United Airlines drew strong criticism at a House hearing yesterday for its plan to recapture nearly $1 billion in employe pension funds, a step the company defended as necessary to avoid a hostile takeover. The airline said the move would not result in lost benefits.
United's proposed action, announced Monday, is the largest in a growing trend of terminations of "overfunded" pension plans that has prompted controversy among some lawmakers and labor unions, which see it as a threat to the pension system's stability.
Pension plans, fattened by high interest rates and unexpectedly large returns on investments, have become "the latest pawns in the boardroom takeover game" because companies are hungry to seize the assets, said Rep. Edward R. Roybal (D-Calif.), chairman of the House Select Committee on Aging. Roybal and 15 cosponsors have proposed limiting employers' ability to recapture "excess" pension assets.
Under the Employee Retirement Income Security Act, companies can obtain excess pension assets only after canceling the plans and making new arrangements to fulfill obligations to plan members.
Since 1980, more than 700 firms have recaptured or will recapture more than $7 billion in pension funds, according to the Pension Benefit Guaranty Corp.
Critics of the practice contend that removal of such funds could jeopardize the future of some pension plans and that retirees, who often receive fixed-fee annuities, may be deprived of possible future cost-of-living increases. But companies argue that the ability to "recapture" funds is important because firms might otherwise be reluctant to make substantial contributions. In some cases, it may be necessary for a firm's survival, they say.
The Reagan administration last year adopted plan-termination guidelines drafted by the Labor Department, the Internal Revenue Service and the PBGC. The rules are being challenged both in court and in Congress, where critics want them tightened. David Walker, PBGC's acting executive director, testified that if new rules are too strict, they will discourage employers from setting up pensions.
Roybal, Rep. Claude Pepper (D-Fla.) and Sen. Howard Metzenbaum (D-Ohio) denounced United's action, with Pepper calling it a "conspiracy" to divert pension assets to corporate purposes. United said its $962 million pension recapture would be placed in a fund for corporate expansion, including the proposed $750 million purchase of Pan Am's Pacific routes and the purchase of new Boeing planes.
United, in a statement submitted to the joint hearing with the House subcommittee on labor-management relations, said, "All employe benefits will remain intact. No one will receive anything less than they would have if this transaction had not occurred."
The company said its action was unrelated to the 28-day-old strike by its pilots, and said it was designed to stop a takeover. "We know of no effort to seek control of UAL. . . . However, in recent weeks there has been a great deal of activity in UAL Inc. stock, and therefore we believe it is prudent to thwart any potential takeover interests now."
United plans to purchase annuities to cover its 59,600 active and retired plan members.