[Senate Hearing 108-153]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 108-153

                        PENSION PLANS REGARDING 
                               US AIRWAYS

=======================================================================

                                HEARING

                                before a

                          SUBCOMMITTEE OF THE

            COMMITTEE ON APPROPRIATIONS UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                            SPECIAL HEARING

                    JANUARY 14, 2003--WASHINGTON, DC

                               __________

         Printed for the use of the Committee on Appropriations


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 senate

                                 ______



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                      COMMITTEE ON APPROPRIATIONS

                ROBERT C. BYRD, West Virginia, Chairman
DANIEL K. INOUYE, Hawaii             TED STEVENS, Alaska
ERNEST F. HOLLINGS, South Carolina   THAD COCHRAN, Mississippi
PATRICK J. LEAHY, Vermont            ARLEN SPECTER, Pennsylvania
TOM HARKIN, Iowa                     PETE V. DOMENICI, New Mexico
BARBARA A. MIKULSKI, Maryland        CHRISTOPHER S. BOND, Missouri
HARRY REID, Nevada                   MITCH McCONNELL, Kentucky
HERB KOHL, Wisconsin                 CONRAD BURNS, Montana
PATTY MURRAY, Washington             RICHARD C. SHELBY, Alabama
BYRON L. DORGAN, North Dakota        JUDD GREGG, New Hampshire
DIANNE FEINSTEIN, California         ROBERT F. BENNETT, Utah
RICHARD J. DURBIN, Illinois          BEN NIGHTHORSE CAMPBELL, Colorado
TIM JOHNSON, South Dakota            LARRY CRAIG, Idaho
MARY L. LANDRIEU, Louisiana          KAY BAILEY HUTCHISON, Texas
JACK REED, Rhode Island              MIKE DeWINE, Ohio
                  Terrence E. Sauvain, Staff Director
                 Charles Kieffer, Deputy Staff Director
               Steven J. Cortese, Minority Staff Director
            Lisa Sutherland, Minority Deputy Staff Director
                                 ------                                

 Subcommittee on Departments of Labor, Health and Human Services, and 
                    Education, and Related Agencies

                       TOM HARKIN, Iowa, Chairman
ERNEST F. HOLLINGS, South Carolina   ARLEN SPECTER, Pennsylvania
DANIEL K. INOUYE, Hawaii             THAD COCHRAN, Mississippi
HARRY REID, Nevada                   JUDD GREGG, New Hampshire
HERB KOHL, Wisconsin                 LARRY CRAIG, Idaho
PATTY MURRAY, Washington             KAY BAILEY HUTCHISON, Texas
MARY L. LANDRIEU, Louisiana          TED STEVENS, Alaska
ROBERT C. BYRD, West Virginia        MIKE DeWINE, Ohio
                           Professional Staff
                              Ellen Murray
                              Jim Sourwine
                              Mark Laisch
                            Adrienne Hallett
                              Erik Fatemi
                       Bettilou Taylor (Minority)
                        Mary Dietrich (Minority)
                    Sudip Shrikant Parikh (Minority)
                       Candice Rogers (Minority)

                         Administrative Support
                             Carole Geagley


                            C O N T E N T S

                              ----------                              
                                                                   Page

Opening statement of Senator Tom Harkin..........................     1
Opening statement of Senator Arlen Specter.......................     1
Statement of Steven A. Kandarian, Executive Director, Pension 
  Benefit Guaranty Corporation, Department of Labor..............     4
    Prepared statement...........................................     6
Opening statement of Senator Rick Santorum.......................    17
    Prepared statement...........................................    17
Statement of Hon. James C. Roddey, chief executive, Allegheny 
  County, PA.....................................................    30
    Prepared statement...........................................    32
Statement of David N. Siegel, president and CEO, US AIRWAYS......    33
    Prepared statement...........................................    36
Statement of Captain Duane E. Woerth, president, Air Line Pilots 
  Association....................................................    37
    Prepared statement...........................................    40
Statement of Captain Bill Pollock, chairman, US Airways Master 
  Executive Council, Air Line Pilots Association.................    42

 
                   PENSION PLANS REGARDING US AIRWAYS

                              ----------                              


                       TUESDAY, JANUARY 14, 2003

                           U.S. Senate,    
    Subcommittee on Labor, Health and Human
     Services, and Education, and Related Agencies,
                               Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 3:13 p.m., in room SD-124, Dirksen 
Senate Office Building, Hon. Tom Harkin (chairman) presiding.
    Present: Senators Harkin and Specter.
    Also present: Senator Santorum.


