I just don’t get it:
United Airlines, which is operating in bankruptcy protection, received court permission yesterday to terminate its four employee pension plans, setting off the largest pension default in the three decades that the government has guaranteed pensions.
Members of the Association of Flight Attendants marched in Washington Tuesday to urge a judge to stop United from ending pension plans.
The ruling by Judge Eugene R. Wedoff of Federal Bankruptcy Court came after a lengthy hearing in a crowded Chicago courtroom, near where United is based.Despite pleas by union lawyers, Judge Wedoff sided with United, which had insisted that it could not emerge from bankruptcy protection with its pension plans in place.
The ruling releases United, a unit of the UAL Corporation, from $3.2 billion in pension obligations over the next five years. The federal agency that guarantees pensions, the Pension Benefit Guaranty Corporation, will assume responsibility for the plans, which cover about 134,000 people.
Some retirees could see sharply lower pension payments as a result; others will see little change in benefits, depending on a variety of factors. Some retirees at US Airways, which has terminated its plans, have seen benefits drop by as much as 50 percent.
I just don’t get it. They are in bankruptcy protection, can not turn a profit, and are now screwing over how many thousands of people who worked for them their entire lives?
Why don’t they just force them to sell all their assets and call it a day. Someone will snap up their planes and their routes and their employees, and the asset sale could fund the pension.
Is that just not a possibility? Why should an unprofitable business venture be allowed to screw over its employees, renege on their commitments, and remain on the public doll?
I am sorry if I sound like some sort of economic populist, but this infuriates me. How many lives were just ruined today to keep an unprofitable business afloat for a couple more years?
*** Update ***
More from Ezra Klein.
BTW- It was pointed out in the comments section that the Democrats unsuccessfully attempted to stop this sort of pension abandonment during debate on the bankruptcy bill.
We now have a situation where your company can screw you over, denying you or dramatcially reducing the pension you worked for years to provide for your income in your waning years, all the while the unprofitable company languishes in bankruptcy protection and is propped up by the taxpayer with bailout after bailout.
Oh, by the way- God forbid the employees and pensioners have any credit card debt. Unlike United Airlines, they will not be treated with kid gloves in bankruptcy court. Is this compassionate conservatism? I just heard Rush Limbaugh state the pensioners were to blame because they should have known pensions are risky.
I am sure the “markets can do no wrong” knuckleheads will be outraged by this- because we aren’t allowing the market to work. United Airlines should cease to exist- today. Their assets should be seized and sold off to other airlines and the proceeds used to fund fully the financial obligations of the corporation, which include this pension plan.
I just don’t get it. If I am wrong, tell me how.
From a reader:
With regard to assets at United, it is doubtful that there is much there. All planes are leased these days. Facilities are undoubtedly mortgaged etc.
But even if there were substantial assets, since the company is already owned by the very employees who are losing pensions, it would simply be a matter of killing the stock they own in order to pay a pension. Zero sum.
My point was that none of the articles I’ve seen even mention that this is an employee-owned company and none explored the ramifications of this.
Can anyone verify this or add further commen? Other than just general outrage?
*** Update ***
More here. Again, I just don’t understand how a company can make promises (even ones they can not keep) to their employees, and then just dismiss the ‘liability.’ I understand the unions are partially to blame. But this should have been a binding agreement. If they can not ive up to their agreed upon financial obligations, and instead push them off on the taxpayer, why is this a company we still want around?
*** Update ***
More from James Joyner here, and herefrom Arguing with Signposts.
Again, I am sure this will be argued in the blogosphere as a left v. right, Democrat v. Republican issue, but it isn’t to me (other than that hideous damned Usery Protection Act Bankruptcy Bill that I have consistently railed against.
I simply faily to understand how a corporation is legally provided protection to simply walk away from financial obligations, which is made all the more offensive when this behavior is greenlighted by Congress in a bill that makes bankruptcy protection significantly more difficult for you and me to attain. And again, I understand that United Airlines is employee owned. GM isn’t. Most aren’t.
Better yet, I simply fail to understand how a corportation is allowed to exist year after year on the public doll while failing to fulfill the financial obligations it has incurred with its creditors and its employees.
And let’s not forget this:
The House voted yesterday to allow businesses to pay less into workers’ pension plans over the next two years, saying the $26 billion in relief was needed to enable companies to keep plans afloat and protect benefits for future retirees.
