Wednesday, May 11, 2005

Underfunded Pension Goes Poof

The Associated Press reports how a bankrupcy judge has allowed United Airlines to turn its underfunded pensions over te a federal agency, where benefits will be cut. Link.
United Airlines gained a significant financial victory with court approval to dump its four pension plans but faces a tough challenge to win back the support of angry employees.
click here

While smoothing the path toward a targeted exit from Chapter 11 bankruptcy later this year, Tuesday's ruling in U.S. Bankruptcy Court inflamed United's unions, with some hinting at the possibility of strikes or other disruptive actions.

It also prompted a renewed warning from some members of Congress that taxpayers may someday have to bail out the deficit-riddled government pension agency, which now will assume an additional $6.6 billion in pension obligations from United. [...]

Wedoff approved the pension plan over the objections of several unions, noting that the federal pension system preserves the majority of benefits for employees at troubled companies. He called it "the least bad" of the available choices, since it gives unprofitable United the best chance to keep functioning.

These defined benefit pension plans were one of the factors that pushed United into the bankrupcy court. Defined benefit plans, which define a "guaranteed" retirement payment rather than a defined payment into the plan to be invested, have largely disappeared from America, except for government employees (all levels of government) and a few heavily unionized industries, such as airlines and autos. United will not be the last to have to get rid of its defined benefit pension plans. American Airlines may soon follow suit, and General Motors, whose bonds were recently downgraded to junk status, will probably have to eventually. The statement "that the federal pension system preserves the majority of benefits for employees at troubled companies" means that the cut in benefits will be less than 50%.

These dropping benefits are what the MSM continue to call "guaranteed" benefits when they compare the current, totally unfunded Social Security system, with its guarantee of a 27% benefit cut if no changes are made, with partially funded alternatives, which they refer to as "risky." What happened at United is a prelude to what will happen to Social Security if nothing is done, the preferred Democrat plan.


  • Hiya Jeff Perrin,
    Didnt know searching on the net for file bankruptcy would bring me here. But hey... reading your post "Underfunded Pension Goes Poof" was entertaining.
    While it may not be exactly related to file bankruptcy, it was nevertheless a pleasure to have visited your blog. That's the beauty of the internet.. u just dont know what you will find at the next corner.
    Jeff Perrin, its been great to visit your blog...do keep blogging and continue to make the web a more interesting place..cheers mate

    By Anonymous bankruptcy law, at 11:17 PM  

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