This article from NYTimes.com has been sent to you by psa188@juno.com. US Airways Seeks Reworking of Pilots' Pension Plan January 30, 2003 By MARY WILLIAMS WALSH US Airways is planning to ask the government to take over its pension plan for pilots, a step that would sharply reduce their benefits, but the airline is also pledging to give the pilots a rich new retirement plan after reorganizing to make up for the loss. The airline has told the pilots that it will take steps either today or tomorrow to begin terminating the underfinanced plan, a step intended to help the airline emerge from bankruptcy. The proposed combination of steps will "meet pilots' retirement security needs and expectations," David N. Siegel, US Airways's chief executive, wrote in a letter to the pilots. Similar attempts to restore employee benefits after transferring insolvent pension funds to the government have been tried by other companies in recent years - the LTV Corporation and Wheeling Pittsburgh are examples - but have been rejected by the Supreme Court. If the package being developed by US Airways was approved, it could be a model for other troubled companies seeking some form of relief from their pension obligations without stripping employees of promised retirement income. The airline's efforts to devise such a solution, and the government's response, are being closely watched by other companies - particularly airlines - as well as by unions. Seven of the nation's eight biggest airlines have traditional pension plans, and none of them have the assets to pay all the benefits they have promised. A recent report by Fitch Ratings estimated these airlines' total pension shortfall at more than $18 billion. As recently as 1999, they had a surplus of $1 billion. A default by US Airways would transfer more than $500 million in unfunded liabilities to the government agency that guarantees pensions. That agency, the Pension Benefit Guaranty Corporation, has been weakened by a succession of pension defaults by steel companies and is expected to disclose today that it has exhausted its surplus. US Airways has said repeatedly that unless it sheds its obligations to the more than 7,000 pilots, retired pilots and pilots' widows covered by its pension plan, it is unlikely to survive. "We absolutely must solve this pension issue," Mr. Siegel said in the letter, if the airline is to get financing to emerge from bankruptcy by March 31, as it hopes. The pension agency was created in 1974 to insure company pension plans, much as the Federal Deposit Insurance Corporation protects depositors when a bank fails. It is financed by companies that offer pensions through insurance premiums, not by general tax revenues. When a pension plan collapses, the agency takes over the current and future payments, up to certain limits. Its current maximum is about $42,000 a year for people who are 65 or older at the time of default. Younger employees receive less when they retire. A worker who is 43 when a plan fails, for example, can receive only about $9,000 a year upon retirement. These limits have deeply embittered the employees of companies that have gone bankrupt - particularly the pilots at airlines like Pan American. Pilots are well paid and can easily build up pensions of $100,000 a year, far more than the federal insurance limits. In addition, the Federal Aviation Administration requires pilots to stop flying at 60 so they cannot work long enough to qualify for the maximum payout. The pension agency now limits payments to about $27,900 for workers who are 60 when their plans default. To assuage workers upset by such reductions, reorganized airlines and other companies have tried in the past to create what they call "follow-on" pension plans. These efforts have usually involved creating a retirement package that would bridge at least part of the gap between the government maximum and what the employees would have received under their defunct plan. The government has consistently fought such programs, saying they abuse the insurance program by permitting companies to walk away from their pension responsibilities, then to offer their employees similar benefits with the agency's paying most of the cost. The pension agency took its challenge of one such pension, created by LTV, the steelmaker, to the Supreme Court in 1990, and won a ruling that plans that "substantially replace" the benefits of a failed pension plan are prohibited. After the ruling, the agency returned LTV's original pension obligations to the steelmaker. LTV began issuing pension checks again but wound up back in bankruptcy court several years later. US Airways provided few details of how it hoped to win government approval for its follow-on plan, though it said it had been discussing the plan with the pension agency. It envisions a defined-contribution retirement plan, rather than the defined-benefit plan that it will probably terminate. Defined-contribution plans are exempt from the financing requirements that govern traditional defined-benefit plans. The most common type of defined-contribution plan is the 401(k), in which employees themselves manage the money, even the corporate contributions. US Airways did not describe how it would contribute but said its goal was to build up a fund big enough to let a pilot retiring after 30 years' service receive annuity income of about $100,000 a year for the rest of his or her life when added to the government payout. US Airways said that was about what the pilots would have received under the existing plan, after concessions last year. The agency has generally looked more favorably on defined-contribution models for follow-on plans but continues to hold to the standard that plans that "substantially replace" previous benefits are prohibited. http://www.nytimes.com/2003/01/30/business/30PENS.html?ex=1044935903&ei=1&en=2f52337060d121c5 HOW TO ADVERTISE --------------------------------- For information on advertising in e-mail newsletters or other creative advertising opportunities with The New York Times on the Web, please contact onlinesales@nytimes.com or visit our online media kit at http://www.nytimes.com/adinfo For general information about NYTimes.com, write to help@nytimes.com. Copyright 2002 The New York Times Company