Federal pension insurer picking up after companies in economic trouble

On a drippy night in February, about 80 United Airlines workers and retirees sat in a hotel conference room near the Southcenter mall to hear how the federal government would manage the biggest pension default in history.

The main message from the pension bureaucrats: Don't worry. At least not yet. Unless you're slated to receive more than the government's insurance limit.

Last summer, as United was negotiating in bankruptcy court, it heaved four big employee pension plans onto the Pension Benefit Guaranty Corp. (PBGC), the federal pension insurer. Together, the plans owed an estimated $17.2 billion in current and future payments to 121,448 active and retired workers; the plans had less than $7 billion in combined assets.

United was a classic example of what the PBGC calls a "distress termination," one of two ways in which a company can legally break the pension promises it's made to its workers.

If a plan is underfunded and the sponsoring company can prove (to the PBGC or, more often, a bankruptcy judge) that it will go under unless it's relieved of its pension burdens, the PBGC will take over the plan.

Price to pay

Workers may pay a price for that relief. Federal law caps how much of the promised pension benefits the PBGC has to pay. The cap, which is raised a bit each year, varies depending on when a person retires and whether his or her spouse has survivor benefits.

The four United plans were capped at $3,801.14 a month per employee. That was high enough for nearly all flight attendants to receive all the benefits they were promised, but almost a third of United's 11,347 retired managerial and administrative workers will see their checks reduced.

Pilots, however, will feel the biggest impact. As the highest-paid workers, they were in line for the biggest pensions, and they are required to stop flying at age 60. Under the 2005 caps, the federal guarantee at 60 is just $2,470.74.

The general mood at the United meeting seemed to be cautious optimism. "I think a lot of people didn't expect they would get anything," said Allyson Cloyd, a customer-service worker.

Some people at the United meeting expressed concern about the PBGC's own finances, though. The agency has $56 billion in assets but $79 billion in current and estimated future liabilities. Its financial position has deteriorated sharply since the 2000 stock-market crash, because of lower asset prices, low interest rates and a surge of big pension defaults.

Survival

Companies in the airline, steel and now auto industries have made foisting their pension obligations onto the PBGC a key component of their survival plans.

Bethlehem Steel, for example, filed for bankruptcy in October 2001. By the time the PBGC took over the company's 97,000-person plan, it was underfunded by some $4.2 billion.

Once the pensions were the PBGC's problem, however, the company looked a lot more attractive. It was sold to Wilbur Ross' International Steel Group (ISG) for $1.5 billion; two other steelmakers absorbed by International Steel, LTV and Weirton Steel, also had dumped their pensions onto the PBGC.

Last year, Ross sold ISG to Mittal Steel for $4.5 billion.

Last June, Robert Miller, the former chief executive of Bethlehem, became CEO of auto-parts maker Delphi. He led it into bankruptcy four months later. Miller has said Delphi needs to cut costs to survive and hinted he may ask the PBGC to take over its pension plan, which is underfunded by an estimated $10.8 billion.

Such moves have raised worries about the PBGC's financial outlook.

Harvey Lebson, the retired PBGC official who ran the United meeting, said that while Congress must find a long-term fix, the agency won't run short of cash. The PBGC paid out more than $3.5 billion in benefits last year, he noted.

"There is no immediate problem," he said. "The PBGC will be issuing checks next month, next year, and for a number of years into the future."

Drew DeSilver: 206-464-3145 or ddesilver@seattletimes.com