Wednesday, May 11, 2005

Do You Feel Secure?




I was perusing NPR yesterday and listened to a piece about United Airlines trying to obtain permission from bankruptcy court to terminate its contributions to the employee retirement fund. This morning the NY Times (United Air Wins Right to Default on Its Employee Pension Plans) tells me that United has gotten permission to "terminate" its 4 pension plans. The company's retirement fund is short some $10 billion. Now the company has permission to stop
making contributions for retirement and is being allowed to divest it's responsibilities for anything to do with employee retirement by turning them over to a government entity, the Pension Benefit Guaranty Corporation, which will be able to make good on about $7 billion of the $10 billion that United is shy in its pension coffers.

As it turns out the PBGC is not funded by taxes, i.e. you and I don't pay out on the money that the PBGC provides to those retirees who find themselves turning to it for their retirement payments; this money is provided by insurance paid in by participating employers. Of course, as in this case with United, what you get through the PBGC is not what an employee could have
expected to have gotten under the retirement plan they came into the job under. Employees with US Air, the first airline to take this route, are looking at seeing reduced pension payments, for some as much as 50%.

Most of us today don't have retirement plans such as United's. These old plans are disappearing, primarily due to the fact that they're expensive to sustain and it's all too easy for the employer to turn to the funds that should be invested for retirement and re-direct them for something else, like operating the company. United's primary concerns are multifold: 1. Pumping money that can be used for operations, specifically in a line of business that's losing money to higher fuel costs and cutthroat competition, into the retirement fund undercuts the company and causes it to lose money, and 2. Investors potentially interested in putting money into company stock will be dissuaded by what's seen as a large financial liability, i.e. the retirement fund.

I suppose it'd be easy for any of us to say that United's totally at fault here. Maybe it is, but we're seeing more and more of this sort of thing, we just haven't seen it on this scale (this pension default would be the largest in history.) Did United management make decisions that put the airline in a difficult position? Probably. Did the unions demand more in benefits than what might have been reasonably expected? Possibly. Was United shortsighted in giving in to Union demands for benefits that now it can't pay off? Well, maybe, or it could have cynically given into the demands all along knowing that in the end it would never have to pay them off if they successfully went the route that they're now trying to go. I can't say that United was being cynical and manipulative, and I'm left wondering how smart union and management folks could collectively not have seen the writing on the wall to avert what's now happening. However you look at it, the situation as it now is boils down to the judge in the bankruptcy ruling to state:

"The least bad of the available choices here," the judge said, "has got to be the one that keeps an airline functioning, that keeps employees being paid."

So it comes down to keeping the company viable over making good on promises made over the years, but then is there any other alternative here?

Pensions and having enough money into retirement was an invention of the post-World War II work force. We were massively expanding our industrial base, workers had to be enticed into signing up with companies, and the cost of retirement funds in those days was relatively reasonable as a cost of doing business, though how long that could have been expected to last is
another question. I don't know how this should have worked then, or how it should work now, but the sense that the world one lives in can be easily upturned by events we have no control of seems to run thoroughly through the story of the United workers. I'm sure they're far from being the only ones that should feel that way.

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