Senate Passes Bill to Shore Up Pensions

By Jim Abrams
The Associated Press

Wednesday 16 November 2005

Washington - Hoping to reverse the deterioration of pension plans covering 44 million Americans, the Senate voted Wednesday to force companies to make up underfunding estimated at $450 billion and live up to promises made to employees.

The action came a day after the federal agency that insures such plans reported massive liabilities and predicted a troubled future.

The Senate legislation, passed 97-2, takes on the daunting task of compelling companies with defined-benefit plans to live up to their funding obligations _ without driving those companies into abandoning the plans and further eroding the retirement benefits of millions of people.

"This bill honors a promise that we made way back in 1974" when Congress passed legislation to protect pensions, said Finance Committee Chairman Charles Grassley, R-Iowa. "If you've been promised a pension, we are going to make sure that you receive it."

Broad support of the bill reflected its bipartisan origins. Grassley and the top Democrat on the committee, Max Baucus of Montana, crafted it with Sens. Mike Enzi, R-WY, and Edward Kennedy, D-MA.

The White House, in a statement, said it supported passage of the Senate bill but opposed some provisions, including extended relief for the airline industry. It warned that the president would be advised to veto any bill that resulted in weakening pension funding requirements.

The House could take up a companion bill in early December, although it remains to be seen whether the two chambers can reach a compromise on the legislation, which runs hundreds of pages, by the end of the year.

The vote came a day after the Pension Benefit Guaranty Corporation, which insures defined-benefit plans of 44 million people and takes over the plans of bankrupt companies, reported a deficit of $22.8 billion at the end of the 2005 fiscal year on Sept. 30.

The PBGC said it assumed responsibility for the pension benefits of an additional 235,000 workers and retirees in 2005, bringing the total to 1.3 million, and paid benefits of $3.7 billion, up from $3 billion in 2004.

Premiums per participant, paid by companies, totaled $1.5 billion. Those premiums would increase from $19 to $30 a year under the Senate bill.

That legislation, unlike the House version, also would extend special relief for debt-ridden airlines. Bankrupt steel and airline companies have been a major source of the PBGC's mounting financial problems.

The PBGC is now financed entirely by premiums and interest on investments, but there is growing concern that the agency may one day have to turn to taxpayers for a bailout that could rival the Savings and Loan crisis of the 1980s.

The Senate bill would give companies seven years to pay off their unfunded liabilities while changing the interest rate formula to better reflect what those liabilities toward future retirees will be. Companies with poor credit ratings would be required to make additional payments into their plans.

The legislation would encourage companies to put more money into their pension plans when times are good. It would clarify the law governing hybrid plans such as cash balance plans that are gaining in use.

PBGC-covered single-employer defined-benefit plans, under which workers receive monthly benefits based on their salaries and length of service, fell from 95,000 in 1980 to 30,000 in 2004 as more companies either stopped offering plans or switched to 401(k)-type programs.

Some companies seeking to switch to cash balance plans, which award benefits at a steady rate during a worker's tenure, have been thwarted by court rulings that some such programs discriminate against older workers.

The Senate accepted an amendment by Sen. Johnny Isakson, R-GA, that extended from 14 to 20 years the time allowed for airlines to stabilize their pension plans. It also would expand the number of airlines that qualify for the payment relief.

Also approved as an amendment by Sen. Daniel Akaka, D-Hawaii, to protect the pensions of airline pilots, who are required to retire at age 60.

"Had the airlines not had a crisis, I'm not sure we would have been here today debating pensions," Enzi said.

United Airlines and US Airways used bankruptcy earlier this year to dump their employee pension liabilities - a combined $9.6 billion - onto the PBGC. Delta Airlines and Northwest Airlines, which both filed for Chapter 11 bankruptcy protection in September, could do the same.

The PBGC imposes ceilings on how much it pays out to retirees. Baucus cited estimates that almost 7,000 United workers will lose 50 percent or more of their promised benefits.

