In what may be the biggest pension default in U.S. history, a Chicago bankruptcy court judge approved a plan by United Airlines to sidestep more than $3 billion in pension contributions over the next five years.
United's parent company, UAL Corp., was allowed on Tuesday to dump four pension plans, moving responsibility to the federal Pension Benefit Guaranty Corporation, which is itself plagued by debt. The pension plans have a shortfall of $9.8 billion.
The case could have far-reaching implications, as the airline industry as a whole faces deep financial troubles and may see UAL's move as a green light to also seek a settlement agreement with the PBGC.
Transferring the pension plans, which cover more than 120,000 United workers and retirees, will mean cuts in benefits. An official at the International Association of Machinists and Aerospace Workers told the Associated Press that future retirees at United will see benefits fall more than a fourth.
Richard Turk, a spokesman for the Aircraft Mechanics Fraternal Association local in San Francisco, which represents many United mechanics, told the Wall Street Journal that his members are "beyond angry. We're just fed up."
The PBGC would guarantee payments to plan participants totaling $6.6 billion. That translates into a benefits reduction of $3.2 billion. The agency's maximum guaranteed benefit is set by law. Retired pilots stand to be hit hard; generally, lower-paid workers have a greater chance of receiving all their pension, according to the Journal.
Congress has already taken up the issue, as legislation has been introduced that would allow airlines to stretch out payments on their pension shortfalls for 25 years instead of four years under current law-if they freeze the plans in question and ensure that the deficit wouldn't grow.
U.S. Rep. John Linder (R-Ga.), a co-sponsor of the bill, said in a statement: âI am hopeful this bill can help keep these airlines out of bankruptcy reorganization, which would jeopardize the full benefits of employees and result in the cost of the pension plan being paid by the public, not the airline.â