When United Airlines could no longer fund its pension plans, it turned them over to the Pension
Question:
When United Airlines could no longer fund its pension plans, it turned them over to the Pension Benefit Guaranty Corporation (PBGC) and became the largest pension plan failure in history, owing over $9 billion to the pension.
So far, the PBGC manages the pensions of over 4,200 companies that failed to adequately fund their defined benefit pension plans, including several airlines such as Delta, Eastern, TWA, and US Airways. These airline employees will continue to receive pensions, but under PBGC guidelines, pensions are limited to a maximum of approximately $60,000 a year. In many cases, this is half of the annual benefit airline employees were expecting under the airline’s defined benefit pension plan. Many employees will make substantially less, particularly if they retire before they reach age 65.
How did this happen? Deregulation, competitive pressures, and the economy have all led to serious financial problems for the large airline carriers. As the amount of money the companies owed to retirees and potential retirees increased, airline income decreased and the retirement funds earnings decreased, leaving the pension plan underfunded.
Bad news for the retirees can also mean good news for the company, however. Without the financial burden of the retirement fund liabilities, the company can emerge with lower operating costs and become more financially stable and competitive. United and Delta restructured following their bankruptcy and continued to fly. Essentially, this means that broken promises to employees and retirees who were counting on their retirement pension income could potentially save jobs.
Ethical questions:
Should retirees be insulated from the financial problems of their former employers, or should they share in the financial consequences as the current employees do?
Step by Step Answer:
Fundamentals Of Human Resource Management
ISBN: 9781119032748
12th Edition
Authors: David A DeCenzo, Stephen P Robbins, Susan L Verhulst