United Airlines' plan to eliminate its employees' defined-benefit pension plans moved a step closer to reality Friday when the government's pension-protection agency agreed to drop its opposition.
Attorneys for United and the Pension Benefit Guaranty Corp. announced a settlement in federal bankruptcy court, terms of which were not disclosed. The PBGC then withdrew its motion to postpone consideration of the airline's plan.
The federal pension insurer has been opposing United's proposed termination of its four employee pension plans since the airline, a unit of UAL Corp., first said last August that it intended to end them. It said the action would put it at financial risk by dumping, based on the latest increased estimate, $6.6 billion in funding responsibility onto the already strapped agency.
But with little apparent likelihood of overturning the plan, it had moved in recent months to assume control of the funds on its own terms — quicker than United's proposal — before further benefits accrued.
A settlement likely would speed transferal of the four plans to the government pension agency, reducing some benefits to employees from the original plans, which are underfunded by $9.8 billion. But United's unions remain opposed to the plans being scrapped, and Judge Eugene Wedoff must first approve the agreement.
"I'll consider this agreement when it's presented," Wedoff said in court when informed of the settlement.
The pension agency's executive director, Bradley Belt, said that "under the circumstances" the agreement is in the best interests of the pension insurance program and others. He said the settlement is superior to any recovery the agency would have gotten as an unsecured creditor in bankruptcy.
"The PBGC has an obligation to reduce its losses for the protection of workers and retirees, other companies that pay insurance premiums, and taxpayers," he said. "By reaching a settlement now, we further that goal."
United wants to terminate the defined-benefit plans in order to save $645 million per year, part of the $2 billion in annual savings it says it needs to secure financing to emerge successfully from bankruptcy.
United spokeswoman Jean Medina declined to disclose details of a settlement but said it would remove the divisive pension issue from the agenda at a labor-related hearing scheduled for May 11. That trial would then focus solely on United's proposal to impose lower wages and benefits following its inability to come to terms with mechanics and ground workers.
Separately, Wedoff granted United's request for a two-month extension of exclusivity, which allows the Elk Grove Village, Ill.-based airline alone to file a reorganization plan without risk of a rival plan submitted by outside investors. United now has through June 30 to file a plan unless another extension is granted.
