After enduring layoffs, pay cuts, and a slashing of their health benefits, many workers in the beleaguered airline industry now face the prospect of a poorer retirement, according to the Washington Post.
Last week, bankrupt carrier US Airways asked the Pension Benefit Guaranty Corp. for permission to stretch out payments on its pilot pension plan, from seven years to 30 years. The guaranty corporation's general counsel, James J. Keightley, said no, explaining that the PBGC, a quasi-governmental agency that insures private pension funds, lacked the legal authority to allow slower payments.
The decision makes it more likely that the pilot fund could be terminated, which in turn means that pilots who enter retirement could themselves with monthly checks that are much smaller than they had counted on, the Post reports.
US Airways isn't alone. The newspaper cites a report issued this week by Fitch Ratings, which says the larger carriers are staggering under a combined pension-funding shortfall of $18.9 billion. United Airlines, the world's second-largest carrier, accounts for $4.1 billion of that amount; US Airways accounts for $3.1 billion.
Duane E. Woerth, president of the Air Line Pilots Association, tells the Post he would not be surprised if the US Airways scenario occurs at other airlines, given their financial straits and their mounting costs for security. "US Airways happens to be first up and the most serious problem," Woerth said.
The Post notes that a pension collapse at US Airways would echo previous pension crises in the industry. The PBGC took over the pension plans at Eastern Air Lines in 1991, at Pan Am in 1992 and at TWA in 2001. All three airlines ultimately went out of business.
The major airlines are suffering now because they must assume the risks of their traditional defined-benefit pensions. The airlines' underfunding of their obligations to these funds has skyrocketed, as the stock market has tumbled and interest rates on the funds' fixed investments have fallen.
The Post reports that low-cost carriers such as Southwest, AirTran Airways, ATA, JetBlue Airways and America West have largely protected themselves from the pension woes of their larger rivals by the use "defined-contribution" plans like the 401(k). As a result, future retirement payouts depend largely on how well the worker invested his own nest egg.
