01-21-2010Airline CEOs scolded for benefit promises
By Marilyn Geewax
Palm Beach PostCox News Service
Wednesday, June 08, 2005
WASHINGTON — Airline executives hoping Congress would offer their industry help with its pension burdens instead received a scolding Tuesday for making extravagant benefit promises to employees without adequately funding them.
"Airlines promised benefits that were too rich, and they and their unions refused to rein in those benefits even after it became painfully clear that the companies could not afford them," said Senate Finance Committee Chairman Charles Grassley, R-Iowa.
Sen. Jim Bunning, R-Ky., demanded to know why "we should reward lousy management."
Such harsh comments suggested some lawmakers may not be in the mood to go very far in helping airlines stretch out pension fund payments to conserve cash in tough times. Still, Grassley suggested he would consider making some concessions this year.
The executives said Congress must provide help immediately.
"Without changes to the current rule, airlines will almost certainly be forced into bankruptcy and the transfer of additional pension liabilities" to the Pension Benefit Guaranty Corp., Delta Air Lines Inc. CEO Gerald Grinstein said.
Northwest Airlines Corp. CEO Douglas Steenland echoed the warning, saying his and "other carriers may very well suffer the same fate" as the two insolvent airlines.
The committee is exploring ways to shore up the deficit-ridden PBGC, a federal corporation that guarantees the pension plans of 44 million Americans. Such plans provide retirees with monthly checks based on years of service and pay.
In recent years, companies have been declaring bankruptcy and transferring obligations onto the PBGC, which has a rapidly growing $23.3 billion deficit.
PBGC is still able to make the payments owed to current retirees with failed pension plans, but its long-term solvency is questionable.
If PBGC could not meet its obligations, solutions might include a reduction in benefits for retirees, higher PBGC premiums for employers, or a public bailout.
Now, financially strapped airlines are making PBGC's problems worse.
United, a subsidiary of the bankrupt UAL Corp., halted payments to its pension plans last year. The PBGC will pay only about two-thirds of the promised benefits to 120,000 current and former workers.
US Airways Group Inc. also declared bankruptcy and dumped its pension plans into the safety net.
Grinstein and Steenland want the Senate to pass legislation sponsored by Sens. Johnny Isakson, R-Ga., and Jay Rockefeller, D-W.Va., that would allow airlines to freeze current pension benefits and move workers into "defined contribution" plans, such as 401(k) plans. The bill also would give carriers 25 years to provide money for benefits already promised.
But whether airline-specific pension legislation will get any traction remains to be seen. Grassley has said 25 years is too long to stretch out pension payments. But he has made it clear he would support more modest relief.
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