                OPENING STATEMENT OF SENATOR TOM HARKIN


    Senator Harkin. The subcommittee of the Appropriations 
Committee, will come to order, on Labor, Health and Human 
Services appropriations.
    This hearing was called at the request of Senator Specter. 
But because of the rules of the Senate and the way we are sort 
of operating right now, it falls to me to have to call the 
committee to order, and I will soon turn the gavel over to 
Senator Specter.
    But that is in keeping with the way that this subcommittee 
has operated now for--I think it has been 13 years. I was 
chairman, and Senator Specter was ranking member; then he was 
chairman, and I was ranking member; then I was chairman again, 
and he was ranking member; and now he is going to be chairman, 
and I will be ranking member again. So we just do this back and 
forth. But during all that time, this subcommittee has operated 
on a strictly bipartisan basis--many times when I was Chair 
that Senator Specter had his own hearings, and vice versa--and 
I think that is the way that these committees ought to be run.
    This is a vitally important hearing dealing with pensions 
and the Pension Benefit Guaranty Corporation. I compliment 
Senator Specter for bringing this hearing together, and I look 
forward to the testimony. I, myself, cannot stay for the whole 
thing, but, again, I just again want to compliment Senator 
Specter. I look forward to working with you, Senator Specter, 
in this Congress, and hopefully we will get all this thing 
worked out so we will not have to engage in this kind of a 
little kind of a maneuver any time in the future.
    And with that, I would turn the gavel over to Senator 
Specter.


               OPENING STATEMENT OF SENATOR ARLEN SPECTER


    Senator Specter. Thank you very much, Senator Harkin--Mr. 
Chairman, I think.
    What you have just seen, ladies and gentlemen, and those 
who may be watching on C-SPAN, has a number of levels of 
complexity. Republicans took control of the Senate on a 51-to-
49 majority after the last election, but there has not been a 
resolution on reorganization.
    When the issues arose with US Airways and the pilots' 
pensions, it seemed to me--and I conferred with Senator Harkin, 
and he agreed--that this was an appropriate matter for a 
hearing by this subcommittee, which has jurisdiction over the 
Department of Labor. And we have proceeded as if I was the 
chairman, or would be the chairman by Tuesday, but the majority 
leader, Senator Frist, and the Democratic leader, Senator 
Daschle, have not been able to agree on reorganization, and 
there is, therefore, an issue as to whether any Republican can 
preside at a hearing.
    So Senator Harkin and I have conferred for the last 2 days, 
and we have decided that, in accordance with our longstanding 
practice, that we would work on a bipartisan basis. Tom Harkin 
and I are two of the advocates who have learned a long time ago 
that if you want to get anything done in Washington, you have 
to be willing to cross party lines. And as we have traded the 
chairmanship and ranking-member status, as the gavel has passed 
back and forth, it has been seamless, and that is in the 
interest of the health system, which our subcommittee funds, 
and education, which our subcommittee funds, and labor, which 
our subcommittee funds, to the tune of about $130 billion a 
year, which is obviously very, very substantial.
    Now, on to the issues at hand. It is well known in the 
public domain about the problems of the airlines in America and 
the difficulties which US Airways has had. And there has been 
an herculean effort made by the company and the employees to 
keep the airline going. It is a very vital matter for the 
United States, for national and international travel, that the 
sixth largest airliner continues to operate.
    And a new chief executive officer, David Siegel, has taken 
over. He has come forward with a bold plan. He is met with 
great cooperation by the labor unions, making enormous 
concessions, and suppliers, all in line to get a Federal 
guarantee, which the Congress has legislated. But to get the 
guarantee, there have to be certain changes made. And for a 
time, it appeared that the issue of pilots' pension benefits 
might be a stumbling block for the financing to go forward from 
the Alabama lender. But that obstacle has been overcome, and US 
Airways is moving ahead to continue in its operation. But left 
in its wake is an issue about the pilots' pension benefits.
    Last Thursday, Senator Santorum and I introduced 
legislation to try to clarify the situation. Earlier today, I 
met with the airline pilots in Pittsburgh to go over the 
issues. This is a matter of great concern to the entire Nation 
because US Airways serves the entire country in addition to 
international routes, but it is especially important to 
Pennsylvania, which has 17,000 employees, major hubs in 
Pittsburgh and Philadelphia, and 11,000 employees in 
Pittsburgh. And what we are looking at here is a very severe 
potential disadvantage on the pilots pensions, which could be 
reduced by as much as 75 percent. And you have 4,300 active 
pilots and 2,000 more retired pilots, and those pilots have 
already made concessions of $650 million a year.
    So what we are searching for is a way to see to it that 
fairness is done. And what the company and the pilots have 
agreed to is a program to terminate the existing pension plan, 
and then to reinstate the pension plan, but with a different 
contribution schedule, which would enable US Airways to make 
the contributions without defaulting on its other obligation, 
or without jeopardizing the Alabama loan or the other plans in 
the US Airways reorganization.
    Now, what the matter really turns on, and it is yet my hope 
and the hope of Senator Santorum and others who have studied 
this issue, is that we will find a way within the existing 
legislation to solve the problem or, if not, to proceed with a 
legislative correction.
    I have examined the legal memorandum submitted by PBGC 
General Counsel, James J. Keightley, who is with us today, to 
PBGC Executive Director Steven A. Kandarian, and it is my legal 
judgment--lawyers have been known to differ on just about 
everything under the sun; it's not too hard to get a second 
opinion, a different opinion; it's not too hard to get a third 
opinion, also a different opinion or successive opinions--but 
what we are really trying to do is take a look at the 
underlying statute in the public policy. And in looking at the 
legal memorandum submitted by Mr. Keightley, on page 5, he 
notes: ``In sum, while PBGC has broad discretion to determine 
whether restoring a plan would be appropriate and consistent 
with its duties under Title IV of ERISA, we believe that a 
purposeful effort to achieve an objective not permitted by the 
Agency's governing statute--granting funding relief--would be 
overturned as exceeding our statutory authority.''
    But as I read the statute, this is an objective permitted 
by the statute. The opinion of Mr. Keightley says, on page 1, a 
situation where a plan `` `is to be terminated,' or `is in the 
process of being terminated,' . . . . In such a case, PBGC is 
authorized to `cease' termination activities and restore the 
plan to its prior status if PBGC determines that the plan 
should not be terminated `as a result of such circumstances as 
[PBGC] determines to be relevant.' ''
    Well, it seems to me that the language in Mr. Keightley's 
opinion gives latitude to accomplish what we seek here. On page 
2, Mr. Keightley's opinion says: ``The second sentence of 
section 4047 addresses the situation where a plan `has been 
terminated' under section 4041 or 4042 of ERISA. It empowers 
PBGC, `in any such case in which [PBGC] determines such action 
to be appropriate and consistent with its duties under [Title 
IV], to take such as may be necessary to restore the plan to 
its pre-termination status,' . . . .''
    Well, it seems to me that when you talk about a standard of 
``appropriate and consistent,'' and where you have a plan which 
is agreed to by the company and the pilots, and if the plan is 
not adopted, the pilots lose 75 percent of their pensions, and 
the Pension Benefit Guaranty Corporation--taxpayers have to 
pick up the tab and pay the pension benefits--that it is a win-
win-win situation, win for the company, win for the pilots, and 
win for the Government and the taxpayers to have that approved. 
And the essential issue is whether there is sufficient 
flexibility under existing legislation, which we are going to 
examine. But while it is hyper-technical to read statutes, this 
matter turns on statutory construction, and it is necessary to 
lay that kind of a foundation.

