Originally Posted by Seat2C
Have there been previous defaults? Yes, plenty; if you are old enough, you remember USS, LTV and a few other steel companies defaulting on thier pensions. They were pretty big pension defaults. United and every other company with a pension plan picked up the tab for that with higher premiums.
United did not materially fund the USS and LTV defaults -- and is more than making up for their premiums by defaulting.
As for the figures that United is short on pensions, keep in mind that those numbers are based on current pension payouts, not PBGC payouts (which can be SIGNIFICANTLY lower). There is also a factor of the extremely low interest rates, which (on the surface appear to) compound the shortfalls. There is still quite a bit of money that will be turned over to the PBGC; probably more than will be needed to cover any pension obligations. I can envision multiple scenarios where PBGC makes money by taking over United pension plans.
Well, I suppose it's possible. However, United could go into Chapter 7, and that would increase the probability that taxpayers wouldn't be stuck with pension losses. If Chapter 11 is such a great deal for taxpayers, Chapter 7 is an even better one.
In fact, I'd like to see PBGC analogous to RTC (Resolution Trust Corp.) in the S&L industry, with the authority to liquidate if pension funds are in jeopardy. (RTC performs a comparable role in protecting bank deposits.)
There are a few larger issues that you did not raise. For instance, are pensions dinosaurs? I say yes; they are being replaced by 401ks. How many companies offer pensions anymore? Is it fair for one company to fund pensions while another does not? That is not a level playing field. If a new company moves into your market, is it unethical to match their lowball prices, even if it generates a loss for you? Should new companies be permitted to offer prices well below their break even cost?
Whether pensions are "dinosaurs" or not should be left up to the market. (I would argue they certainly are not. Defined benefit programs are very attractive to many employees, particularly in certain industries.) Remember that pensions are designed to encourage employee loyalty -- they're for the benefit of employers so they can attract and retain workers. And of course it is a level playing field. United needed to offer pensions (and the rest of its overall compensation) in order to hire pilots and other employees. No pensions, no pilots. (Other airlines have/had pensions to offer.)
I have no problem if United wants to gracefully end its pension program from this day forward, e.g. if new employees aren't eligible. Or if United wants to cut wages. Employees can then react accordingly -- work for less or leave. What I do have a problem with is United breaking its commitments to employee pensions and foisting the bill on U.S. taxpayers. That's a retroactive change, and it's not the deal United's employees signed. (How'd you like it if your bank suddenly and unilaterally declared that your savings account balance is now half what it was yesterday?)
You've opened up a larger can of free trade/fair trade issues. From your posts, it appears that you lean heavily in the Independence Air camp. By no means is Independence Air hands clean on the issues that you raise. This is not a simple matter of a tree falling in the forest; there are many dominos that fall when one falls.
How is Independence Air's hands not "clean"? Independence offers a pay package which happens not to include pensions. (They offer salary, 401K, and profit sharing.) Some employees like that combination and work for Independence. Other potential employees think the compensation is too low and work for other airlines (or in other industries). Independence did not knowingly underfund its pension obligations -- its compensation promises to its own employees -- or try to shift those pension obligations to U.S. taxpayers. (It doesn't have a pension program.)
In contrast, United enjoyed years of service from its employees at a lower compensation level than if it did not offer pensions. (No pensions, and other parts of the compensation package would have had to have been higher.) United competed against other carriers on that basis, with those labor costs. Putting some of them (Eastern, Pan Am, etc., etc.) out of business, in fact. How is THAT fair to other airlines?