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April 02, 2003
PBGC Takes Over US Airways Pension Plan

The Pension Benefit Guaranty Corporation assumed control Tuesday of US Airways pilots' underfunded pension plan.

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But the PBGC, which operates as the government's pension-protection program, only will fund about a fourth of the losses - or $600 million of the $2.5 billion in underfunding, according to the Associated Press. As a result, the airline's 6,000 pilots will see significant cuts in their retirement pensions.

Federal law sets a maximum benefit of $43,977.24 for retirees enrolled in pension plans that terminate this year and are taken over by the PBGC, the AP notes. Under their company pension plan, the pilots would have received average annual benefits of $50,000 to $70,000.

"I'm sympathetic toward the US Airways pilots who will lose some of the pension benefits they were promised," said Steven A. Kandarian, PBGC's executive director. "To prevent this from happening to other workers, pension plans need to be funded in a way that better protects the benefits participants have earned."

US Airways, which had emerged from bankruptcy protection a day earlier, said Tuesday that it will replace its old retirement plan with a smaller, less generous program. Those benefits, it said, will be paid to pilots to help cover their losses.

Taking over the US Airways pension plan represents the PBGC's sixth-largest claim in its 28-year history. Four of the 10 largest claims are from airlines. Overall, according to the AP, the airline industry accounts for 17 percent of PBGC's claims, but less than 2 percent of all private pensioners. Only the steel industry's claims are larger.

The PBGC posted a record $3.6 billion deficit last year. It receives no funds from taxpayers and is financed by insurance premiums set by Congress and paid by employers. The agency also gets its funding from the pension plans it takes over.

Kandarian has said the agency may be forced to seek higher premiums from employers. He also is urging Congress to rewrite pension laws to require some companies to increase their contribution levels to their retirement programs.


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