Feature: United Airlines Pilots Dispute Reveals Generational Schism
United Airlines Pilots Dispute Reveals Generational Schism
Active pilots say that saving the bankrupt carrier takes priority over
maintaining current benefit levels for retired fliers. The predicament
facing United and its pilots, both past and present, is one that will be
more prevalent as the number of older workers and retirees begins to outpace
the number of younger employees.
By Jessica Marquez
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hen Roger Hall received a flood of e-mails from his fellow retired United
Airlines pilots who were riled about a Feb. 3 letter announcing a reduction
in their pension benefits, he thought there had to be a mistake somewhere.
The e-mailers said United, which is struggling to get out of bankruptcy, had
informed them that it would reduce pension payments beginning March 1.
Hall was perplexed. The letter came only a few days after a January 31
agreement between the airline and the Air Line Pilots Association that
called for the pension plan to remain intact until May, which would give the
union and company time to explore their options for future funding of the
plan.
"This seemed like a complete about-face," says Hall, who worked as a
pilot for United for 34 years and is president of the 3,100-member United
Retired Pilots Benefit Protection Association.
After receiving about 100 such e-mails from pilot retirees, Hall finally
received his own bad-news letter from United. It explained that the airline
was terminating the plan and passing it on to the Pension Benefit Guaranty
Corp., the government agency that insures private defined-benefit plans.
"It was a wonderful letter," he says acidly. "It said 'Dear Participant.
' The whole thing left a very bad taste in my mouth and showed a total
disregard for the retirees and the contributions they made over the years."
For United, the move to terminate its pension plan and pass it on to the
PBGC is a last-ditch effort to get out of bankruptcy. What it means for
retirees, however, is a mass reduction in pension payments. The PBGC only
pays a fraction of what United would since it is only liable for the
guaranteed amount.
Hall estimates that his pension income will drop about 50 percent if the
plan is terminated. While the retired pilots association is trying to figure
out how much its members could lose in pension income, Hall says the
calculations are easier said than done. "It's as if someone tried to make
this very complicated to figure out, and succeeded," he says.
To add fuel to the fire, Hall says that the Air Line Pilots Association,
which represents 6,400 active United pilots, has abandoned him and his
fellow retirees by agreeing to not oppose United's pension termination--in
exchange for a $550 million convertible bond and the implementation of a
defined-contribution plan.
On February 18, ALPA joined the retired pilots' association before U.S.
Bankruptcy Court Judge Eugene Wedoff to oppose the March 1 reduction in
pension benefits. They won, but Hall says that ALPA has made it clear that
the retired pilots' interests are not part of its agenda. "ALPA does not
seem to be fighting very hard, or at all for that matter," Hall says. "They
realized the position they were going to take was to not resist termination
of the plan. And they knew the retired pilots were not going to be happy
with that, so they basically stopped talking to us at that point."
But for the pilots union, it's not that simple, says Capt. Herb Hunter,
a United pilot and spokesman for ALPA.
"ALPA has never represented the retired pilots, and the reason is that
it has never come up before. We have never had an issue like that," he says.
Hunter, who is 56, says his members have a lot to lose. He has personally
lost about $400,000 in the compromises the group has made over the years, he
says. "My retirement plans would have been six figures, and now it's going
to be closer to $29,000," he says. Nevertheless, "the ultimate goal has to
be to get the company out of bankruptcy," he says. "If we can't do that,
then the rest seems academic."
United offers a preview
The predicament facing United and its pilots, both past and present, is
one that will be more prevalent as the number of older workers and retirees
begins to outpace the number of younger employees. At the negotiating table,
both unions and employers are going to have to balance the conflicting
interests of younger and older workers as the latter group grows and the
number of retirees increases.
"The younger employees' fundamental objective is to keep their jobs, and
while the pension security is important, it's not the only consideration,"
says David Gregory, a labor law professor at St. John's University in New
York.
The United situation is extreme because the company is fighting to get
out of bankruptcy, but it depicts a generational dispute that is being
pushed by the ailing pension system.
On one side are the retirees who want to make sure their pension income
continues as promised. Meanwhile, the active employees are fighting to keep
their company above water--and if that means making sacrifices in pension
benefits to have a job tomorrow, so be it, says Mike Kushner, an employee
benefits attorney in the New York office of Coudert Bros.
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"The United pilots situation is a harbinger of things to come. The problem
will eventually come to roost in all industries, but first you will see it
in those with highly paid employees because they have the most to lose in
their pensions."
--Mike Kushner, an employee benefits attorney in the New York office of
Coudert Bros.
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"This conflict is only going to increase unless the rates of return on
pension investments go back to what they were in the mid-'90s," says
Kushner, noting that such rates were "probably a once-in-a-lifetime
proposition."
As 79 million baby boomers begin to retire over the next four years and
the number of workers shrinks, the pension system is going to be further
strained because there will be fewer contributors to the system. That, some
say, will cause this conflict to divide workers further.
Evidence of this issue is already a much-debated element of the proposed
Social Security reform. According to Social Security administrators, the
ratio of working individuals to retirees collecting benefits will drop from
3.3-to-1 today to 2-to-1 by 2030.
"The United pilots situation is a harbinger of things to come," Kushner
says. "The problem will eventually come to roost in all industries, but
first you will see it in those with highly paid employees because they have
the most to lose in their pensions."
Divide and conquer
Employers are keeping a close watch on how the United story unfolds to
help them decide how to proceed in their own negotiations. Gregory believes
that employers could use the friction within the unions to get the upper
hand at the bargaining table.
"In the short term, you will see it easier for employers to divide and
conquer," he says. "However, in the long term that strategy could be a
lose-lose because the employer risks negative publicity and a loss of
consumer confidence."
Steve Mirante, managing consultant in the New Jersey office of Watson
Wyatt Worldwide, agrees that employers should do what they can to
accommodate the retirees because "they are very powerful agents with a lot
of influence." Eventually, as the number of retirees increases, observers
expect to see more retiree associations, like the United Retired Pilots
Benefit Protection Association, banding together for a stronger voice.
United's retired pilots are doing what they can to stay in the game.
Since the group is not a union, it is not allowed to be part of the
collective bargaining process. Wedoff, the bankruptcy court judge, did give
the group permission to be an active participant in the proceedings on May
11, when the court will decide the fate of United's pension plan. In the
long term, the retired pilots association is considering what it can do to
get its members' voice heard on Capitol Hill.
It realizes that its hands are tied in the United situation since it is
a bankruptcy case, and by law the company has to do what it can to make its
active employees whole first, Hall says. Nevertheless, he is trying to
ensure that the retirees' concerns are heard in the larger question of
pension reform.
"So far none of what has been proposed in the Bush administration's
pension reform (proposal) addresses our issues, yet we are the ones that are
the most impacted," he says. "If somebody is going to take away your
property, you should be allowed to get involved."
Workforce Management, April 2005, p. 57-58 -- Subscribe Now!