The government's pension agency asked a federal court yesterday to allow it to take over the retirement plan for 14,000 United Airlines pilots, saying it had to act quickly to limit fast-growing obligations.
The seizure would be the third-largest by the Pension Benefit Guaranty Corp., a quasi-government agency already staggering under a $23 billion deficit from previous failed pensions it has taken on.
The insurer expects to assume responsibility for about $1.4 billion of the plan's $2.9 billion in under-funded assets, providing a sharply reduced retirement benefit than the bankrupt airline had promised its pilots in better days.
The agency decided it could save $140 million by assuming responsibility for the pilot pensions as soon as possible, instead of allowing the airline to proceed with a plan that would have allowed benefits to accrue until May.
Two weeks ago, the pilots union said it would go along with United's proposal to terminate the plan in May, while also accepting a 15 percent pay cut in exchange for bigger contributions to a new retirement program and $550 million in notes convertible into stock once the carrier emerges from bankruptcy.
The federal pension insurer's effort to pre-empt the agreement between United and its pilots appears likely to spark litigation, but a spokesman said the agency had no choice.
"We can't sit on our hands as losses mount and not act," said Randy Clerihue, a spokesman for the insurer in Washington, D.C.
For United's once well-paid pilots, the agency's move yesterday raises the prospect of another hefty financial penalty after several rounds of pay and benefit cuts in recent years.
Ken Bradley, a retired 35-year United captain and spokesman for a group fighting to protect pilot benefits, said the agency's takeover of the pension before May would be "devastating" for pilots.
"We will take every legal action available to us to address this forcefully," said Bradley, a spokesman for the 3,000- member United Retired Pilots Benefit Protection Association.
As a result of the pension takeover, the most senior retired pilots stand to lose as much as 65 percent to 70 percent of their pension benefits, Bradley said.
The agency's top payment for a pilot retiring at age 60, the federally mandated retirement age for pilots, is $28,851 a year. For workers, who retire at 65, the agency's pension rises to $44,386 a year.
But officials at the federal insurer questioned whether any pilots would lose that much money.
United responded cautiously to the takeover move, saying in a statement that it was studying its legal options.
In assuming control over just one of United's four plans, the insurer suggested that United can afford to support the other three - for machinists, flight attendants and ramp workers.
Pensions under funded
The plans, which cover about 120,000 union and nonunion workers, are under-funded by more than $5 billion, according to officials of the federal insurer.
United said yesterday that it still believes the agency should take over all four of its pension plans.
Officials at the federal insurer said the pilots' pension plan has only $2.8 billion in assets to cover $5.7 billion in pension liabilities for 6,000 retirees, 7,300 active employees, and another 670 former workers.
The agency's plan to put up $1.4 billion toward the pension plan leaves a $1.5 billion gap to be shouldered by the pilots.
If the plan's assets yield more money than now anticipated, current retirees as well as pilots who are within three years of stepping down might get higher payments, agency officials added.
Retired pilots have the most to lose, because they would not participate in the financial sweeteners that United offered its current pilots in the tentative agreement negotiated in mid-December.
The Air Line Pilots Association deplored what it called an "ill-timed attempt to retaliate" against it, and suggested the pension agency's action might be an "outrageous ploy" meant to undermine a contract ratification vote currently under way among its members.
The Chicago Tribune is a Tribune Publishing newspaper.