THE UNITED DECISION WAS NOT THE PBGC's ONLY CHOICE

The PBGC’s decision to allow United Airlines to end their pension plans constituted a decision that shifted all the costs of poor management decisions and competition to the oldest and most loyal workers. By losing their pensions, airline workers are paying for factors out of their control and shareholders, customers, and managers benefit.

The PBGC’s decision had other choices. What is happening in airlines happened in railroads in the early 1900s. The first private defined pension plans were established by railroads in 1865, they were the airlines of their day. In 1919, the maturing defined benefit railroad pension plans were threatening to default for two familiar reasons. Workers were beginning to retire in large numbers and small start-up companies, that paid low wages and provided no benefits, invaded the legacy railroad’s routes by slashing haul rates. The nation could have chosen to allow what the PBGC and Untied Airlines agreed to happen, let pensions default and have the workers pay for the industrial restructuring. But the American decision makers viewed that solution as unfair and the government mandated a multiemployer pension plan, the Railroad Retirement fund that all railroads pay into. The rationale was that the low-cost, start-up companies were taking advantage of the infrastructure the mature, legacy railroads and their workers created and needed to pay for the legacy benefits they were enjoying. To this day railroad workers have a strong defined benefit plan portable anywhere in the industry regardless of the death and birth of individual railroad companies.

SOLUTION

The PBGC should have had a different orientation in the United Airlines case and sought a creative solution to the airline industry crises. The PBGC is, by law, the advocate for the DB system. One good idea is to segregate the airline liabilities from the other PBGC liabilities – the agency does this occasionally with idiosyncratic bankruptcies like TWA. Since the airline pension liabilities were created by industrial restructuring the industry should pay off the debt incurred when the industry made its investments in establishing air-travel as a popular and profitable business. All the airlines, workers, customers and shareholders -- United and the low-cost start-ups like Jet Blue etc – could pay a $1 - $2 surcharge on a plane ticket – to restore the airline workers' pensions. (Congress and Sec. of Labor Elizabeth Dole created a similar tax for coal to pay of miner’s health liabilities.)

Another creative solution is to put all airline employees into an airline retirement fund like the railroad workers. Delta and the airlines will keep their DB plans, not forced to follow United and crash their plans. Once airlines are out of the PBGC and into a multiemployer plan for the industry, the rest of the defined benefit system will be in better shape.

I am mostly disappointed in the PBGC and the Bush Administration for not living up to the law* that mandates the PBGC seek ways to strengthen the defined benefit system. By siding with United Airlines, the PBGC, is violating their statutory responsibility and weakening the DB system.

FUTURE OF DB SYSTEM

It would be wrong to take away the lesson from the United Airlines bankruptcy and pension default that the idea of pension insurance is deeply flawed or that defined benefit pension plans are extinct and of no further use to employers. Companies sponsor defined benefit plans for vital economic reasons – they help retain valuable employees, they provide long service workers with a certain pension source that combined with Social Security and some home equity and health insurance can carry a middle class worker into a middle class retirement.