Top Executives’ Pensions Protected in Bankruptcy Filings
Even in the wake of significant layoffs, some companies are reportedly making use of trusts and other creative arrangements to protect their top executives’ huge pensions, which are not usually covered by pension insurance when a company declares bankruptcy.
Airlines such as Delta and United have taken steps to protect their top executives’ pensions as the airline industry struggles to regain its footing after the Sept. 11 terrorist attacks.
Delta, which is working hard to stay afloat, disclosed recently that it had formed retirement trusts that will guarantee pension payments to its top 33 executives, a move that infuriated rank and file employees who may see their pensions cut as the airline strives to reduce costs.
UAL Corp., the parent company of United Airlines, used a similar arrangement to attract its Chairman and Chief Executive Glenn F. Tilton last September. UAL put $4.5 million in three trusts in Tilton’s name to compensate him for the pension benefits he gave up by leaving ChevronTexaco Corp. The agreement was designed to protect Tilton if the company ended up filing for bankruptcy court protection, which did in fact occur in December. Tilton will keep the money if he puts in three years with UAL or if the company emerges from bankruptcy.
While these arrangements clearly afford top executives even more security than regular employees enjoy, industry defends the practice by noting that when tough times are coming, it is better for the company to ensure its top people will stay put to ride out the storm.
LTV Corp., Conseco, Altria Group Inc. (formerly Philip Morris) and Abbott Laboratories are just a few of the companies that have disclosed similar arrangements in the last year.