Improving Retirement Security – Modifications
To the Pension Protection Act

May 3, 2007

Good morning Mr. Chairman and members of the Subcommittee, I am Captain John Prater, President of the Air Line Pilots Association, International. ALPA represents 60,000 professional pilots who fly for 40 airlines in the United States and Canada. On behalf of our members, I want to thank you for the opportunity to testify today about the need for legislation that would put pilots whose defined benefit pension plans have been terminated on equal footing with non-pilots with respect to maximum benefits guaranteed by the Pension Benefit Guaranty Corporation. The final version of the Pension Protection Act of 2006, while containing several important items, failed to include this issue.

As you know, the airline industry was turned upside down in the wake of the attacks of 9-11. Many carriers filed for bankruptcy and workers were forced to make dramatic concessions in wages, benefits, working conditions, and pensions to save their airlines. While some of our members were “fortunate” enough to have their defined benefit plans frozen, a great many saw their plans terminated as part of their companies’ plan to exit bankruptcy. Although it seemed at the time a case of your job or your pension, in reality there was no choice. Underfunded plans, while holding significant assets, were terminated at US Airways, United, Aloha and Delta.

Many of our members suffered horrendous losses of up to 75% of their earned benefits under these plan terminations. These same pilots now have little or no time left in their careers to recover from such losses.

I am here today because pilots are paying a double penalty on their pensions. Not only have they lost what they had accrued, but they also do not receive the maximum guaranteed benefit payable at their normal retirement age.

In 1974, ERISA defined the PBGC maximum guarantee as a single life annuity benefit payable at age 65, which was considered “normal” retirement age. Anyone who retires before 65, the “normal” retirement age, has his or her benefit actuarially reduced, and thereby receives a lower benefit payment for as long as the benefit is payable. This unfairly burdens pilots, who are required by Federal Aviation Regulation to end their flying careers at age 60. In short, a pilot’s “normal” retirement age is not 65 as defined by ERISA, but rather 60 as required by the Federal Aviation Administration.

While the PBGC’s limitation may make sense from an actuarial perspective, it is extraordinarily unfair to airline pilots. Through no fault – or choice – of their own, the pensions of affected pilots are being further reduced by 35% from what they otherwise would have received without the actuarial reduction. Specifically, for plans that terminated in 2007, the age 65 annual PBGC maximum guarantee is $49,500, while the age 60 annual PBGC maximum guarantee is $32,175. Unfortunately, US Airways, United, Aloha and Delta terminated before 2007 and those maximums are even less. In the case of US Airways, the maximum guaranteed to a pilot retiring at 60 is $28,585.

As an aside, let me note that even at $49,500 many pilots still are being significantly short-changed in their accrued benefits. At age 60, a career pilot with 25 to 35 years of service at a major airline might have accrued an annual benefit approaching $100,000. These retirement benefits were earned -- that is bought and paid for -- as deferred income, accrued over the pilots’ careers. A further reduction of 35% in an already unfair and inadequate pay-out, because of an actuarial convention, is simply unconscionable.

Efforts were made in the last Congress to correct this problem. S. 685 was introduced in the Senate by Senator Daniel Akaka (D-HI) and H.R. 2926 was introduced by Representative George Miller (D-CA), then the Ranking Member of the full Committee. These measures would have allowed pilots – at age 60 – to receive the maximum benefit guarantee calculated as though they had reached the age of 65. The Senate voted by a margin of 58-41 to add the text of S. 685 to its version of pension reform legislation on November 16, 2005. Although the House did not include similar language in its pension reform bill, it did overwhelmingly vote three times to instruct its conferees to accept this provision in conference with the Senate. Unfortunately, this was not to be, and the final product, HR. 4, which became P.L. 109-280 on August 17, 2006, failed to include the Akaka/Miller language in what is now known as the Pension Protection Act of 2006.

Nevertheless, we again support and applaud the efforts of Senator Akaka and now Chairman Miller to correct the unfair treatment of certain pilot pension benefits. ALPA is extremely grateful that these measures have been re-introduced in this session as H.R. 2103 and S. 1270.

Altering the maximum guarantee in this manner limits PBGC liability because many pilots at the upper end of the age spectrum are not affected. Their benefits were not reduced as much as those of more recent retirees, or for those approaching retirement. PBGC liability also would be capped at the other end of the age spectrum because it does not affect younger pilots, who will not have accrued a benefit level high enough to be limited by the actuarial reduction rule. In other words, it is narrowly targeted to bring relief to those whose retirement benefits were most affected by the economic horrors that have devastated both airlines and their workers since 2001.

The overall impact of the proposed change would be to provide an increased floor or enhanced safety net for those most affected by the plan termination they experienced at the mid- to late-point of their careers. In our opinion, this is an historic opportunity for the Congress to undo a needless injustice that has been inflicted on airline pilots.

Mr. Chairman, I appreciate the opportunity to testify here today and I would be happy to answer any questions you may have.