The U.S. agency that backs corporate pensions Friday said it was moving to take over bankrupt United Airlines’ pension plan for ground employees, which was only 30 percent funded.
The Pension Benefit Guaranty Corp. said it would guarantee payment of an estimated $2.1 billion in benefits out of the plan’s $2.9 billion shortfall. Benefits will be paid at a reduced rate for retirees, while current employees would get a new, cheaper pension.
The plan has more than 36,000 active and retired employees, the agency said.
UAL Corp. is the parent company of United, the No. 2 U.S. carrier behind AMR Corp’s American Airlines.
A PBGC spokesman said the agency was petitioning in federal district court to take over the ground employees plan.
“The decision to end a plan is never an easy one,” PBGC Director Bradley Belt said in a statement. But the agency also needed to protect itself against more losses, he added.
The PBGC is itself in the red, with a $23 billion deficit. By moving to assume United’s plan now, the agency said it saved itself at least $225 million in extra losses.
The United plan had only $1.2 billion in assets to cover $4.1 billion in promised benefits, and the company has missed $363 million in legally required contributions, the PBGC said.
It noted that United’s management had repeatedly stated its intention to terminate the plan.
United has been in bankruptcy since December 2002. The carrier has been trying to cut labor costs by $725 million a year beyond concessions already made by employees.
“We are studying the PBGC’s actions and are evaluating options,” said United spokeswoman Jean Medina. “We continue to believe that termination and replacement of all our defined benefit pension plans is necessary.”
The airline industry in general has suffered from soaring fuel prices and competition from low-cost rivals.
The U.S. pension agency in December asked for court permission to take over the underfunded retirement plans of United’s pilots. If a judge approves the proposal, United would be free of any duty to contribute to the pilots’ pension plans.
In recent congressional testimony, the PBGC estimated that United’s total underfunding stands at $8 billion. If all four of its plans are terminated, the government would be responsible for insuring $6 billion in benefits.
Last month, the government assumed remaining pension plans at US Airways, which is also restructuring in bankruptcy.
If plans covering both the pilots and ground workers eventually default to the government, the dual claims would represent the second-largest assumption ever for PBGC at about $3.5 billion. The largest was Bethlehem Steel at $3.7 billion.
Delta Air Lines Inc. and Northwest Airlines Corp. have recently signaled that their plans are unaffordable. Cashed-strapped big airlines owe their pensions billions of dollars over the next several years.
“Additional pension plan terminations in the airline industry would put even more pressure on the PBGC at a time when the pension insurance program can least afford it,” Belt, the agency’s director, told Congress last week.
