US - The Pension Benefit Guaranty Corporation (PBGC) has announced it will terminate the pension plans of bankrupt air carrier US Airways and absorb US$3bn in liabilities owed to employees.
The claim – which covers the pensions of more than 51,000 flight attendants, machinists and other employees of US Airways – marks the second largest in the federal insurer’s history, after Bethlehem Steel, at US$3.7bn.
The PBGC put the cost of assuming the pensions at an estimated US$2.3bn, plus the US$726m claim from the airline’s pilots plan in 2003.
In addition, the insurer could soon foot the bill for the pension plans of United Airlines’ pilots after filing a motion recently to terminate the plans. The PBGC says the move, which has angered pilots, would save them an around US$140m in additional losses.
“The PBGC will protect the pension benefits of US Airways’ workers and retirees,” said executive director Bradley Belt.
“But the pension safety net is badly frayed. The [Bush] administration has put forward a comprehensive proposal that requires companies to pay for their promises, strengthens the insurance backstop and sheds light on plan finances.
“We look forward to working with Congress to enact these reforms promptly.”
The retirement plan for flight attendants and retirement plan for machinists ended as of January 10, 2005 and the retirement plan for certain employees of US Airways ended as of Jan 17, 2005. The PBGC estimates the plans are 40% funded, with US$1.7bn in assets to cover US$4.2bn in liabilities.
Of the US$2.5bn shortfall, the PBGC will guarantee payment of an estimated US$2.3bn.
On January 6, US bankruptcy judge Stephen S. Mitchell ruled that US Airways could not emerge from bankruptcy protection unless the plans were terminated. Under federal pension law, the maximum guaranteed pension at age 65 for participants in plans that terminate in 2005 is US$45,613 per year.
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