May 13, 2005

This week, a federal judge approved a plan by United Airlines to drop its employee pension plans. It will be the largest corporate pension default in American history. United, which is struggling to emerge from Chapter 11 bankruptcy, has just dumped a huge weight off its shoulders (an estimated $645 million a year), but United employees will lose thousands of dollars annually that were part of their employment agreement when the Pension Benefit Guaranty Corporation (PBGC) (a government pension insurer) takes over their pensions.

The PBGC originally opposed United's plan, but agreed to it once United promised to give the government organization $1.5 billion in notes and convertible stock in a reorganized UAL Corporation, United's parent company. What this means is the federal government is going to be a partner in private industry. Somehow I don't think that's a role the federal government is supposed to be playing under our constitution.

United had under funded their pension plan by $9.8 billion, and the PBGC would only guarantee about $5 billion. It sounds to me like United didn't honor its obligations to properly manage their finances and failed to set aside adequate money to finance the retirement plan they had promised their employees (the obvious questions from us ‘simple folk' are, "Isn't there a law against this?," and "Is anyone going to be held accountable?"). So, now because of their gross mismanagement, United Airlines has turned to the government to bail them out of their obligation to employees, and the employees will get pennies on the dollar. Who really feels the pain here? The employees that entered into an employment contract with a company, expecting the company to keep their end of the deal.

Mind you, I'm no fan of unions, who I think more often than not these days push too hard and far with contract negotiations to the point where they break companies. Still, why was not enough money set aside to fund the pension plan? United had to know they were cutting corners and eventually the crap would hit the fan.

Is anyone at United being held accountable? I haven't heard anything about stockholders being upset at this move (but then why would they be if it improves their bottom line), and it's obvious that the government is in on what could be a really sweet deal if United is able to get itself back in the black. Even though United just unloaded billions in debt off on the American taxpayer (how else do you think the PBGC is going to pay those greatly reduced pensions?), the feds will come out pretty good on this (surely you don't think the PBGC will use the notes and stocks they acquired in the deal to pay those pensions; especially when they can stick to us via taxes).

An added concern in this situation is how other companies with pension plans will react to what United has done. Companies can claim they are in a bind and screw over their employees by dumping the problem on the federal government. This should cause people to stop and think. Remember the S&L mess? Businesses were mismanaged and the feds (read taxpayers) paid billions to ‘save' them. Social Security is going down the toilet, and there will be few, if any, benefits to receive in old age (an age the government wants to keep increasing to delay paying back what they took from us, hoping we'll die before we can collect), and there's huge potential for a growing trend in default on pension plans by corporations, leaving the government to ‘cover' those pensions at a fraction of their value.

This would mean no matter how well you plan, come retirement you won't be able to retire. On top of that, the federal government can't keep promising to cover bad debt, especially when to do so requires the government to raise our taxes to get the money to pay these promised benefits (whether the benefits are reduced or not). As the government looks to print more money to cover its obligations, the value of a dollar will continue to decline, causing everyone to lose even more, via the reduced purchasing power of the dollar. Our economic deck of cards composed of fiat money, questionable business practices, and buck-passing to the feds is building to a point of collapse.

People keep saying our economy is on the upswing, even if slowly. I see lots of potential for huge problems. Eventually the chickens will come home to roost. United may come out of bankruptcy, but at what cost? If United wants to stay alive and compete, then perhaps the government should remove some of the burdens they have put on Airlines (and other businesses as well). Get rid of the TSA and let the airports hire security (has anyone noticed folks not flying to avoid dealing with the TSA? I haven't flown since the feds took over airport security.). Attack security at the source: our borders and immigration. Let the free market decide who survives in the airline industry and every other form of business as well. And if there are any new laws, they should be to force companies to properly and adequately fund their pension plans (or they shouldn't offer them to begin with).

With the PBGC, government is getting into where it doesn't belong. At most, government should force United Airlines to honor its commitments. If they can't honor them, I'd like to know where all the money went that should have been going into the pension fund. Personally, I don't care if United survives. They should have acted more honorably concerning the pension fund, and prepared it to be financially sound, considering a contingency of the company getting into financial trouble some day. I smell a rat, in that when all is said and done, the feds will get a financial windfall, and the big dogs at United will end up walking away with their nest eggs intact, while the majority of folks at United Airlines get the short end of the stick. And taxpayers will finance the reduced pensions of United's employees.

Jeff Adams

Archives

Does the Death Penalty ‘Prevent’ Crime?

The 17th Amendment: A Backhanded Acknowledge-ment of State’s Rights

A Pox on Both Their Houses!

Do It Yourself

Obey the Government - But not Always

Why We Need the Southern Military Institute

Liberals Fleeing to Canada

Minutemen are Proof Citizens can take back Their Country

The New Liberal Twist on History