I'm watching Frontline now and am already POed!!

[Papi]

Where were the United employees and unions when management was under funding the pension plan? What responsibility do they bare for the bankruptcy and the under funded pension accounts? If what I learned in school is still true, business must produce a return on investment. It appears United employees could have their pay raises or fund the pension plan. Could it be United was just doing what regular folks are doing. Funding current goodies and worrying about retirement at a latter date? Big pay raises, and a promise of large retirements, a situation both employees and unions were more than happy to go along with.

Yeah, that issue of the under funding of the pensions was mysteriously never addressed. The way it was presented you come away feeling like the undering-funding was a complete surprise, like a great punch-line. This type of shallow reporting is what has turned me off of FL lately. The only reason I watched it is because I am interested in the retirement subject. I just didn't expect a full half of the show to be devoted to the United issue.

 

[Caroline]

Cheap living coupled to smart or lucky investing can go a long way.

Thanks for answering my question AND giving us a bit of good news, Ha! If you've made it to the "7-digit nestegg club" on the strenght of your 401(k) alone, there's hope for the rest of us.

Congrats on a job well done.

 

[JohnP]

MasterBlaster - Thanks for the answer on the pension

JohnP:

United was contractually obligated and legally required to fund their pension to pay what they had promised their employees. Since paying that amount was bankrupting the company they felt that they had no choice. You need to think about the pension fund being in two parts. The first part is the portion of promised pensions that were covered by what was in the fund. That's the part that is not owned by United. The second part is what needs to be paid into the fund to actually acheive the payouts that were promised. Since they had grossly underfunded the second part and the business was losing gobs of money management felt that they needed to reorganize under Chapet 11. There was no way under the old company that they could ever get the pension fully funded and live up to their promises.

So to answer your question directly... Could the old United just have decided to not bring the pension plan up to a fully funded level. The answer is no... They were legally required to fund the pension to the level of their promised payouts.

Those employees are screwed either way. Bankrupcy disolution means they lose their job and the non-funded part of their pensions. A chapter 11 reorganization means that they at least have a job and the enterprise could continue.

Your answer tells me that there may still be something in the Pension fund (meant for employees) after the company-portion has been taken to fund the bankruptcy, pay the lawyers, and give obscene bonuses to management. 

Is there a traditional part (or %) of the "Employees" Pension Fund that cannot be 'taken' in Chapter 11 proceeding or is it all fair game.  If it is all fair game to be 'taken' and it was actually taken, then my 'stolen' comment still stands.

Interesting quote from Rustic23

Where were the United employees and unions when management was under funding the pension plan? What responsibility do they bare for the bankruptcy and the under funded pension accounts? If what I learned in school is still true, business must produce a return on investment. It appears United employees could have their pay raises or fund the pension plan. Could it be United was just doing what regular folks are doing. Funding current goodies and worrying about retirement at a latter date? Big pay raises, and a promise of large retirements, a situation both employees and unions were more than happy to go along with.

I remember reading for at least 20 years  that our congress had, every year, passed special bills that allowed underfunding of pension plans, sometimes underfunding because the economy was tight and co's needed a chance, and sometimes, when the economy was booming, because the co's needed to refill their bank account.  It's been like watching a long slow-motion train wreck, with the full approval of our congresses.

JohnP

 

[Rustic23]

It's been like watching a long slow-motion train wreck, with the full approval of our congresses.

JohnP

Why do you blame the congress? What ever happened to personal responsibility? The folks at United were living in the present with no regards for the future. The fact that the United pension funds and those of GM and a bunch of other large corporations were or are under funded. Their employees and certainly their unions know it. They don’t make it a negotiating point in their contracts. Health care, vacation, work hours, big pensions … yes…. Funding the pension NO. So business puts the emphasis where they must to continue business, and fund the pension out of current cash flow. What went wrong is the cost of doing business caught up with them and they could no longer had cash flow.

Now for ‘Corporate Executive’ pay offs. Lets see some facts on how management faired. Not new management, but the folks that ran United into the ground. Are we talking about one or two or two hundred people that got fat bonuses. No rhetoric, lets here the facts. Is this the case of one or two employees getting large contractual payoff? I don’t know and therefore I am unwilling to join the cut throat liberals in an open condemnation without the facts.

For information, here 20 companies in the same shape with regards to pensions.
http://moneycentral.msn.com/content/P87329.asp

 

[JohnP]

Thanks for the comment Rustic

Why do you blame the congress? What ever happened to personal responsibility? The folks at United were living in the present with no regards for the future. The fact that the United pension funds and those of GM and a bunch of other large corporations were or are under funded. Their employees and certainly their unions know it. They don’t make it a negotiating point in their contracts. Health care, vacation, work hours, big pensions … yes…. Funding the pension NO. So business puts the emphasis where they must to continue business, and fund the pension out of current cash flow. What went wrong is the cost of doing business caught up with them and they could no longer had cash flow.