STATEMENT OF STEVEN A. KANDARIAN, EXECUTIVE DIRECTOR, 
            PENSION BENEFIT GUARANTY CORPORATION, 
            DEPARTMENT OF LABOR
ACCOMPANIED BY JAMES J. KEIGHTLEY, GENERAL COUNSEL

    Senator Specter. At this point, let us turn to our 
witnesses. Mr. Steven Kandarian is Executive Director of the 
Pension Benefit Guaranty Corporation, and prior to joining the 
corporation, he was founder and managing director of Orion 
Partners, an asset management group, and was also an investment 
banker. Earlier in his career, he served as an economist with 
the U.S. Civil Aeronautics Board, and he holds a bachelor's 
degree in economics from Clark University, a J.D. from 
Georgetown University Law Center, and an M.B.A. from Harvard 
Business School.
    Mr. Kandarian, we thank you for arranging your schedule to 
join us, and we look forward to your testimony.
    The time limits established by the committee, as a general 
rule, are 5 minutes. We appreciate it if you would adhere to 
that to the maximum extent possible so we have time left for 
question-and-answer.
    Since the last committee hearing, I attended a memorial 
service for Ambassador Annenberg, Walter Annenberg, and the 
time limit was set at 3 minutes. And former President Ford was 
held to 3 minutes, and Secretary of State Colin Powell was held 
to 3 minutes, and it was sort of an inconsequential factor that 
I was held to 3 minutes. So I want you to know what a generous 
time allocation there is in 5 minutes.
    Mr. Kandarian. Thank you.
    Senator Specter. Mr. Kandarian.
    Mr. Kandarian. Mr. Chairman and members of the 
subcommittee, I am Steve Kandarian, Executive Director, Pension 
Benefit Guaranty Corporation. With me today is PBGC's General 
Counsel, Jim Keightley. We want to thank you, Mr. Chairman, for 
the opportunity to testify in this very important matter.
    You have asked me to address our legal opinion that we 
could not terminate and immediately restore US Airways' pension 
plans in order to provide the company with a longer period over 
which to fund its pensions and whether the law should be 
changed.
    By way of background, PBGC receives no taxpayer dollars. 
Rather, it is funded by the premiums paid by companies as 
sponsors of defined benefit plans. It is important to note this 
is a voluntary pension system. No employer is required to 
establish or maintain a pension plan.
    PBGC was in a deficit position for the first 21 years of 
its existence. To address the causes of these deficits, 
Congress amended the pension laws in 1986, 1987, and 1994 to 
increase premiums and strengthen funding rules. Companies with 
significantly underfunded plans were required to fund pension 
liabilities over 5 to 7 years, rather than over 30 to 40 years. 
In 1987, Congress also limited the use of funding waivers, 
which it felt had been abused. The key restriction was to 
require employers to pay any amount waived in 5 years, rather 
than 15. These safeguards were enacted because Congress 
recognized that faster funding and limited waivers protect both 
participants and the pension insurance system.
    US Airways is currently undergoing reorganization in 
bankruptcy and has applied for a loan guarantee from the ATSB. 
US Airways believes it cannot satisfy the board's conditions 
for a loan guarantee while also making its required pension 
contributions. It believes this is true even if it obtains the 
funding waivers available under existing law. Thus, it came up 
with a proposal for a super funding waiver. US Airways asked 
PBGC to terminate the plans and then use its authority under 
section 4047 of ERISA to immediately undo the terminations, 
restore the plans, and provide 30 years to fund them.
    However, the 1974 conference report on ERISA made clear 
that the purpose of section 4047 was to allow PBGC to restore a 
plan: ``if the employer and plan enjoyed a favorable reversal 
of business trends or if some other factor made termination no 
longer advisable.''
    The prepackaged termination restoration proposal by US 
Airways is inconsistent with this congressional intent. There 
is nothing in section 4047 or anywhere else in Title IV of 
ERISA that gives PBGC the power to grant funding relief in 
order to assist an ailing company. In fact, IRS----
    Senator Specter. Is there anything which precludes the 
corporation from granting funding relief?
    Mr. Kandarian. There is no specific language that 
precludes.
    Senator Specter. So the statute is neutral on that key 
point.
    Mr. Kandarian. We do not think so.
    Senator Specter. Well, there is no statutory language which 
precludes funding relief, as you have just testified.
    Mr. Kandarian. Right. But, in fact, the IRS, not PBGC, has 
statutory authority for plan funding; and the IRS, not PBGC, 
has authority to waive funding requirements for corporations in 
