Saturday, November 13, 2004

US Airways and the PBGC

US Airways has asked its bankruptcy judge to terminate the collective bargaining agreements with three unions, to terminate any further responsibility for its healthcare obligations to retirees, and to transfer responsibility of these CBA agreed upon pension plans to the Pension Benefit Guarantee Corporation. The PBGC will be accepting the defined benefit(DB)pension funds and obligations up to a certain point. The maximum payout that the PBGC can give to any single retiree is slightly more than $36,000 per year even if that retiree previously was promised significantly more money than that.

This is going to be the largest single cost shifting of obligations in the transportation industry that I can remember. Only the steel industry shake-out has generated similiar size transfers in the past decade. US Airways is not the only airline in trouble, it is just in the most trouble. This is going to be a significant problem because as is, the PBGC is underfunded by any measure of potential risk assessment. The current rules that allows DB pension funds to assume 9% return on investment allows for many more marginally solvent funds to be at significant risk of failure because we are not seeing that ROI. The pension "reform" that passed last year is just a cost shifter into the future which opened up some cash flow for large companies. We'll be seeing ever more risk and volatility transferred to the individual in the near future.

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