United Says Pensions' Termination Likely

Airline Looking to Cut Costs

Cash-strapped UAL Corp., parent of United Airlines, yesterday said that it would "likely" terminate its four pension plans as part of its efforts to further cut costs and emerge from bankruptcy.

United's move, which must be approved by the bankruptcy court, would wipe out nearly $2 billion in future retirement benefits for many of its 120,000 retirees and workers, according to a spokesman for the Pension Benefit Guaranty Corp., the federal agency that insures corporate pension payments up to certain maximum levels.

With its hub at Washington's Dulles International Airport, United is one of the area's largest employers.

United's action would also dump billions of dollars in future pension obligations onto an already financially strapped agency. The value of the PBGC's assets on March 31 was $9.7 billion less than that of the future benefits it is obligated to pay. Termination of United's plans could push the agency's underfunding to about $15 billion.

The PBGC estimates United's pension plans are about $8.3 billion underfunded, which would make United's move the largest corporate pension default, said agency spokesman Randy Clerihue. Prior to United, the biggest default was in 2002 by Bethlehem Steel, whose terminated pension plan was underfunded by about $3.6 billion.

Clerihue said the PBGC would cover only about $6.4 billion of the underfunding. The remaining $1.9 billion, he said, would be lost.

"The size of that loss is unusual," Clerihue said. "In most of the plans we take over, the participants usually get much of what they were promised."

In a bankruptcy court filing, the nation's second-largest airline attributed its move to the effect of high fuel prices and its inability to obtain a loan guarantee from the federal government. If United terminates its pension plans, pension experts say, the airline would likely replace them with a defined-contribution plan such as a 401(k).

Defined-benefit plans were once common but have been shrinking in number. They promise a benefit based on a worker's pay and years of service. In such plans, the employer funds the plan and bears the investment risk. It also pays insurance premiums to the PBGC.

In defined-contribution plans, workers, employers or both contribute to an investment account for each worker, and the benefit is whatever is in that account when the worker retires.