The Pension Benefit Guaranty Corp. -- the federal agency that insures corporate pension plans -- moved yesterday to take over the pensions of United Airlines' 36,000 mechanics and baggage handlers, relieving the airline of millions of dollars in obligations to the under-funded plan.
The two unions that represent the employees oppose the takeover. One threatened to strike if it happens.
If the government takes over the plan, the employees will lose between 20 percent and 50 percent of the value of their pensions, said Robert Roach Jr., general vice president for the International Association of Machinists and Aerospace Workers, which represents 16,000 active and retired employees.
"Instead of terminating pensions, maybe we should explore terminating the employment of United's top management, who have mired the company in bankruptcy for more than two years," Roach said.
The group represents 736 workers at Reagan National and Dulles International airports. The Aircraft Mechanics Fraternal Association represents the remaining 20,000 active and retired United ground workers. David Quinn, spokesman for the group, said the union would fight the airline in court. Quinn stopped short of calling for a strike but said it was "something we would entertain at the time," depending on the court outcome.
United spokeswoman Jean Medina said a strike would be illegal under bankruptcy laws and the Railway Labor Act. She said terminating the plan is necessary for the airline to cut costs and emerge from Chapter 11 bankruptcy protection this year. United, a unit of Elk Grove Village, Ill.-based UAL Corp., has operated under Chapter 11 since December 2002.
The ground employees' plan is the second of United's four big pension plans to be targeted by the government. The PBGC began proceedings at the end of last year to terminate the pilots' pension plan. That matter will be reviewed in court on Friday.
Medina said United was in negotiations with its flight attendants and customer and gate agents in hopes of reaching an agreement to avoid having those pensions terminated as well.
"We believe that we need to take the difficult step to terminate and replace the plans. Ideally we would like to work that out with the unions at the bargaining table," Medina said.
The mechanics and baggage-handlers' plan has $1.2 billion in assets to cover $4.1 billion in benefit promises. Of the $2.9 billion shortfall, the PBGC expects to guarantee about $2.1 billion.
The agency guarantees pensions up to $45,613 a year for workers who retire at 65. Those promised higher pensions by the plan, or those who retire earlier than 65, would receive reduced payments.
PBGC Executive Director Bradley D. Belt said in a written statement that the plan is severely under-funded and that United has missed $363 million in legally required payments to it. He said the takeover is "necessary at this time to protect the [PBGC] against further losses."
The agency recently reported a deficit of $23.3 billion
United had promised the ground workers additional benefits several years ago, but those added benefits become guaranteed by the PBGC on a phased schedule. By moving to terminate now, the agency would avoid having to cover $139 million in benefits that would become valid Monday and $88 million more in May.
