The PBGC today asked a federal court to terminate United Airlines' pilots pension plan and allow the agency to become the plan's statutory trustee, effective today, according to court papers. PBGC officials determined that terminating the plan now would be more cost-effective than waiting to terminate the plan later, according to a filing with U.S. District Court for the Northern District of Illinois.
The PBGC estimated the United pilots' defined benefit plan is 49% funded, with $2.8 billion in assets and $5.7 billion in benefit liabilities, said Jeffrey Speicher, spokesman. He said the agency expects to be liable for about $1.4 billion in guaranteed benefits of the estimated $2.9 billion in underfunding — the third-largest claim in the history of the pension insurance program.
"Ideally, the company would maintain all four of its pension plans and honor fully the promises it has made to its employees," Bradley D. Belt, PBGC executive director, said in a statement today. "However, in conjunction with the company's bankruptcy proceeding, PBGC's financial advisers have come to the conclusion that United Airlines can afford at most only three of its pension plans."
The action follows United's tentative agreement with the pilots' union earlier this month which allowed the airline to terminate the plan in exchange for increasing the airline's contributions to a defined contribution plan and also issuing $550 million in senior convertible notes to the pilots as part of United's Chapter 11 reorganization to emerge from bankruptcy protection.
United is "studying the PBGC's actions" and evaluating "legal and other options," Jeffrey Green, United spokesman, said in a statement. He said the PBGC's decision to seek an involuntary termination of the pilots' pension plan "changes nothing" with respect to the carrier's need to terminate and replace all four of its defined benefit plans. The airline "will continue to negotiate in good faith" with all of its labor unions, Mr. Green said.