Pension Benefit Guaranty Corp is trying hard to live up to its name. In the story Trenches has been following about the airline industry threatening to renege on its pension obligations as hard times and exceptionally poor management practices shove the carriers one after the other into bankruptcy, PBGC has emerged as both a whistle-blower and a champion of its trust. It could have sat back, as the S&L guarantors did, and evolved strategies aimed at protecting itself at the expense of the pensioners, letting the govt pick up what was left of the pieces–or not. Instead, PBGC is taking an active role, asking Congress to give it the power to put liens on airline assets in order to safeguard the interests of pensioners.
Pension Agency Seeks More Power
Federal Insurer Wants to Put Liens on Companies in Bankruptcy
By Albert B. Crenshaw
Washington Post Staff Writer
Wednesday, September 15, 2004; Page E03
The government’s pension insurer said yesterday that it wants the authority to place liens on the assets of companies in bankruptcy such as US Airways when those companies do not make required payments to their pension plans.
US Airways told a bankruptcy court in Alexandria on Monday that it doesn’t plan to make a $110 million payment due today to pension plans covering its mechanics and flight attendants. The airline said its pension obligations total $531 million over the next five years.
In July, United Airlines refused to make a $72.4 million payment to four of its pension plans, and said it would not make $500 million in payments due this year.
The government agency, the Pension Benefit Guaranty Corp., argues that the failure to make required payments is illegal but that it lacks power to do anything about it under bankruptcy law. Yesterday it said it should have authority to place liens against the corporate assets of a bankrupt company so that the amount of the missed payment can be preserved for the pension plan participants. It already has such power over companies not in bankruptcy.
Such authority would require a change in the law.
“Failure to act will increase the risk that participants will lose promised benefits and that the pension insurance program will suffer larger losses. We need to make clear that pension contributions are required whether a company is in bankruptcy or not,” Executive Director Bradley D. Belt said in a written statement yesterday.
The agency also wants companies to be required to notify pension plan participants within 30 days of a bankruptcy filing of the plan’s funded status and of legal limits on the agency’s guarantees, which in some cases are substantially less that the pension promised to an employee under the plan.
A federal judge in New York ruled in 1991 that the PBGC has no priority over other creditors in bankruptcy and that the PBGC cannot compel bankrupt companies to make payments required by pension law. PBGC officials said at the time that the ruling created a dangerous situation for the agency. Legislation was introduced to overturn that ruling but never passed.
If only more corporations had PBGC’s sense of honor, loyalty, and responsibility.
Unfortunately, the corporate-owned Congress is unlikely even to consider such a request, let alone pass the appropriate legislation, and tens of thousands may lose their pensions behind this mess. The next time somebody touts de-regulation to you, you might mention the disaster it had on the airline industry. Corporate honchos are like 2-yr-olds with ADD–they’re incapable of seeing past their own greed or the day-after-tomorrow and have to have a minder to keep them from jamming their hands into electric outlets because they have this fantasy it will make them super-charged like Batman. De-regulation is strictly for adults, and as both the airline and energy industries have shown, today’s corporate decision-makers–with rare exceptions like PBGC–aren’t ready for the responsibility.