temporary financial difficulty. US Airways also cites as 
precedent PBGC's termination and restoration of three LTV Steel 
plans with a modified funding schedule.
    Mr. Chairman, the LTV situation was very different. PBGC 
used section 4047 to restore the plans after it found that 
LTV's follow-on benefit arrangements were abusive to the 
insurance system. After 3 years of litigation, the Supreme 
Court upheld our restoration decision. By the time LTV emerged 
from bankruptcy and began funding its plans based upon the 
modified funding schedule, more than 6 years had elapsed. The 
LTV case provides no precedent for a prepackage termination 
restoration as proposed by US Airways.
    Mr. Chairman, you also asked me to address the question of 
whether the Agency should have expanded authority under section 
4047 to terminate and then restore the plans with a new, 
substantially lengthened funding schedule. PBGC does not desire 
such expanded authority. We believe that terminating and 
restoring plans of companies in financial distress would 
undercut the funding requirements enacted by Congress and 
jeopardize the solvency of the insurance system. Moreover, it 
would be a dangerous precedent. We are sympathetic to workers 
who would suffer significant cutbacks if their plans are 
terminated, but providing this special relief to US Airways 
would give it a competitive advantage over other airlines. It 
would also give other financially distressed companies a 
blueprint for how to borrow from their pension plans at the 
expense of the pension insurance system and the 44 million 
Americans it protects.
    If US Airways----
    Senator Specter. Has there been any evidence that US 
Airways has undertaken a borrowing program to create this 
current problem?
    Mr. Kandarian. What do you mean by borrowing program?
    Senator Specter. Well, that is language you just used, that 
they might set a precedent to give other airlines ideas about 
how to institute a borrowing program from their pension plans. 
Has US Airways borrowed from the pension plan here?
    Mr. Kandarian. If they go forward with a restoration 
proposal, that could well happen.
    Senator Specter. That could well happen but has not 
happened.
    Mr. Kandarian. Well, it will not happen until there is 
restoration funding.
    Senator Specter. But the question is, has US Airways used 
its pension plan to borrow money? You say that you are 
concerned about a precedent here which would give airlines a 
way to borrow from the pension plan----
    Mr. Kandarian. The way I was using----
    Senator Specter [continuing]. So I asked you, has US 
Airways borrowed from the pension plan?
    Mr. Kandarian [continuing]. The way I was using that 
terminology was that, going forward, if they did not put the 
funding in, under current law, they would in effect be taking 
monies that otherwise they would be contributing under law, 
under ERISA, to the plan and keeping that for other business 
purposes.
    Senator Specter. Well, that is hardly borrowing, Mr. 
Kandarian. Go ahead.
    Mr. Kandarian. If US Airways, why not other financially 
troubled airlines? If airlines, why not companies in other 
industries?

                           prepared statement

    In closing, I would like to repeat a point that the Senate 
Finance Committee made in 1987, when it limited funding 
waivers: ``The integrity of the plan termination insurance 
program will be jeopardized if employers have the opportunity 
to avoid liability for their pension promises at the expense of 
other employers who moderated their promises or are more 
financially secure and remain in the defined benefit system, . 
. .''. That was a sound observation then, and is a sound 
observation today.
    Mr. Chairman, I thank you again for this opportunity to 
appear before the subcommittee. I will be happy to answer 
questions.
    [The statement follows:]

               Prepared Statement of Steven A. Kandarian

    Mr. Chairman and Members of the Subcommittee: Good afternoon. I am 
Steven A. Kandarian, Executive Director of the Pension Benefit Guaranty 
Corporation (PBGC). With me today is PBGC's General Counsel, James 
Keightley. We want to thank you, Mr. Chairman, for holding this hearing 
and for the opportunity to testify on this very important matter.
    You have asked me to address the PBGC General Counsel's legal 
opinion that PBGC may not terminate and immediately restore US Airways' 
pension plans in order to provide the company with a longer period over 
which to fund its plans. You have also asked me to address whether the 
law should be changed.
    Before turning to those issues, I would like to provide some 
background on the role PBGC plays in ensuring a secure retirement for 
American workers, and on the relevant pension funding rules.

