The federal Pension Benefit Guaranty Corp. (PBGC) yesterday formally assumed responsibility for three pension plans terminated by bankrupt...
McLEAN, Va. — The federal Pension Benefit Guaranty Corp. (PBGC) yesterday formally assumed responsibility for three pension plans terminated by bankrupt US Airways that provide benefits to more than 51,000 workers and retirees.
The PBGC estimates the cost of administering the canceled plans will be $2.3 billion. That is in addition to a $726 million claim in 2003 when US Airways terminated the pension plan for its pilots.
The $3 billion collective cost of the terminated pension plans at US Airways is second only to Bethlehem Steel ($3.7 billion) in terms of the liability it imposed on the PBGC.
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While PBGC Executive Director Bradley Belt emphasized that the agency will protect US Airways workers’ pensions, he also warned that “the pension safety net is badly frayed” and renewed his call for congressional reform that would make it harder for companies to walk away from their pension obligations.
The PBGC estimates that US Airways’ pension plans are only 40 percent funded, with $1.7 billion in assets to cover $4.2 billion in liabilities.
The PBGC will cover $2.3 billion of the $2.5 billion gap.
In some cases, federal law prohibits the PBGC from paying the full benefit that a worker would have received in a company-sponsored pension.
For plans canceled in 2005, for instance, a worker retiring at age 65 can collect a maximum benefit of $45,613 a year.
The airline has said that the vast majority of employees in the terminated plan will receive the same benefit from PBGC that they would have received from the company.
Two of the three plans taken over by the PBGC yesterday provide benefits to the airline’s flight attendants and machinists.
A third plan that had previously been frozen provides benefits to about 28,000 other employees.
When the airline terminated the pilots’ pension plan in 2003, many pilots faced a sharp drop in benefits because the company’s plan would have provided significantly more money than what is guaranteed by PBGC.