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At Arm's Length: 07.27.04
>There was once a ladder effect among the classes. The lower wage earner sought to rise in rank to become the middle class. The belief that the hurdle could then be made to upper class has been fed with poor fiscal example, accommodative monetary policies whose effects will unfold gradually and unfortunately, badly, and the inability to tell ourselves the truth.
"An employer can voluntarily ask to close its single employer pension plan in either a standard or distress termination. In a standard termination, the plan must have enough money to pay all benefits, whether vested or not, before the plan can end. After workers receive promised benefits, in the form of a lump sum payment or an insurance company annuity, PBGC' guarantee ends. In a distress termination, where the plan does not have enough money to pay all benefits, the employer must prove severe financial distress - for instance the likelihood that continuing the plan would force the company to shut down. PBGC will pay guaranteed benefits, usually covering a large part of total earned benefits, and make strong efforts to recover funds from the employer."
In the quote above, taken directly from the Pension Benefit Guaranty Corporation's website this states quite clearly what the whole of their existence is. It is also part of the mission statement for an insurance policy with the premiums paid by the member companies that was designed, primarily for blue-collar workers in 1974 to guarantee that the pensions they had worked for were there when they retired even if the company failed to exist.
In many cases, this insurance plan provided the exact benefit that was promised to the employee when they retired. Full coverage is only threatened when the promise exceeds the benefit guaranteed by the PBGC. By failing to make their legally required payments, the future and current retirees would face larger benefit losses because of the way the PBGC calculates pension shortfalls.
But that changed recently as United Airlines decided to take advantage of their employees once again, asking them to forgo their pension for the sake of reorganization of their company. This isn't the first time United, an employee owned company, has asked for concessions from their workforce.
Aside from the blatant violation of the above requirements - United is neither a standard nor a distress termination of plan - this is instead an opportunistic attempt to side track their obligation. In doing so, they threaten to topple a fully effective system for their own benefit. Other companies, including major carriers drowning in similar financial dire straits have taken notice of the efforts by one of their own.
The first thing United did was fail to make a payment on their current monthly pension obligation, which not only jeopardize those with long term benefits but also sets a president that could easily be followed by companies looking to bail on their own struggling plans.
A little over four years ago, PBGC had actually created a surplus of funds totaling $9.4 billion. That surplus quickly dissipated in the following years creating a deficit of $11.2 billion as one company after another defaulted on the pension plans as their companies lost ground.
United along with other financially troubled airlines would add another $23 billion to the burgeoning shortfall according to current estimates. United will directly add $4.1 billion over the next five years alone. According to papers submitted as part of their bankruptcy, the four union pensions would cost the agency $7.5 billion. United cites its failure to attract lenders, especially after the federal government turned them down not once but three times as they tried to bail itself out of its continuing financial troubles for the default.
The question begs to be asked: Is United doing all it could do to save the company? Not according to the pilot's union. They have repeated pointed to the $5 billion worth of cost cutting that has already been done. Planes are full as arrival times and baggage handling have improved. Customers are doing their part because the employees are doing theirs.
Too often, labor becomes the only outlet for a company's cost cutting efforts. Non-labor costs are still too high at many airlines. One cause for concern is the cost of servicing debt.
The costs of their debt brought on by any number of reasons at any number of airlines has recently raised eyebrows. The Air Transportation Stabilization Board, the lenders of choice for many of the these cash strapped companies has been quietly gaining ground as shareholder, asking for warrants in return for loans. Warrants allow lenders to buy shares at a set price during a set period. The ATSB needs to forgive these warrants and help airlines cut costs and cease with usury type lending practices.
The Blue Money Report
Financial Commentary covering a wide range of topics concerning money, investing, and how it effects the average investor and their financial health.
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