                           STRUCTURE OF PBGC

    PBGC was created as a federal corporation by the Employee 
Retirement Income Security Act of 1974 (ERISA). PBGC protects the 
pensions of about 44 million workers and retirees in about 35,000 
private defined benefit pension plans. PBGC has a three-person Board of 
Directors--the Secretaries of Commerce and the Treasury and the 
Secretary of Labor, who is the chair.
    It is important to note that PBGC receives no taxpayer dollars. 
PBGC is funded by premiums paid by sponsors of defined benefit plans. 
Every company that sponsors a defined benefit plan pays to PBGC an 
annual flat-rate premium of $19 per participant. In addition, sponsors 
of certain underfunded plans, which pose a greater risk to the 
insurance system, pay an additional variable-rate premium based on the 
degree of their underfunding.

           PAST CONGRESSIONAL ACTION TO TIGHTEN FUNDING RULES

    PBGC was in a deficit position for its first 21 years of existence. 
To address the causes of the deficit, Congress amended PBGC's governing 
law in 1986, 1987, and 1994 to increase premiums, to tie premiums more 
to exposure, to prevent ongoing companies from ``dumping'' their 
underfunded plans on PBGC, and to tighten the funding requirements for 
underfunded plans. Two key elements of the tighter funding requirements 
were:
  --Accelerated funding for plans that were generally less than 90 
        percent funded, and
  --Stricter limits on the granting of waivers from the funding 
        requirements.

Accelerated funding requirements
    When ERISA was enacted in 1974, Congress allowed employers with 
existing pension plans 40 years to pay unfunded past service 
liabilities, and new plans were allowed 30 years to pay these 
liabilities. At that time, Congress viewed the funding rules and PBGC 
insurance as closely linked. As the Finance Committee stated:

    ``The termination insurance program is intended to work hand-in-
hand with the minimum funding standards imposed by the bill, since the 
latter will limit the losses due to plan termination by requiring more 
adequate funding of pension plans.''----Report of the Committee on 
Finance on S. 1170, S. Rep. No. 93-383 at 26 (1973).

    Since 1974, Congress has acted repeatedly to tighten the funding 
rules to require faster funding and greater protections for 
participants and the pension insurance system. In 1987, Congress added 
accelerated funding rules for certain underfunded plans. These rules 
require employers to fund pension liabilities over 5 to 7 years rather 
than over 30 to 40 years.
    When Congress strengthened the funding requirements in 1987, the 
Finance Committee concluded:

    ``An employer should not have the opportunity to make pension 
promises that exceed its financial capacity to meet its promises. In 
order to reduce the financial risk to plan participants and the PBGC, 
the amendment requires certain plans to be funded more rapidly 
depending on the funded status of the plan.''----Omnibus Budget 
Reconciliation Act of 1987, 100th Cong., 1st Sess., ``Explanation of 
Provisions Approved by the Committee on December 3, 1987 for inclusion 
in leadership Deficit Reduction Amendment,'' p. 170.

Funding waivers
    In addition to strengthening the funding requirements, Congress 
also placed stricter limits on the IRS's granting of waivers from the 
funding requirements. A funding waiver allows a company to defer 
payment of funding contributions in the event of temporary business 
hardship. When ERISA was enacted, the IRS was granted authority to give 
a funding waiver to an employer suffering from ``substantial business 
hardship.''
    In 1985 and again in 1987, Congress acted to tighten the 
requirements for funding waivers because of concern that funding 
waivers were being misused. As a result, Congress limited waivers to no 
more than 3 waivers in a 15-year period, reduced the 15-year waiver 
repayment period to a 5-year period, and required the IRS to consult 
with PBGC over proper security for any waiver over $1 million.
    The Senate Finance Committee explained that these tighter waiver 
rules were necessary and appropriate because:

    ``It is believed that employers have used funding waivers in the 
past to minimize plan contributions during the period immediately 
preceding the termination of a plan. The GAO report found that 30 
percent of the claims against the PBGC arising during the period 1983-
1985 resulted from the failure of employers to make required plan 
contributions prior to plan termination. The GAO concluded that 
significant percentages of the large claims represented required 
contributions that were overdue or had been waived by the IRS.
    ``Under present law, funding waivers are equivalent to an extension 
of credit from a plan to the employer that normally would be treated as 
a prohibited transaction. It is believed that such an extension of 
credit is not appropriate unless adequate safeguards apply to protect 
participants' benefits. Plan participants should not be required to 
finance the continuing operations of an employer by placing their 
retirement benefits at risk.
    ``Further it is believed that the integrity of the plan termination 
insurance program will be jeopardized if employers have the opportunity 
to avoid liability for their pension promises at the expense of other 
employers who moderated their promises or are more financially secure 
and remain in the defined benefit system.'' [Emphasis added.]----
Omnibus Budget Reconciliation Act of 1987, 100th Cong., 1st Sess., 
``Explanation of Provisions Approved by the Committee on December 3, 
1987 for inclusion in leadership Deficit Reduction Amendment,'' p. 181.

