Release #05.001
January 10, 2005

ALPA President Denounces PBGC Proposals

The following statement was issued today by Capt. Duane Woerth, president of the Air Line Pilots Association, International, in response to news accounts last week describing anticipated proposals to change pension rules:

Based on what we heard least week, once again, the Pension Benefit Guaranty Corporation is missing the point regarding defined benefit pension plans. These PBGC proposals would create conditions that not only would strip airline workers of benefits already earned as deferred compensation, but would also weaken if not end the defined benefit pension plan as we know it. The PBGC is working to set the bar so high that employers will be reluctant to keep existing plans, let alone establish new ones.

The administration's approach treats symptoms of the problem, but ignores the underlying disease in the current rules. Specifically, it fails to address the dilemma created for employers by the draconian rules for making up past deficits in contributions. Under current rules, obligations that will not come due for 30 years or more must be paid at an accelerated rate within three to five years. This is like a lender suddenly demanding that you pay off your mortgage in the time span of a car loan.

While this arrangement may have worked during a few years of strong economic growth, the collapse of the stock market, combined with low interest rates, created a funding issue that exists more on paper than in reality. Plans that were overfunded one year quickly became "underfunded" largely because of changes in the economic climate. These sudden liabilities put companies into a Catch 22 situation where investments that would help them weather their financial difficulties - and catch up on pension obligations - dried up because of the new and looming catch-up payment obligations.

Long-term amortization of these deficits is the right solution for the airline industry and the workers who have given up salary in exchange for retirement security. In addition to helping to assure future benefits, this solution would keep pensions solvent - and off of the PBGC's books, and stabilize the airlines financially. This has the added benefit of solidifying network carriers and making them more attractive to the capital markets. This makes too much sense to ignore - unless the goal is to put these carriers out of business.

In the next few months, ALPA, along with a coalition of airlines and other unions, will be working with members of Congress to support legislation that applies this solution. We urge the PBGC and the administration to keep an open mind on how their concerns and those of airline workers can be addressed in a fair and effective reform of the current rules.

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ALPA CONTACT: John Mazor or Pete Janhunen, 703-481-4440