Federal insurer says United acted illegally in halting pension payments

Agency presses to know if No. 2 airline intends to abandon retirement funds

July 27, 2004|By NEW YORK TIMES NEWS SERVICE

The federal government said yesterday that United Airlines acted illegally in halting contributions to its pension plans and gave the airline until Thursday to explain how it would revive the plans or acknowledge that it is abandoning them.

The Pension Benefit Guaranty Corp. took the unusual step of setting a deadline and making it public because of the extraordinary size of the pension funds at stake.

United's four largest pension funds have about $7.5 billion less than the amount they need to pay all promised benefits, according to a government estimate.

The federal pension agency has calculated that it would be liable for about $5 billion of that should United Airlines default on all four of the plans. Certain airline employees would bear the rest of the losses as reductions in benefits.

Losses on that scale would eclipse the current record, set by Bethlehem Steel Corp.'s pension fund in 2002. When the government took over Bethlehem's failed pension plan, it incurred losses of about $3.6 billion.

Thousands of retired steelworkers also experienced reductions in benefits, totaling about $500 million.

Employees of United have been expressing concerns about their pension plans since mid-July, when the airline missed $72.4 million in mandatory contributions.

Their worries intensified Friday, when United disclosed that it had amended its agreements with the lenders who are financing its operations under bankruptcy protection and that those amendments "effectively" prohibited it from making any more pension contributions.

It is all but unheard of for a troubled company to cease making pension contributions while in bankruptcy, then revive the plan later.

When a company shuts down a pension plan, it is required to give employees and the federal government 60 days' notice. So far, however, the airline has said only that it is researching its options and trying to determine whether it can emerge from bankruptcy without terminating one or more of the plans.

In a letter to United's chief executive, Glenn F. Tilton, the pension agency warned that keeping the plans alive without contributing to them "increases the risk of loss to plan participants and to the federal pension insurance program."

The prospective unfunded obligations rise because the employees continue to build up their benefits, even though the company has stopped setting aside the money to pay them.

"The interests of plan participants are best served" by keeping the pension plans going, wrote Bradley D. Belt, the pension agency's executive director.

"Therefore, the P.B.G.C. would like specific information regarding how UAL intends to close the growing funding gap in these plans." UAL Corp. is the airline's parent.

United is scheduled to pay more than $4 billion into the four plans in the coming years.

"Please provide a detailed ex- planation of how the company's business plan will enable it to meet these obligations," Belt wrote. "On the other hand, if UAL intends to terminate any of its defined benefit pension plans, the P.B.G.C. and plan participants should be made aware of that fact as soon as possible."

Belt recalled that representatives of United were scheduled to meet with the pension agency Thursday and said the matter should be addressed then.

A spokeswoman for United said the airline's board was scheduled to meet Thursday and that United therefore might not be able to send the appropriate people to the pension meeting on that day. She said United would try to reschedule the pension meeting.

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