The following report is from Tom Davis, the President
of the US Airways retired pilots, in response to a request for information
regarding the experience at US Airways with the PBGC. UAL retired pilots should consider this as a
warning of things to come, since so many of the effects of the US Airways
bankruptcy have also happened at UAL:
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Basically, we’ve approached the PBGC issues as
matters of law, not of public opinion. The relief we seek can only be found in
a court of law. More on this later. Initially, US
Airways and its actuary, Towers and Perrin, estimated PC-3 to be 85% funded.
PBGC, as is its customary practice, used US Airways’ PC-3 estimates to reduce
every retiree’s benefit to 85% of its original value, in total disregard of its
own Maximum Guarantee, which increases actuarially with age. In general, the
up-sloping guarantee line begins to cross above the actual benefit line at
about age 69 so that a 69 or 70 year old or older should have received his full
pre-termination benefit. In addition, US Airways and PBGC had a dust up over
the amount of compensation PBGC should receive for its takeover of the under
funded pension. This resulted in PBGC’s own actuary testifying, not once but
twice, that PC-3 was 98.5% funded. We had already filed suit in US District
Court and when we raised these issues PBGC reluctantly corrected the benefits
being paid. The basic pre-termination benefit was increased to no less than 98%
of the original benefit and those who were about 69 or older were restored to
100% of the original benefit.
However, as they say, the devil is in the
details. So, while the gross issues described above were a huge step forward,
the overall matter remains in a state of flux. Various rules severely impact
the benefit of a majority of our members. These include the 5-year look back
rule that disallows pension enhancements enacted within the five years
immediately preceding plan termination. We have 326 retirees who received an
enhanced early retirement benefit pursuant to a letter of agreement with an
effective date more than five years pre-termination.
PBGC is disallowing this enhancement based on a specious interpretation that
substitutes an open enrollment period that ends within the five year period for
the effective date on the face of the agreement. We are also severely impacted
by the three-year rollback rule that calculates PBGC benefits at the levels
they would have been had the retiree retired three years or more prior to plan
termination. In the case of partial lump sum settlements, PBGC is
inappropriately deducting the annuity value of the lump sum, which has already
been paid, from the maximum guarantee that is applicable only to annuities that
are in pay status. There are other significant issues that I prefer not to
articulate at this point since we need to preserve flexibility in our
litigation strategy.
Aside from the more or less global issues, such
as the above, there are a multitude of parochial issues affecting subgroups of
our membership. Former Piedmont pilots have a normal retirement COLA that is
unique to them which PBGC is not fully honoring even though it has been in
effect at least 20 years. There are issues unique to former PSA pilots and to
pre-1973 Allegheny pilots to be resolved. There are also issues of significance
to those who were disabled when they retired—both totally and permanently and
otherwise.
So the big picture is that there are a myriad of
issues that create a tender box of competing interests with a huge potential
for trouble. One of our handicaps is that we don’t have a finely tuned
political structure with local councils, master councils and numerous
committees. Our greatest strength is that we don’t have local councils, master
councils and committees (and crew rooms). PBGC has attempted to ignite this
tender box by overtly reminding those attending regional meetings that our
success in the early retirement issue would come at the expense of everyone else.
It is manifestly in our interest not to allow them to succeed.
My overall impression of the first three years
of our mission is that ERISA which governs many of our issues is a very complex
and specialized corner of the law. It requires attorneys who specialize
entirely or almost entirely in this field. Consequently they are expensive.
Therefore, our first challenge is to raise the necessary financial resources.
Given the fact that our source for these funds is a group of folks whose lone
common characteristic is the financial challenge they are experiencing due to
the termination of their pension plan, their financial support has been truly
remarkable.
The second challenge is to somehow maintain the
cohesion and unity of our group when so much of what we do is governed by
arcane law with which we are unfamiliar and which is so often counterintuitive.
A central dispute now before the Court of Appeals, for example, is whether or
not PBGC is a fiduciary when it acts as trustee of the Pilots Pension Plan. If
PBGC is found to be a fiduciary, its failure to pay benefits in accordance with
the statutes and the terms of our collectively bargained pension would
constitute a breach of its duty and, therefore, be litigable. Whereas, if it is
not found to be a fiduciary, the exhaustion clause of the Railway Labor Act may
require that we arbitrate the disputes at the Retirement Board before
litigating the issue in court. ALPA, which appoints two of the members of the Board has consistently maintained that it doesn’t represent
retirees. Moreover, recovery of benefits by the retirees may come at the
expense of the two non-retirees on the Board, their constituents and their
sponsor, the MEC, whose agreements we are challenging, in many cases. It is a
conspicuous conflict of interests but that argument has not been successful in
skipping arbitration in the past, with courts ruling that if such a conflict
results in a bad arbitration award you can then go to court, having exhausted
your administrative remedies.
In summary, money is the mother’s milk of
pension litigation. Without it, and lots of it, the cause is hopeless. PBGC
openly boasts that it has more money than we and that it can outlast us. Unity
and cohesion are necessary conditions for raising sufficient funds to dissuade
PBGC from that belief. We constantly remind ourselves that we are diminished
when we castigate
Note: Tom is the leader of the US Airways Retired Pilots,
dealing with lawyers, fund raising and communications. His position would be a close equivalent to
Roger Hall’s at URPBPA.