Bush Administration Wants To Avert Full-Blown Pension Crisis

If bankrupt United Airlines bails out on its pension obligations to employees, the Bush administration is worried that it could touch off a full-blown pension crisis in corporate America. The Rocky Mountain News reports the White House is now considering legislation that would prevent the airline from reneging on its promise to take care of its retirees.

"I think it is very likely they are looking at legislative options," said Gary Ford, former general counsel for the Pension Benefit Guaranty Corp.. He's now an attorney for the Groom Law Group in Washington (DC), a firm that specializes in employee benefits law. He was quoted by the Rocky Mountain News.

White House spokesman Jim Morrell, however, reportedly declined to say whether legislation is pending, but did admit to the News that the administration is "concerned" about the welfare of United's four pension programs.

But it's unclear just what the White House can do to help -- at least, in the case of United's bankruptcy. It's an election year and United hopes to clear federal bankruptcy court by the end of December.

The airline has said it will probably have to scrap the four pension funds. Already, it's stopped payments to them while in bankruptcy. For that, United has drawn the wrath of its unions, most notably the Machinists.

"We don't believe that a company that has $2 billion in cash and over $5 billion in assets should be terminating pension plans," said Machinists Vice President Robert Roach, Jr. in an interview with the Rocky Mountain News. "We don't think the PBGC (Pension Benefit Guaranty Corporation) was established to pay pensions for companies with those kinds of assets."

Indeed, these are white-knuckle days at the PBGC. If United kills its pension funds, the government-backed corporation would be liable for $6.4 billion in benefits -- the biggest potential pay-out in its 30-year history. Even worse, a pay-out would leave $1.9 in UAL pension benefits unfunded.

"It's an extremely difficult decision for United to make because, in some respects, they are damned if they do and damned if they don't," Phoenix attorney Thomas J. Salerno told the newspaper. Salerno is a Phoenix lawyer who heads the restructuring practice at Squire, Sanders & Dempsey. "If they don't do it, and there are huge liabilities for funding, it will put a challenge to getting any sort of financing to exit bankruptcy.

"At the same time," he continued, "they're going to put themselves in a position where their employees hate their guts."

FMI: www.united.com