                          US AIRWAYS' REQUEST

    US Airways is currently undergoing reorganization in bankruptcy 
court. It has applied for a loan guarantee from the Air Transportation 
Stabilization Board. To obtain a loan guarantee, US Airways must 
present a business plan that demonstrates that it can repay the loan 
based upon reasonable financial assumptions.
    US Airways has asserted that it cannot satisfy the Board's 
conditions and also make required pension contributions. US Airways 
also has asserted that the existing funding waiver process would not 
provide sufficient financial relief. Consequently, US Airways came up 
with a creative solution: the functional equivalent of a ``super 
waiver.'' US Airways asked PBGC to terminate the company's pension 
plans, immediately restore those plans, and provide 30 years to fund 
them. US Airways asserts that PBGC has the authority to do this under 
section 4047 of ERISA.
    Section 4047 authorizes PBGC to restore a plan to its 
``pretermination status'' whenever PBGC determines that restoration of 
the plan is ``appropriate and consistent with its duties'' under Title 
IV of ERISA. The PBGC's General Counsel concluded that this authority 
is not broad enough to justify restoration solely for the purpose of 
giving an employer a liberalized funding schedule.
    The 1974 Conference Report on ERISA made clear that the purpose of 
section 4047 was to allow PBGC to restore a plan ``if the employer and 
plan enjoyed a favorable reversal of business trends, or if some other 
factor made termination no longer advisable.'' This concept is 
inconsistent with the ``pre-packaged'' termination/restoration proposal 
by US Airways.
    There is nothing in the statute, the legislative history, or the 
regulations that would give PBGC the power to terminate a plan and then 
immediately restore the plan with easier funding rules in order to 
assist an ailing corporation. In fact, IRS, not PBGC, has statutory 
authority for plan funding under ERISA, including waiving funding 
requirements for corporations in temporary financial difficulty.
    US Airways also cites as precedent PBGC's restoration of three LTV 
steel plans with a modified funding schedule. Mr. Chairman, the LTV 
situation was very different.
    PBGC terminated the LTV plans in January 1987. Immediately after 
PBGC terminated the plans, however, LTV set up follow-on benefit 
arrangements. In other words, an ongoing corporation dumped its pension 
liabilities on the insurance system and then attempted to provide its 
workers with substantially the same benefits (in combination with 
PBGC's guaranteed benefits) as if the plans had never terminated.
    Almost a year later, PBGC used section 4047 to restore the plans to 
LTV because it found that the follow-on benefit arrangements were 
abusive to the pension insurance system. After three years of 
litigation, the Supreme Court upheld PBGC's restoration decision.
    In October 1990, the IRS issued special funding regulations to 
address the problems of the LTV restoration, where the plans had been 
terminated for some time before being restored. The IRS provided these 
special funding rules because it concluded that, ``[u]nderfunding will 
be significantly increased if the plan has been administered as a 
terminated plan for an extended period of time.'' In no way do the 
regulations suggest that the usual funding rules should be disregarded, 
that the IRS's authority over plan funding should be transferred to 
PBGC, or that PBGC should terminate plans solely for the purpose of 
then restoring them with eased funding requirements.

                           EXPANDED AUTHORITY

    Mr. Chairman, you also asked me to address the question of whether 
the PBGC should have expanded authority under section 4047 to terminate 
and then restore plans with a new, substantially lengthened funding 
schedule. The PBGC does not desire such expanded authority because it 
would put at risk the retirement security of 44 million Americans whose 
pensions are insured by PBGC. PBGC believes that terminating and 
restoring plans of corporations in financial distress would set a 
dangerous precedent for the pension insurance system. Moreover, the 
termination/restoration process proposed by US Airways would be 
inconsistent with Congress' enactment of strengthened funding 
schedules.
    The US Airways proposal would in effect make the PBGC and the other 
workers and plan sponsors in the defined benefit system lenders to an 
ailing company. Providing this special relief to US Airways would give 
other financially distressed companies a blueprint for how to 
``borrow'' from their pension plans at the expense of the pension 
insurance system. If US Airways, why not other financially troubled 
airlines? If airlines, why not companies in other industries?
    In closing, I would like to repeat the point that the Senate 
Finance Committee made in 1987 when it limited waivers of the funding 
rules.

    ``The integrity of the plan termination insurance program will be 
jeopardized if employers have the opportunity to avoid liability for 
their pension promises at the expense of other employers who moderated 
their promises or are more financially secure and remain in the defined 
benefit system.''

