaranty Corp. [[In-content Ad]]
I think the United Airlines pension default was under reported.
It was the largest pension default in U.S. history and it really didn't seem to bother anybody, except maybe some pension administration-type people.
And that's kind of strange because the pension default affects everybody - well, everybody who pays taxes, I should say.
And it certainly has the potential to affect everybody else indirectly as it ripples through the economy.
For the record, a federal judge, in a bankruptcy filing, allowed United to dump its pension obligation to 134,000 current and retired employees in the lap of the federal government.
That's because United's pension fund is upside down to the tune of about $6.6 billion.
That's right. United has pension obligations of $6.6 billion that they can't afford to pay.
So now the burden of paying for those pension plans falls on the federal government.
US Airways did the same thing not so long ago, only on a much smaller scale.
Airline pensions are known as defined-benefit pensions. Those pensions pledge that on retirement, a worker will get a set amount of money each month based on their earnings and how long they worked for the company.
There used to be lots more of those plans out there than there are now. Over the past 20 years or so, defined-benefit plans have dwindled. But there still are 30,000 of them. Those plans affect more than 40 million workers and retirees.
When United was allowed to default, the federal Pension Benefit Guaranty Corp. inherited the pension liability.
But there's a problem. You see, the Pension Benefit Guaranty Corp. doesn't have the money.
It has somewhere in the neighborhood of $40 billion. But the current liability is more than $60 billion.
Obviously, United's bailout didn't help matters.
You realize, of course, that the taxpayer is the one who foots the bill for all this.
Congress is thinking hard on this one. Lawmakers are considering raising employers' insurance premiums and tightening plan standards, but that might only press some borderline profitable companies to dump their plans, too.
Meanwhile, here's what United CEO Glenn Tilton told employees in a taped message:
"Although there is much more work still to do, we are nearing our restructuring objective to emerge from Chapter 11 as a viable and sustainable United Airlines. We are building a solid foundation that is opening opportunities for success and growth."
Yeah, and for his efforts - cutting his employees' pay and benefits and dumping a huge burden on the U.S. taxpayers - Tilton got a $366,000 bonus.
A nice pat on the back from his board of directors.
His total compensation last year was $1.1 million and he also has a retirement benefit with special protection from creditors in the bankruptcy. A $4.5 million trust was set up for him when he was hired in 2002.
Do you think all those United employees who are losing pension benefits have special protections set up for them?
United isn't the only company out there with a government-guaranteed pension plan. Remember, there are 30,000 other plans out there.
If you total them all up, the Pension Benefit Guaranty Corp. is looking at a liability of $450 billion.
Plans like United's are the ones you find in traditionally union-organized industries.
There is real and growing concern that other airlines will follow the examples of United and US Airways - dumping their pension plans to remain competitive.
There is also concern that the practice could spread into the automotive and steel industries.
General Motors lost a cool $1.1 billion in the first quarter this year. Ford hopes to break even this year. Steel companies are struggling.
No one is openly predicting that other companies are considering shedding pensions.
But if a judge says it's O.K., and boards of directors give CEOs a big fat bonus for doing it, it certainly puts the option on the table, doesn't it?
Is this free enterprise? Is this capitalism?
Seems to me, in a capitalist society, businesses that can't make money get weeded out, not propped up by tax dollars.
Maybe United Airlines should change its name to United States Airlines.
As taxpayers, I guess all we can do is hope that more companies like United don't abandon pension liability.
With all this talk about the solvency of Social Security, Medicare and Medicaid, I wonder why more people aren't talking about the solvency of the Pension Benefit Guaranty Corp. [[In-content Ad]]