Voting against the bill were the two Democratic Michigan senators, Debbie Stabenow and Carl Levin.



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For More Information
The bill is S. 1783.

On the Web:

Congress: http://thomas.loc.gov/.

Pension Benefit Guaranty Corp.: http://www.pbgc.gov/.




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Bankrupt Delta Has Looming Showdown with Pilots
By Harry Weber
The Associated Press

Monday 14 November 2005

Atlanta - A pivotal week is ahead for Delta Air Lines Inc.

The struggling carrier may release more details about its finances in a regulatory filing Monday, its pilots plan a rally Tuesday to defend their contract and a bankruptcy hearing is set for Wednesday to discuss whether to void that contract and allow the company to impose deep pay and benefit cuts.

There's a lot at stake as the pilots have raise the prospect of a strike if the court rejects their contract. Whether they are able to do so legally, however, is a matter open for question.

"I tend to think they probably are," said William Rochelle, a bankruptcy lawyer in New York who represents a major creditor in the Delta case. "If not, I think there's a new form of slavery in the United States."

At Wednesday's hearing in New York, US Bankruptcy Judge Prudence Carter Beatty is expected to hear arguments from lawyers for Delta and the Air Line Pilots Association, the union that represents the Atlanta-based company's 6,000 pilots.

The judge could decide immediately on the company's request to void the pilot contract, though most people connected to the case believe she will give the sides up to 30 more days to reach an agreement before deciding on her own.

The company wants $325 million US in new concessions from its pilots, which would include a 19.5 per cent pay cut. The pilots union has proposed $90.7 million in average annual concessions over four years, which would include a nine per cent pay cut effective Dec. 1 to last for seven months, followed by seven per cent cut for six months, then five per cent thereafter.

The cuts would be on top of $1 billion in annual concessions the pilots agreed to in a five-year deal reached in 2004. That deal included a 32.5 per cent pay cut.

Delta pilots currently earn an average of $169,393 a year, according to a company bankruptcy court filing. The document says the figure is a projection based on year-to-date actual earnings by people employed throughout last year and up to Sept. 16 of this year. It does not include proposed pilot pay rate reductions. Junior pilots make considerably less, while senior pilots in some cases make more. The type of aircraft a pilot flies also is a factor in the pay scale.

The company doesn't want a strike, and the pilots have made clear they don't want a judge throwing out their contract. But the pilots have pointed to their past sacrifices and argued that the new cuts they are offering are more than enough to help Delta become profitable again and compete with low-cost rivals.

If the decision gets to the judge, it's not a given how she would rule, though she indicated in an unrelated Delta bankruptcy hearing Thursday that she believes Delta's pilots are overpaid.

"The only people that make more money than Delta's pilots are you," Beatty told lawyers and company executives in the courtroom.

But Beatty also questioned the merits of Delta's business plan, specifically its decision to expand its international flights. "I don't think a business plan is one you just put down on paper," the judge said.

So, what will happen?

"That's a hard one," Rochelle said. "So far, the track record shows in the overwhelming number of cases the two sides agree without the court imposing new terms of employment. If you're a betting man, you follow the odds."

One thing that is clear is the pilots, the only major unionized group at Delta, have promised to fight to protect their contract. On the day before the bankruptcy hearing, the union has scheduled a rally at a suburban Atlanta convention center. Union officials are encouraging as many members and their spouses as possible to attend.

The airline's big week starts with the release of its quarterly report to the Securities and Exchange Commission. In the report, Delta could release more details about its financial condition.

The company said it delayed the filing until then in part because since its Sept. 14 bankruptcy petition it has been engaged in discussions with creditors, financial institutions, its employees and others regarding issues related to the Chapter 11 case.

Delta, the third-largest US carrier, has lost more than $11 billion US since January 2001 and over that period has announced that it would cut up to 33,000 jobs. Its loss in the third quarter, reported Thursday, was $1.13 billion.