    That was a sound observation then, and it is a sound observation 
today.
    Mr. Chairman, I thank you again for the opportunity to appear 
before the subcommittee today. I will be happy to answer your 
questions.

    Senator Specter. Well, Mr. Kandarian, when you talk about 
other airlines relying upon this as a precedent, or other 
companies relying on this as a precedent, where you have a 
situation where a pension plan is designed for the benefit of 
the pilots and the plan is modified to defer contributions, the 
pilots are at risk, but the pilots have agreed to the proposal. 
They are the real party in interest, where they may be 
disadvantaged if the contributions are not made, and they have 
agreed to it. So why should the real party in interest not have 
a dominant voice in determining what will be done here? If they 
are willing to take the risk, why should the bureaucrats stand 
in their way?
    Mr. Kandarian. There are other stakeholders who have a risk 
here, Senator.
    Senator Specter. Who?
    Mr. Kandarian. The other 44 million Americans who rely upon 
our system, our insurance system, and the integrity of that 
system and the solvency of that system. So----
    Senator Specter. The other--who else who relies upon the 
integrity of the system----
    Mr. Kandarian. Yes.
    Senator Specter [continuing]. Has an interest here?
    Mr. Kandarian. Yes.
    Senator Specter. Who?
    Mr. Kandarian. The 44 million Americans who have defined 
benefit plans or who rely upon them.
    Senator Specter. Well, those 44 million Americans may find 
themselves in the same situation. They may be working for an 
employer which has been struck very hard by the terrorist 
attacks of September 11. Now, I do not know to what extent the 
pension benefits of US Airways have been affected by the 
deteriorating stock market, but the values have gone down 
everywhere. So that if you have some of those 44 million 
Americans who are beneficiaries of a pension plan, and they are 
looking at a consequence where they may have their pension 
benefits cut 25 percent unless there can be some flexibility by 
the Pension Benefit Guaranty Corporation, why should they not 
have the advantage of that flexibility? What principle is 
involved here which would be harmful to those 44 million 
Americans?
    Mr. Kandarian. The pension promises made by US Airways to 
the pilots among other union groups were underfunded 
dramatically. In the case of the pilots plan, it was less than 
40 percent funded.
    Now, you keep mentioning a 75 percent cut in pensions for 
pilots. I do not know about specific pilots, but the plan is 
funded better than that. So the cut would be closer to 50 
percent overall for the pilots plan if it were to be terminated 
based upon the most current available information that we have.
    Senator Specter. When you say it is 40 percent 
underfunded----
    Mr. Kandarian. No, it is 60 percent underfunded.
    Senator Specter [continuing]. Sixty percent underfunded, 
that is not news to the PBGC, is it? If you find a pension plan 
is underfunded, are you authorized to take some action to see 
that that is corrected?
    Mr. Kandarian. The funding rules control, which is really 
IRS. We do not get involved in telling people what level of 
funding, within the existing rules, to make. So US Airways 
could have better funded these plans themselves. They had that 
flexibility at different points in the past.
    I would just return to one of the things you said. You seem 
to believe that this is merely between the company and the 
pilots themselves. In the 1980s, Eastern Airlines and Pan 
American came in for a number of waivers to the IRS. Those 
waivers were granted. Numerous waivers. In fact, the waiver 
rules were changed probably because of that. When the plans 
finally hit the PBGC, the whole--the underfunding grew 
dramatically from the time those waivers were initially granted 
to the time the plans were terminated by the Agency. So in a 
sense, all those accruals, all those things that happened over 
those years, the larger underfunding got transferred to the 
system.
    Again, the system does not have the full faith and credit 
of the U.S. Government. The system does not have taxpayer 
dollars. The system has premiums paid by other private-sector 
companies who pick up that difference.
    Senator Specter. Is your salary paid by the Federal 
Government?
    Mr. Kandarian. It is.
    Senator Specter. Are all the administrative costs of PBGC 
paid by the Federal Government?
    Mr. Kandarian. Yes.
    Senator Specter. Has there been no situation ever where 
there was a suggestion for some help from Congress for, in 
effect, a bailout where the PBGC had insufficient funds to take 
care of its obligations?
    Mr. Kandarian. A bailout of PBGC? I do not know, Senator.
    Senator Specter. Federal funding?
    Mr. Kandarian. Of PBGC? I do not know the answer to that 
question.
    Mr. Keightley. Senator, other than a $100 million line of 
credit that we could draw from Treasury in 1974, we have not 
drawn any Federal funds.
    Senator Specter. But there was a line of credit in----
    Mr. Keightley. It was available----
    Senator Specter. [continuing]. 1974?
    Mr. Keightley. I do not believe it was drawn on in 1974. It 
was a start-up, you know----
    Senator Specter. But it was available.
    Mr. Keightley. It was available, but not used. Now, this is 
using pension assets and premiums.
    Senator Specter. Well, the Federal funding was available at 
that time, and it would be an extraordinary Federal entity 
which never came to the Congress for money. Sort of unheard of 
in these legislative halls not to come to the Congress for 
