United Airlines to End Pension Fund Program
United Airlines, facing losses from its strike by 5,000 pilots, announced Monday that it will terminate the pension plans covering its pre-strike work force to recapture nearly $1 billion in excess pension fund assets.
United officials described the action as unrelated to the 25-day-old strike and said they would immediately create a new pension plan for “current” employees. The airline will also buy annuity policies for 59,600 employees covered by the old plans to pay them the benefits they had earned up to Monday, when the plans were canceled.
After meeting its legal obligations by providing the annuities, United would still net $962 million that would be placed in a trust for corporate expansion, said John L. Cowan, United’s executive vice president.
He said the move also was calculated to prevent a hostile takeover of United by “outsiders who might be tempted” by the pension funds.
It is the third measure that UAL has taken in recent weeks to minimize its attractiveness as a merger target. Other moves were the announcement that it intends to sell some properties owned by its Westin Hotel chain and the approval by stockholders of an increase in authorized common shares.
The announcement was immediately criticized by the AFL-CIO and the striking Air Line Pilots Assn. Union officials said that United had used questionable accounting methods to build the surplus, and that the termination would deprive retirees of future pension increases.
United reported a $3.2-million loss in the first quarter of 1985, “but they were funneling vast amounts of money into their pension funds,” ALPA spokesman David Jewell said. Jewell said union officials believe that the airline was using the method to understate profits for bargaining leverage.
“Right now they’ve got a billion bucks more than they need, but what happens when they are a billion bucks short (in their new pension plan)?” ALPA spokesman James Damron said. “We have our attorneys looking at it.”
“United wants a lot of money to break this strike, hire scabs (to replace pilots) and withstand a long period of low revenue. . . . This is a legal but highly unethical method,” said Bert Seidman, the AFL-CIO director of occupational safety, health and social security.
United has not been increasing pension contributions as ALPA alleged but rather has been reducing them because it knew they were excessive, UAL spokesman Rob Doughty said.
“Both our employees and our shareholders will benefit from the financial stability this action will provide us,” Cowan said. “We will use these funds to build this company” by buying new Boeing aircraft and buying Pacific routes from Pan American Airlines.
United’s pension plan would be the largest of 705 major corporate plans terminated since 1980. The terminations have yielded a total of more than $6.5 billion, according to David M. Walker, acting executive director of the Pension Benefit Guaranty Corp., the quasi-governmental corporation that administers pension termination insurance.
The largest previous termination netted $400 million for Occidental Petroleum in 1983, according to the corporation.
Pension plan “reversions,” which are regulated by the Employee Retirement Income Security Act of 1974, have recently become controversial as rising interest rates fattened pension funds and made them an attractive target of employers, according to congressional critics of the practice.