Air Line Pilot, November/December 2003
President’s Forum: Pension Reform, Now
As I am preparing this viewpoint, we don’t yet know the outcome of ALPA’s attempts to move the pension reform bill, H.R.2719, through the U.S. Congress.
I am meeting with members of the Senate in early November to convince them to push this legislation through in this session so that our financially stressed air-lines can avoid additional bankruptcies next year.
President Bush’s Administration, through the Office of the Secretary of the Treasury, has sent a memorandum to Congress outlining the Administration’s wish list for pension reform—the Administration does not want pension legislation that applies only to the airline industry, and it doesn’t want any changes to the current deficit-reduction contribution (DRC) requirements that force all companies to make large cash contributions—on top of normal payments—if their plans fall below a funded level of 80 percent or even below 90 percent in some cases.
The Administration wants to deal only with interest rates this year, and as a consequence, opposes our legislation, which deals straightforwardly with the DRC and orders the restoration of the US Airways pilots’ defined-benefit plan, which was terminated in bankruptcy proceedings.
Had H.R.2719 been enacted last March, US Airways could have exited bankruptcy with its pilots’ pension plan intact.
After the Pension Benefit Guaranty Corporation (PBGC) decided that it did not have the authority to preapprove a plan restoration for US Airways late last fall (a position with which ALPA still disagrees), only legislation could fix the principal problem—requiring cash-starved airlines to make DRCs that are impossible for those airlines to pay—and prevent further bankruptcies and plan terminations throughout the U.S. airline industry.
We put together a coalition of airlines, and the other transportation unions within the AFL-CIO joined us to support our version of a pension-reform bill. That coalition remains active today.
For once in their lives, ALPA members are happy to see their union and management on the same page—ALPA members understand what’s at stake and know that labor and management must work together if we are going to resolve this problem. ALPA members, and other airline pilots, have a greater vested interest in pension reform because the salaries of pilots at airlines with defined-pension plans tend to be higher than the pensions of other employees at those airlines. So the difference between our promised pension benefits and the minimum coverage the PBGC guarantees is much greater than for other employees—we have more to lose when plans are terminated.
We have stressed to members of Congress that the bill will aid airlines that are experiencing financial stress. The reason this aid is required is not because carriers failed to meet their pension obligations. Just a few years ago, pilots’ pension plans were fully funded under the rules of the Employee Retirement Income Security Act (ERISA). Some carriers could not put more money into the plans because the Internal Revenue Service would have penalized them for adding extra money to a fully funded pension plan. (Clearly, this obvious flaw also needs to be addressed in pension reform when profitability returns to the airline industry.) The whole purpose of the 1974 ERISA law, and certainly the amendments to it in 1987 and 1994, was to protect workers’ pensions. Congress certainly did not create ERISA to set a trap that, in our current unforeseen economic circumstances, practically forces an airline to terminate pension plans.
Our current pension crisis has resulted from a stock market that has collapsed for an extended time, certainly longer than normal, and the lowest interest rates since the Eisenhower Administration.
We need to let the defined-benefit plans work—to let the economic markets correct both interest rates and the stock market, and not to set up arbitrary time limits in which airlines must dump billions of dollars into pension plans, money no U.S. airline can possibly afford. If I get a little behind on my mortgage payments, the reasonable solution is not to either force me to pay off the whole note or let the IRS take over my house—that’s not much of a solution, but that’s what the airlines face.
Pensions in the United States suffer from a number of problems. ALPA is focusing attention on the part that is causing the largest crisis—one that could force more pension terminations or airline bankruptcies. We need to get the plans protected first, and then we can deal with the other problems.
S/ Duane E. Woerth