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One thing that is blogworthy, that has me seething, is the ruling today by the federal bankruptcy court that allows United Airlines to dump the pension plans they were obligated to pay to the tune of $645 million per year.
This is bullshit for a couple of reasons. First, Congress just rammed through a bankruptcy bill that makes it incredibly difficult for average citizens to declare bankruptcy. Instead of being able to wipe their debts clean, consumers now have to enter into repayment agreements with their creditors. Dick Durbin introduced an amendment to the bill that would make what UAL just got away with impossible but it was voted down. What this means is that corporations get government bailouts for a portion of their debts when they go into bankruptcy.
Did I mention government bailouts? The UAL pensions are now going to be covered, up to $45,000/yr (this means retired pilots are going to be losing a big chunk of money), by the taxpayer funded Pension Benefit Guaranty Corp., the pension version of the FDIC. So now it's up the taxpayers to bail out UAL. In the meantime, some of UAL's pensioners, taxpayers all, may be forced into bankruptcy themselves due to the loss of a good portion of their pensions. In essence, they'll be funding their own pensions. Oh, the irony.
What about UAL's competitors who are teetering on the edge of bankruptcy? UAL just shed $645 million in costs. It makes sense for Delta, Northwest and Continental to go into bankruptcy if they can just disappear up to a billion dollars of pension payments every year. It's not just the airlines, though. GM and Ford are hurting bad and they pay out a lot in retirement pensions and I imagine their pension obligations dwarf UAL's.
What about the corporation's fiduciary duty? Many pension funds are underfunded because companies put extra money into short-term investments to increase stock value which increased the bonuses paid to top executives. It's sick and wrong and I hope Congress got the wakeup call that it ignored when Durbin tried to stop this last month. If not, the savings and loan bailout could look puny in comparison.
Posted by Half-Cocked at May 11, 2005 11:35 PM
The PBGC isn't government funded, just mandated. It's money comes from premiums paid by corporations insured by the fund. If Congress doesn't bail it out and just lets THAT go bankrupt, taxpayer money need never get involved.
The corporation's fiduciary duty is to its shareholders. It has only a contractual duty to its pension fund, as far as I know.
Do you have reason to believe United can stay in business if it paid $645 million a year to its pension fund? Are you aware that if the PBGC didn't exist the pension obligations would still be dischargeable like any other debt, and there wouldn't be ANY backup? Perhaps the United Chapter 11 plan should pay more to the pension fund (I'm guessing the plan is paying somewhere between 0-20%). But keeping the whole thing is most likely a recipe for United's employees to lose their jobs, too.
The unions did this to themselves, extorting everything they could from an industry that cannot survive strikes. They got all of the real compensation that existed to be squeezed from this turnip, and then added a nice contingent padding in the form of the pensions. The fact that the bet didn't pay off doesn't mean they didn't know it was a bet, and they've still been grossly overpayed with their past salaries.
Fuck them.
Posted by: Dylan at May 15, 2005 10:32 PM
The PBGC was running an $11.2 billion deficit on long-term benefits before UAL. The money to cover that deficit is coming from somewhere.
Yes, the fiduciary duty is to the shareholders. I wasn't clear on why I referred to that. Some of the bad decisions United made before Sept. 11 were exacerbated by that event. United still saw fit to give its CEO a $3 million bonus in 2002, the year they entered bankruptcy. The actions taken by United, including the aborted attempt at merging with US Airways, can be seen as breaches of duty, which led to the bankrupty, which led to the loss of the pension. Plus, United is over 50% employee owned.
What I don't like is the double-standard that's being created. Consumers can't do this, but big corporations can. I'll bet the client in our office who has $75,000+ in medical bills and creditors suing him left and right will feel really sorry for UAL.
United could have just liquidated and funded the pension from the proceeds. There are plenty of other airlines to pick up their slack. United's problem, along with the other big airlines, is that they failed to note that people don't mind giving up perks and full-service for cheap flights. They didn't learn to compete with Southwest and Jet Blue. United flies to Chicago from here, but when I go to Chicago I drive to Omaha and fly Southwest.
As far as the unions go, we'll have to agree to disagree there. The unions gave up $2.5 billion in concessions to help United restructure in 2002. Maybe the unions overreached once in awhile but they still want their jobs. Anyway, pensions aren't something that unions squeezed out of the airlines. They were pretty standard at one time. I had a pension plan until I left for law school and I wasn't even in a union.
United reservation agents start at $6.50/hr.
Posted by: Steve at May 16, 2005 12:23 AM