Legislators protest United's pension plan

/ Source: Financial Times

More than 100 congressmen and nine senators have signed a draft letter that expresses "strong opposition" to United Airlines' plan to terminate its defined benefit pension plans.

The letter being circulated in Washington, addressed to Glenn Tilton, chief executive of UAL, United's parent company, could be sent later this week.

It underlines growing political concerns, including some within the White House, about the impact of a termination on workers who could lose benefits and on the agency that insures defined benefit plans, which could have to take on $6.4 billion in pension liabilities. It asks UAL to rethink the proposal.

"While we understand that the airline faces difficult challenges in emerging from bankruptcy, the employees and retirees have already agreed to job reductions and significant concessions in their wages and benefits," the letter says. "We strongly believe it is unfair to insist that their retirement security be sacrificed as well."

The letter notes that Congress offered reforms in April to help airlines by giving them more time to make cash contributions to fill in the holes in their pension plans.

"Members of both political parties supported this relief because we believed, based on representations by you and other airline executives, that this action was necessary to preserve the pensions funds."

United's termination, the largest ever proposed, would widen the $11.2 billion deficit of the Pension Benefits Guarantee Corporation. The agency also faces another $2.1 billion in liabilities from US Airways, which filed for bankruptcy a second time and has warned it might have to cancel its remaining defined benefit plans.

The congressional campaign has been co-ordinated by George Miller from California and Jan Schakowsky from Illinois, and by senator Ted Kennedy.

It is backed by the International Association of Machinists, which has been a fierce critic of United.

The IAM has met White House officials to discuss ways to prevent a termination.

"The White House does not want to see a termination before the election. They are meeting daily on this issue," said one person involved with the campaign.

However, United, which last week said it needed to cut a further $1.2 billion in annual costs, is not expected to terminate its pensions before the U.S. election. It has not yet filed the request with the PBGC and it takes at least 60 days after that to terminate a plan.

United is seeking to save $3 billion during the next four years by canceling its plans and replacing them with cheaper defined contribution plans.

It also plans to introduce profit-sharing, directing any gains towards bolstering the replacement plans, according to one adviser.

Last week the PBGC called for strengthened rights in the bankruptcy court where it is typically the largest unsecured creditor. "We should be able to perfect a lien in favor of the pension plan," it said.

Robert Roach, vice-president of the IAM, said: "They should do something quickly to help the PBGC move up the list of creditors to collect assets as cash to protect the pension plans."