Jun 13 2005

Stealth Issue Rises

Published by at 8:25 am under All General Discussions

The Pension Plan debacle is probably the one issue that could hurt politically if either party doesn’t address it, and address it correctly. The Washington Post has a story about folks at United Airlines losing their pension support. The 120,000 people it effected could provide powerful stories about spending a lifetime dedicated to a company that did not keep its promises, but surely paid fat salaries to the fat cats. Stories of people losing family homes, losing medical insurance…


Realclear politics has a parallel story with a personal twist that underscores this looming problem:

Like thousands of other United retirees across the country, he stands to lose a substantial chunk of his pension (more than 80% in his case) as a result of the recent bankruptcy court ruling allowing United to terminate its pension plans.

This comes in addition to the hundreds of thousands of dollars my dad saw evaporate from his portfolio as the value of his shares of United stock (acquired in 1994 when United’s employees gave up $5 billion in wage cuts in exchange for a 55% stake in the company) went from over $100 per-share at their peak in 1998 to about $1 per-share in early 2003 when he dumped them.


And this is only one of many pension plans going bankrupt. Some excerpts from the Washington Post story:

The scale of the default, the largest in U.S. history, has received more attention than the toll on the lives of the bankrupt airline’s 120,000 employees and pensioners.

Saracini was among about 2,000 United pensioners and employees who e-mailed their stories to Rep. George Miller (D-Calif.) in recent days for what he called an online hearing on the human impact of the default. “We have been overwhelmed — both numerically and emotionally — by the response,” said Miller, one of several politicians in both parties warning that a wider crisis will loom if the nation’s pension security laws are not revised.

More than 20 other companies have defaulted on pension funds of more than $100 million in the past three years, and last week, executives of troubled Delta and Northwest airlines said they may be next. Miller has proposed a six-month moratorium on defaults, as Congress debates how to fix what many lawmakers call “broken” pension protection laws.

“Like Enron, workers’ lives and retirements have been ruined,” Sen. Charles E. Grassley (R-Iowa) said last week. “But unfortunately, this time it’s perfectly legal.”

The article highlights contacts to a democrat congressman. It is unfortunate, and possibly inaccurate, that the GOP was not shown to have been contacted on this subject as well. And the Grassly quote is hopefully out of context and sounds harsh. Too harsh. It may have been legal, it may not. Broken promises are not always legal – though they may seem to be at first look.

Last week, United Chief Executive Officer Glenn Tilton testified to the Senate Finance Committee about $4.5 million he is receiving from United to replace benefits he had accrued over a 32-year career at Texaco, his previous employer. Tilton said that the default will not affect the payment, and that he has $1.5 million left to collect. He said this does not represent a double standard because United promised him the money in his contract.

“He is saying, ‘United guaranteed that to me,’ ” said retired pilot John D. Clark of Charlottesville, who flew United planes for 36 years out of Dulles and whose $125,000 annual pension is to be reduced by more than 70 percent. “Why is the promise made to him understandable, and the one made to me can go by the wayside?”

The GOP needs to be just as supportive because corporate lies that steal quality of life are simply wrong. And the democrats need to be careful, they tend to pretend to represent the average person, but then never come through – somehow becoming golfing buddies with these same corporate leaders when it is time to get campaing donations.

4 responses so far

4 Responses to “Stealth Issue Rises”

  1. milldini17 says:

    Do you think that Congress should move to undo some of the Nixon-era deregulation and try to centralize some of the industry? I am not big on Govt controlling big industries, but in doing so not on a grand scale might allow the business to continue operating privately and competitively while insuring a more secure pension, maybe not a glamorous but it might be better than nothing. I don’t know if it’s possible or even if the GOP would even consider it, but it seems to me a way to undercut the Dem by securing the labor votes/approval/etc. and to maybe continue to push the airline industry into the green.

  2. AJStrata says:

    Sorry to disagree, but government control would only make it worse. What needs to be done is make corporations honor their commitments when failure to do so negatively impacts their employees who signed up to those commitments. Corporations are not immune from honoring commitments, and they should not make promises they cannot or decide not to keep.

  3. milldini17 says:

    Point. I just checked out some great figures from the BEA (http://bea.gov/bea/dn2/home/tourism.htm) and tourism by air has increased by 20% just in the first 3 months of 2005 or 95 trillion dollars ( i hope i got that right). So i retract that “into the green” statement, the airline industry should not be hurting, in fact most of the companies should be making economic profit, if not accounting profit. Thus, without researching into United’s financials, I think we can assume they are not hurting either and there is no need to cut pensions so drastically for the lower workers, and not the upper management as well.

  4. AJStrata says:

    Agreed. But the problem has been one of negligence accumulating over many years. If the company doesn’t put enough money into the pensions the problem begins to snowball (lack of earned interest). This was the case. UAL has been close to bankruptcy for years. While air travel is getting back to pre 9-11 levels, it is only going to get them back to a point where their heads were just above water. Not enough to replenish funds which were underfunded for years.

    Still, they need to do something.