Braniff, Eastern, and Spirit
#32
The pension protection act helped facilitate moving from a pension system to a 401k system for retirement. This took away some incentive to declare bankruptcy in an attempt to get out of future pension liabilities which are hard to quantify on a balance sheet. Point is it wasn’t just one factor that made bankruptcy less likely.
In fact, with moderate market returns and historically average interest rates, mature pensions become self-funding, and little or no contributions are required. One of the supreme ironies of the late 90s is practically all airline pensions were well funded, some well over 100%. Some groups recognized that there were combinations that could lead to a rapid reversal, and sought to diversify their pension plants to include more DC money. Managements refused because DC money costs real money every 2 weeks, and the DB plans at the time cost nothing under most conditions.
If you have an economic upset, you wind up with the combination of fund losses and that can be coupled with a rapid drop in interest rates. Fund losses are self-explanitory, but the sudden drop in interest rates causes a big jump in liabilities of the plan. Remember, future returns of the plan can only use long term interest rates, so when you have very low interest rates, compounded over an actuarial average of 30 years, and that is a catestrophic expense. ERISA, at least at the time, didn't allow for any time for market recovery, so the funding due into the plans became due instantly, right at the time most outfits could ill afford it.
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