Human Capital & Careers

US Airways to End Several Pension Plans

Most of the 53,000 employees whose pension plans are being terminated will be fully covered by the Pension Benefit Guaranty Corp., but the PBGC's o...
Stephen TaubJanuary 10, 2005

Late last week bankruptcy judge approved a proposal by US Airways Group Inc. to terminate its underfunded pension plans for machinists and flight attendants, as well as a frozen pension plan that was still providing benefits to 28,000 retirees, according to the Associated Press. The terminations would enable the embattled airline to save as much as $1 billion over the next five years.

The move came as part of a larger ruling from U.S. Bankruptcy Judge Stephen Mitchell, who also canceled a collective bargaining agreement between US Airways and its machinists union, providing about $270 million in savings. “The debtor’s financial position is so precarious,” Mitchell reportedly stated, “that even with the relief being sought, there will still be grave questions as to whether [the airline] can survive.”

Most of the 53,000 employees whose pension plans are being terminated will be fully covered by the Pension Benefit Guaranty Corp., according to the AP, which cited the company. In 2002, when the airline first declared bankruptcy and terminated its pilots’ pension plan, many pilots received less than their full benefits from the PBGC since those higher-earning employees bumped up against the pension agency’s cap.

As we recently reported, United Airlines parent company UAL Corp. had hoped to terminate the pension plans of its employees. On Friday, however, a federal judge rejected a new five-year contract between the airlines and the pilots’ union, according to press reports. As a result, the pension pact has been put on hold.

Even so, the US Airways deal underscores the fact that as more and more shaky companies terminate their pension plans, the PBGC’s ability to guarantee future payments is growing more tenuous. This deal alone will cost the PBGC $2.3 billion, reported The Wall Street Journal, and if the agency had taken over the pension plan of UAL’s pilots, the agency would have been liable for an additional $1.4 billion.

According to the Journal, the Bush Administration will likely require all companies with defined-benefit plans to pay higher premiums to the PBGC. One proposal calls for economically shaky companies to pay higher premiums than companies that can demonstrate they are in good financial shape and probably won’t need to be bailed out.

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