I think that there is plenty of blame to go around in this situation; personal, unions, management, congress, etc.  I believe that congress has more 'visibility' than most individuals and therefore I would expect them to be a little more responsible... but noooo! 

I place congress first among responsible enablers for the loss of dbp retirement security of the past years.  Corporations just see a big pot of cash money that they can easily tap (just do a Chapter 11 and the employees' retirement money can be yours...) and gain bonuses to boot - who wouldn't do it when our congress makes it easy to do.  The employees are the ones who get hurt.

Thanks for the site with the 20 companies in the same shape as United!

Best regards

JohnP

 

[tryan]

One thing for sure ...

If all you have at the end of a w*rking career is money in some account you don't control .... you're screwed.

The victim mentality doesn't fly with me when people have had an entire life time to save for themselves.

 

[Papi]

years.  Corporations just see a big pot of cash money that they can easily tap (just do a Chapter 11 and

Hi John,

I thought corporations could not dig into a pension pot.  Can they really do that?  My understanding was that it had to do with under funding (or no funding) the pension pot.

I've heard the word "promise" used in this thread often, in that the corporation "promised" employees a specific pension.   I'm not sure what "promise" means legally/contractually?  My company promises to pay me twice a month.  Of course, if they kick me out the door or they go bankrupt the promise is broken and I'm SOL.

But with regards to the United employee that had already retired with a pension of 3K/month, how is it the bankruptcy court can legally cut his pension in half?  To me it seems like a huge difference between "promsing" a future pension payout versus presently collecting the pension.

 

[bbuzzard]

[geezer rant]I, for one, welcome our new insect overlords congratulate our future generations for learning from our sage Boomer example... [/geezer rant]

I think you accidently posted this in the wrong forum .

 

[JohnP]

Thanks Papi for the response!

I'm just a 63 yo retired engineer so much of the high finance and legalism eludes me also - I am believing that some of this is double talk while a lot is disappearing cash done legally with congressional approval.    I see a company Pension Fund;  I see that Pension Fund after bankruptcy sometimes going to the PBGC - does all of it go to PBGC - what entity (may I say "Fund")  pays the $400M for lawyers and $45M bonus to United CEO and the Brokerage house's cut?  If the company had not been funding the Pension Fund before what advantage do they get in bankruptcy (with it's costs) for continuing to no longer fund the Pension Fund?  So many questions...

I do believe that there are many victims here and in the 20 companies from Rustics Sept 2004 citation from moneycentral.  There but for the grace of God go I.  Any of us could be there.  I worked hard, put myself through 6 years of college, never thought there would be SS when I could retire, funded my IRAs to the max (most years max was $2000/yr for me) 401k was not over 5%/yr with no match until my last work year, but I saved personally in taxable as well as in retirement funds. I was able to be FI and retire a month before 60 because I had a relatively high income over my working years.  Not everybody has my (or our) advantage but I see the loss of wage, health benefits, retirement security, etc for every affected United employee as a long forseeable event.  If forseeable could anyone have avoided it - that is the question?  Anyone have the answer?

Best regards

JohnP

 

[MasterBlaster]

Corporations just see a big pot of cash money that they can easily tap (just do a Chapter 11 and the employees' retirement money can be yours...)

JohnP:

I believe you still don't get what can be done with a pension fund. So I'll try to splain' it one more time. That pot of money in the pension fund is owned by the employees/retirees not the corporation. Corporations cannot take it normally or in Chapter 11. The corporation funds the pension but they have no way to take the money.

The issue with United was that their wasn't enough money in the pension fund to pay the promised payouts. United went into Chapter 11 to avoid paying large additional amounts into the pension fund. They never took what was in the fund.

I hope that you can see the difference.

So Papi was right they can't do what you posted.

 

[setab]

There is never enough money in the pension fund at any given point in time to fund both current and contingent liabilities. As long as the corporation keeps operating, it's no big deal, everything works out over time. The thing that makes this situation more than a little disgusting is that United kept operating by breaking its promises to its employees and then rewarded other people for helping them do so.

setab

 

[Texas Proud]

Lots and lots of words thrown around with great feelings..... but not much substance... I will list some of my thoughts on this to try and correct some of this:

> There is a difference in what people think they are going to get and what they have earned so far. If a company 'promises' a pension of 1% a year for every year you work based on your last three years salary... this does not mean you have that amount of money set aside today... it is MUCH less.. if the company drops this promise, then you have 'earned' a lot smaller amount than what you might have thought... it is all YOURS, but less than you think... (with the caveat below). You can not work 5 years and then say they took away my 30 year retirement plan they had promised.. you had not even been there 30 years... you can leave at any time even if they had not changed the plan.

> Companies usually underfund during a down stock market as cash is tight... it is not always a bad thing, but can be

> If a company does underfund a pension plan, you might not get all you have earned... remember, all you have earned is not the same as all you were promised. If they do go bankrupt etc. you might lose some, but not all of your pension..