Supporters said the bill, approved on a 397-2 vote, would give breathing space to companies and defined-benefit pension plans that have been hurt by a combination of low interest rates, the poor economy, stock market losses, and an increase in retirees.
Unions, fearing that some companies might otherwise terminate or default on their pension plans, supported the bill.
The Pension Benefit Guaranty Corp., an agency financed primarily by pension fund premiums that guarantees the pensions of 44 million Americans, estimates that the entire system is now underfunded by $350 billion. The agency says about $80 billion of that is in plans in such severe condition that the obligations might have to be assumed by the PBGC, which itself is bearing a $5.7 billion deficit.
While allowing a temporary 10 percent reduction in corporate contributions to pension plans in 2004 and 2005, the measure commits Congress to come up with a permanent long-term solution that more accurately matches plan contributions to long-term liabilities.
The vote was 397-2. Excuse me, but just what the fuck is going on here? This quote is lovely:
Backers said the bill, while putting off a solution to the underfunding problems, will give two years of relief both to firms having trouble meeting their payment obligations and businesses that, because of the payment formula, are paying more than they need to. If Congress doesn’t act, said Representative Paul Ryan, a Wisconsin Republican, “billions of dollars, instead of creating jobs and hiring people, will go into artificial pension payments.”
As opposed to shareholders, who will be unaccountable when the company walks away from both the real and ‘artifical’ pensions later on. Like they just did with the UNDERFUNDED UNITED AIRLINES PENSION.
Christie S.
Guess they had to dump the pensions before the “new” bankruptcy law went into effect.
::snark::
Shawn
Guess they had to dump the pensions before the “new” bankruptcy law went into effect.
::snark::
Heh, not so much. They can discharge liability from retirement plans til the cows come home.
Our country’s looming, hidden crisis, the Pension Benefit Guaranty Corporation.
Birkel
Shawn is right.
The fact is companies made promises to their employees when the markets were much less competitive and profits were above economically sustainable levels. The unions were strong enough to gain promises that rational analysis would have suggested were unsustainable in a global economy. And now the unfortunate reality has bitten everyone in the arse. The same is true for automakers, steel workers and other heavily unionized industries.
And all those promises will be renegotiated. ALL. OF. THEM.
And the people planning to retire on those bankruptcy-inducing pension plans will all be hopping mad with no recourse whatsoever.
Anderson
No recourse, except to vote Democrat? The Dems need to seize this issue. God knows the Repubs don’t seem to give a rat’s ass.
Kimmitt
My in-laws were with United, and I’d say they lost their shirts, except that they also lost every other piece of clothing they owned, too. Brutal.
Libertine
United is just another in a long line of companies guilty of Corporate malfeasence. Look at Enron, Adelphia and WorldCom. How many people need to lose all of their money before we start cracking down on these Corporate hucksters and their 3 card monte scams.
Free markets…yes. Corporate accountability…yes also!!!
chloeindia
Let’s see – CEO’s are paid up to 26 times more than workers (in many companies, not just UAL) and have their benefits protected by golden parachutes, but we should all dump on the unions that have tried to create some security for the average guy. And we should also decrease Social Security benefits for “high wage earners” (those folks making #36,000 to $50,000) just at the time when private pensions are reducing benefits by up to 50%. What am I missing here? How much longer are we going to allow the Republicans to give away the store to their corporate cronies?
There is a better way: rational pay for uppper management, rational profit expectations for shareholders, and decent wages for workers (a better balance between pay for work and pay for having capital). Some how, I doubt that the guys in office now will ever let that happen. It will require some regulation (as little as possible) because many people are just greedy by nature and won’t do “the right thing” unless they are forced to (witness the Enron energy traders who screwed the system because they could).
And please, don’t give me any crap about “free markets.” The markets we have today are not free – we are seeing crony capitalism at its worst and it is damaging the fabric of our society far more than abortion and gay marriage ever could.
Shawn
Thanks, Birkel. You’re absolutely right. Add to that the fact that PBGC is already in trouble and we’re looking at a huge problem. Dare I say bigger than Social Security? Certainly it’s a more immediate problem. From their 2004 annual report (pdf):
Libertine
And I am betting General Motors was watching the ruling closely…sadly I am predicting the will try to do the same thing to their workers and pensioners.
This is just the beginning…and don’t forget United Airlines is able to get out from under the bankruptcy but their workers won’t in a couple months because we can’t let those poor downtrodden Credit Card companies go under.
