Tax payers to fund United Pension Plan??

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Aug 20th, 2004, 08:38 AM
  #1
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Tax payers to fund United Pension Plan??

do i understand this correctly? if united is successful in terminating its employee pension plan, will the burden to fund these plans be assumed by the tax payers?
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Aug 20th, 2004, 08:45 AM
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?? where did you hear that?
UAL will convert pensions to a 401K - the burden of the penisons will be held by UAL employees. They are getting a pretty raw deal, but since the Federal gvt. denied a bailout loan United is screwed. I do belive that the company has had (an may still have) some serious management problems, but if the workers unions(UAL workers are major company stockholders) would take a more active role in the success of the company instead of constantly complaining about 10cent increases they would have some stock to retire on.
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Aug 20th, 2004, 08:57 AM
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i read in the paper this am that the quasi-governmental agency, pension benefit guaranty corp., may be tasked to fund part or all of the $6.4B underfunded portion of ua pension plan. i don't know how this agency works, but i assumed that since its quasi-gov., some of their funding must come from tax money, via congress. perhaps my interpretation is incorrect. i hope so.
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Aug 20th, 2004, 09:44 AM
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I just read that today also, this is different than what was said on the news a few days ago. I really don't know what the heck this agency is either.
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Aug 20th, 2004, 10:39 AM
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The Pension Benefit Guaranty Corporation doesn't get its money from tax revenues-- it collects premiums from pension Plan sponsors to fund its operations: paying pension benefits for underfunded or failed Plans. See:

http://www.pbgc.gov/about/default.htm
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Aug 20th, 2004, 04:14 PM
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jrw: well, it looks like mike colias, ap business writer has a different view. this was written by him after the judge oks united amemded financing plan.."united's pension plans are now underfunded by about $8.3 billion. If the company scraps the funds, the government-funded Pension Benefit Guaranty Corp. would be expected to take responsibility for up to $6.4 billion".
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Aug 21st, 2004, 04:49 AM
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I may be wrong, but I believe the only thing the government pays for is the operational costs, and the bailout money comes from all the contributors to the agency. Basically it's like an insurance program. All the pension plans have to pay yearly dues according to how much money they are insuring and when something like this happens, the agency will pay out the insured amount. The way the government is looking at it, that it's cheaper to pay to run such an agency and have them bailout each other when the need arises. When that many lives could be affected the government has to have a role.

The only problem I see, that if this is allowed to go through, the other airlines will try to dump their pensikon plans, citing the very real advantage that UA would gain by not having to pay for their pension plan, which will create a snowball effect, which will overburden the insurance agency and so on and so on, and then the government will have to step in and bail all of them out.
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Aug 21st, 2004, 06:14 AM
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AA,

It does appear tht this agency is an insurance agency. UA must have made a agreement with its unions to sign on with these guys. But that does not mean they will have the reseverves to pay for UA ( and likely all other airlines that will follow)

Personally - I am not a big fan of pensions, the employee are better off in control of there own money. but the unions will complain, and UA contributions will end up being much less
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Aug 21st, 2004, 08:36 AM
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so, my original post should have been: Tax payers to fund United Pension Plan!!

and i agree, the worst is yet to come as all the other airlines will want to share in ua's good fortune, and if successful, doom the guaranty corp.
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Aug 21st, 2004, 10:49 AM
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Kuranosuke - you don't know what you're talking about. Taxpayers will not fund anyone's pension plan. Why would we fund United's pension plan over anyone elses? We WON'T, that's what the PBGC is for. They do not use tax dollars to take over insolvent or underfunded pension plans. I don't know how the PBGC works, neither do their employees but US Airways, TWA, Eastern Airlines, Pan Am, and Braniff all had their pension plans taken over or protected by the PBGC. Why don't you visit their website and view the 10 mile long list of all the companies who've had their pension plans "saved" by PBGC. Enron is the next "high profile" company to have their pension plans preserved by PBGC, and taxpayers will not be funding that either. So Kuranosuke, quit trying to scare the American taxpayers with your interpretations of news stories.
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Aug 21st, 2004, 11:11 AM
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blingbling; hope you're right.
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Aug 23rd, 2004, 08:12 AM
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kuranosuke: Go to the website I cited and read it carefully. PBGC was created by the US Government as part of the Employee Retirement Income Security Act of 1974 (aka ERISA), to protect participants in corporate pension Plans. After the bear market of 1973 and 1974, ERISA was passed to establish prudent rules of Plan managements. In a nutshell, PBGC serves to oversee terminations of defined benefit pension plans. It guarantees certain benefits if a terminating Plan is inadequately funded, assesses liability against the sponsors of inadequately funded terminating Plans and collects premiums from Plan sponsors to finance its guarantees (emphasis added). It also plays a role in regulating the funding of troubled Plans, consulting with the IRS on granting waivers of the funding requirements and requiring security from the Plan sponsors in certain situations. (Thanks to Larry Bader at Salomon Brothers-- now Citigroup-- for background information.)

That is, the government chartered PBGC, but PBGC is wholly responsible for its own maintenance as an insurance company for DB pension Plans.

Plan sponsors pay a specific premium (per participant) into PBGC as Plan insurance. Note that if a Plan is seriously underfunded (i.e., doesn't have sufficient assets, as set in ERISA rules and/or in collective bargaining agreements, to fund current and/or future participants), the premiums are increased as a penalty; they also may have other penalties assessed. As the Plan sponsor (i.e., the corporation) is responsible for these premiums and penalties, it is in its best interest to keep the Plan at prudent funding levels.

Note that PBGC will only get involved in United's pension Plan management if it is seriously underfunded AND if UAL Corp is successful in terminating it. And the taxpayer won't be on the hook for a cent, as PBGC's insurance premiums fund its operations.
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Aug 23rd, 2004, 10:01 AM
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rjw; thanks for the info. i appreciate your efforts, especially contacting lb from sb for backup info. .
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Aug 23rd, 2004, 10:15 AM
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Actually I'm paraphrasing info Larry Bader included in a Salomon publication from a few years back, "The Financial Executive's Guide to Pension Plans". His description of ERISA (and PBGC) is peripheral to the real meat of the document: pension Plan valuation for actuarial projections. Not light reading (and if you're not in the industry, completely opaque)....
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