> A statement was made that companies can not get cash out of a pension plan. This is false. If a pension plan is overfunded (yes, it happens) a company can end the plan, buy annuities for all participants of what they have earned (not promised) and take the excess cash.. It happened a lot back in the '80s, but I have not heard about it lately..

> Companies break promises all the time.. They are entities that are like people... some will try and keep their promises, some will not... How many people have been divorced here?? Did you not promise you would love, honor and obey until death do you part??

My last thought is that we are talking like pensions are something that have been around since the beginning of time... it is a recent thing... before WWII there were not many pensions... my mother, who is in her late 80s remember the times when there were no pensions..

 

[bosco]

Where were the United employees and unions when management was under funding the pension plan? What responsibility do they bare for the bankruptcy and the under funded pension accounts?

I love this. Blame the employees and unions. As if they had control.

The State of Alaska has a DB program which they decided in 1999 (at the height of the dotcom boom) was overfunded. So they decided to reduce funding (it is funded by a 6.75% of salary employee contribution and the state makes up the diff to fund the benefits).

The union wrote several strongly-worded letters about the inadvisability of counting on a stock-market boom going off into the future. The state basically said--buzz off, it's our responsibility, not yours.

Now, 7 years later--guess what. Whining about how much state employees retirements will cost, tacit and not-so-tacit blaming of the employees, and a conversion of the program for new hires to a DC plan.

At least in the case of Alaska, already hired employees remain under the old system (but only because this is guarranteed by the state constitution--if the legislature could have changed it they would have).

All this talk about why should the federal government look out for people is interesting. Why indeed? Why should they be involved with enforcing contracts, civil rights, any laws whatsoever?

 

[Nords]

I love this.  Blame the employees and unions.  As if they had control.

Who owned United Airlines?

Remember when the ESOP was lauded as the way of the future for American corporations?

 

[haha]

All this talk about why should the federal government look out for people is interesting.  Why indeed?  Why should they be involved with enforcing contracts, civil rights, any laws whatsoever?  

Save your Confederate money, boys, The South will rise again!

Ha

 

[HFWR]

The largest shareholders of most corporations are pension funds, mutual funds, etc. Lessor but still significant shareholders are generally high-level execs and/or company founders. My 1000 shares of megacorp is a drop in a bucket of spit...  

 

[JohnP]

Thanks MasterBlaster for again trying to splain the pension system to me. I could use all the help I can get.

Googling just now only produced 2005 articles on the UAL pension fund - four separate UAL pension funds were transferred to the PBGC about this time last year with a $9.6Billion unfunded liability for the US taxpayers to guarantee.
http://www.msnbc.msn.com/id/7804770/ and
http://news.bbc.co.uk/1/hi/business/4535403.stm

Thanks also setab for lending a legal face to the proceedings here.

Best regards
JohnP

 

[youbet]

Remember when the ESOP was lauded as the way of the future for American corporations?

I certainly do!  Wasn't it a change in corp tax law that caused corps to cancel the programs a number of years ago?

 

[Dawg52]

Save your Confederate money, boys, The South will rise again!

Ha

Yup.....we sure will.

 

[HFWR]

Tired o' bein' Johnny B. Goode, so we're gonna be Johnny Reb...

Hank Jr.

 

[REWahoo]

Save your Confederate money, boys, The South will rise again!

Yup.....we sure will.

Careful what you ask for boys. A couple more hurricane seasons and the South could float all the way up to Ohio.

 

[justin]

I certainly do! Wasn't it a change in corp tax law that caused corps to cancel the programs a number of years ago?

The small engineering firm I work for recently started an ESOP. The tax benefits are still very significant. The corp gets a tax deduction for contributions (essentially tax deferred bonuses to employees). On top of that, a portion of income is nontaxable based on the percentage of the corp's ownership by the ESOP. Double tax savings.

 

[LOL!]

The small engineering firm I work for recently started an ESOP. The tax benefits are still very significant. The corp gets a tax deduction for contributions (essentially tax deferred bonuses to employees). On top of that, a portion of income is nontaxable based on the percentage of the corp's ownership by the ESOP. Double tax savings.

My spouse worked for a small engineering firm that started an ESOP.   Before that they had some of kind of retirement plan run by the owner's brother-in-law where the BIL picked the stocks and bonds and other assets to be invested in.  Then the owner needed to sell the company and couldn't find a buyer at the price he wanted.  He saw a pile of cash in the company retirement plan and said, "Wow, I can sell the company to the retirement plan (and to the employees.)."  Thus was born the ESOP.  All the stocks in the retirement plan were cashed in and the money was used to buy out the owner.  The employee retirement plan became stock in the company that they could neither sell nor trade.  And of course, certain "directors" kept a controlling interest.

 

[justin]

liquidity of the stock is key.

 

[JB]

I hope Bush pushes harder for Lifetime Savings Accounts and Retirement Savings Accounts. The system we have now (IRA, ROTH IRA, Sep-IRA, Simple-IRA, 401K, Roth 401k, KEOG, Rollovers, ESAs, 529s, UGTM, 403B....._ is way to complicated and expensive.