Mr Furious
Complete fucking bullshit. Especially coming on the heels of the egregious Bankruptcy Screwjob reform the rest of us are going to be held to.
The only silver lining in this is that it makes fucking with Social Security that much less enticing. If pensions your can be rendered worthless at the drop of a hat, your 401k’s are stacked with company stock, what the hell is there to depend on except guaranteed SS benefits?
shawn
Am I understanding this right? Here’s what I’m not sure of:
PBGC is federal insurance similar to FDIC. So when PBGC runs out of assets, which looks to be soon, will the taxpayers be paying for the retirement plans these companies are welshing on? Or will the U.S. Government welsh on them, too?
shawn
Am I understanding this right? Here’s what I’m not sure of:
PBGC is federal insurance similar to FDIC. So when PBGC runs out of assets, which looks to be soon, will the taxpayers be paying for the retirement plans these companies are welshing on? Or will the U.S. Government welsh on them, too?
shawn
sorry about the double post, I got a “Oops” message and thought it didn’t go through. Oops.
bruce
I’m not so sure what’s so hard to undestand? We have an economic system that only allows for the upward flow of money, one political party that is boldly implementing the corporate wishlist of laws and another party that thinks it can be an oppostition party without actually fighting for working class folks. Top that off with liberal democrats that have swallowed the anti-union bait hook, line and sinker and you have a recipe for the meal we’re cooking.
stephen
Mmmmm, shit sandwiches all around. Yummy.
Neil Paul
I am not very familiar with United’s petition or reorg plan, but here is what I do know. Most companies that go bankrupt have secured creditors who are first in line in any liquidation. They bargained to get to first in line and if they hadn’t been allowed to do so, credit would be impossible to get for most companies. Certainly companies with unfunded pension liabilities.
The shareholders of United are undoubtedly wiped out in the bankruptcy. They are left with nothing, so we can’t take what they have and give it to the pension fund. Anyway apparently the workers are the shareholders. As shareholders I am sure they have nothing.
Implausible as it may seem, United probably has nothing to offer as a liquidated company. Whatever little value it has is as a “going concern.” Bankruptcy is supposed to try to preserve that when possible. The pensioners are going to get the shaft even if the company gets sold off piecemeal.
ONe other note:
the reform act contained many provisions to make it harder for businesses to reorganize. The provisions will not benefit workers however. INstead, secured creditors will have even more power under the new law. Its the creditors who won in the reform act, not businesses that want to file bankruptcy, they are screwed too.
Fledermaus
If this continues in the same vein, the corporations are just asking for a comeuppance when it comes to personal debt.
I’m wondering how many years it will take before the first general cancellation of individual debt amendment is introduced.
Yes, it would be unwise but a tipping point will be reached where citizens won’t care about the fate of banks and other fictional entities. New banks can always be formed. The issue will be ripe for demagoguery
I see the amendment as being the following 1) all existing debts between an individual and non-individual is null and void. 2) All transfers of individual debt as of the date of proposal or proposal to renew are void. And if I was feeling really mean 3) this amendment may be renewed by a by a vote of 2/3rds of the states.
I honestly see few drawbacks to this sort of thing – other than the havoc that it would wreck on the corporations – that is being a massive transfer of property from corporations to individuals. But every day that look like less and less of a bad thing.
Fledermaus
Sorry for the wreched grammar, all. Must proof-read better.
liberal
What I don’t get is why any worker would think the company which he works for, and which owns and controls his pension plan, would likely be in existence by the time he’s slated to retire.
bryan
Interesting “general debt default” plan. There’s one of those in the old testament, called the “jubilee.” every 50 years, all debts are cancelled, so that no jew would be a permanent slave of another jew.
Sounds like a good idea to me.
Kimmitt
So when PBGC runs out of assets, which looks to be soon, will the taxpayers be paying for the retirement plans these companies are welshing on?
Yes.
Padraig
The reason why de-regulated markets don’t work efficiently or beneficially is the simple fact that economic power trasnlates into political power. That is, the wealthy can change the economic rules of the game to leverage their current wealth into unfair advantage. Competition leads to centralization, as the big fish eat the smaller fish, unless the government intervenes through regulation. Deregulation has only lead to the destruction of competition, and the ensuing economic distortions that we’ve seen in finance, in the airlines, in farm-subsidies to agro-corporations, etc. Once airlines like United can buy off enough of the government to get favorable rulings and laws like these, then there is literally no incentive for them to play fair again.