money. Every time we turn around, somebody is doing just that. 
The term ``bailout'' is one of the most popular expressions in 
the Senate chamber.
    Mr. Kandarian. I understand that, Senator, but we are 
trying very hard to not have this Agency come to the point of 
needing a bailout.
    Senator Specter. Well, when you make a point about not 
wanting to have a bailout, I certainly agree with you. And when 
you make a point about the extent of the taxpayers' money being 
involved, that is a relevant consideration. But if the US 
Airways proposal is not accepted, is it not true, Mr. 
Kandarian, that the PBGC is going to be left to pay the reduced 
pensions to the pilots?
    Mr. Kandarian. That may happen, Senator, but that is not 
totally within PBGC's control. In other words, US Airways and 
its lenders in the ATSB will decide ultimately whether this 
company gets money, whether it stays in business, whether it 
operates with all the pension plans intact or not.
    Senator Specter. Well, that is not entirely so. There may 
be factors beyond their control where the pension plan does not 
continue and the PBGC is going to end up paying the reduced 
pensions. Is that not true?
    Mr. Kandarian. We recognize that as a possibility, yes, and 
we accept that.
    Senator Specter. Well, okay. I am not going to get into a 
discussion with you as to possibility, probability, likelihood. 
It is a possibility that the PBGC can end up paying the 
pensions.
    Mr. Kandarian. Yes.
    Senator Specter. Wouldn't you rather not have the PBGC pay 
these pilots' pensions?
    Mr. Kandarian. All else being equal, yes. But if the answer 
is to stretch out the funding and possibly pay much more down 
the road if the plan comes to us then--as occurred with Pan Am, 
as occurred with Eastern--I would have to say no.
    Senator Specter. Well, you might not pay anything down the 
road with the plan going forward with a stretch-out on the 
contributions. But in what way would you end up paying more? 
Are you going to end up paying more than the pension benefits 
which go to these pilots in the absence of US Airways' plan 
going forward?
    Mr. Kandarian. Yes, the underfunding could grow. That is 
correct.
    Senator Specter. Well a lot of things could happen, but 
that could be curtailed by a variety of governmental agencies. 
If not the PBGC, the IRS, right?
    Mr. Kandarian. No, not totally, Senator. The assets of the 
plan will be determined by the company itself, how they invest 
them, what happens in the stock market. Interest rates which 
affect liabilities is out of our control. Actual retirement 
patterns that occur at the company are out of our control. 
There are a number of factors that we cannot control at PBGC in 
terms of our exposure.
    Senator Specter. Well, Mr. Kandarian, that may or may not 
happen. Those are a lot of contingencies on the economy and may 
occur, which may affect millions of people. But the fact is 
that if the US Airways plan is not adopted now, the PBGC is 
going to be paying the pilots' pensions which it would not have 
to now if the program was accepted. That is true, is it not?
    Mr. Kandarian. Well, again, Senator, I do not want to parse 
words, but I do not want to be in a position of saying which of 
these plans should be terminated or not terminated. That is why 
I am staying away from that question. There are four plans.
    Senator Specter. Well, Mr. Kandarian, parsing words is your 
business and my business. The question is: Will the PBGC not be 
paying these pilots' pensions if the US Airways plan is not 
adopted?
    Mr. Kandarian. If the US Airways plan is not adopted and 
there is no other relief and the company decides it is the 
pilots' plan they wish to terminate for their financial 
reasons, then, yes, we will.
    Senator Specter. Okay, that is the point. That is the 
point.
    Mr. Keightley, thank you for joining us.
    Mr. Keightley. Senator, it is nice to be here.
    Senator Specter. We look forward to your testimony.
    Mr. Kandarian. Mr. Keightley is not testifying, Senator.
    Mr. Keightley. I do not have a fixed presentation, but if 
you would like me to say a little bit about the legal position, 
I will be glad to.
    Senator Specter. Proceed.
    Mr. Keightley. We have looked at 4047, which is the 
Restoration of Plan Provision, which gives us authority to 
restore plans. The conclusion I came to was that the 
termination restoration would exceed our statutory authority.
    Going to that question you raised a little earlier, we have 
to find authority to do the things we do. We are a creature of 
congressional statute. And we have not been identified as 
having the authority to waive funding.
    In doing the analysis, I looked first at 4047, the 
statutory language. In there, in a number places where it says 
``restore,'' it says ``restore the plan to pretermination 
status.'' In my judgment, and I think in the judgment of many 
people, restoring a plan with a promise to pay over 30 years is 
not restoring the plan as it was prior to termination.
    Second, we looked at the legislative history. As was, to 
some extent, quoted in the opening testimony, we found language 
that suggested that restoration was appropriate when something 
had happened, such as a reversal of business trends, and it 
gives us some authority to undo something if there was, for 
example, a mistake of fact or law. But we do not think it goes 
so far as to allow us to alter the funding requirements.
    Third, we looked at the entire structure of the ERISA 
provisions.
    Senator Specter. When you talk about reversal of business 
trends, Mr. Keightley, why would that not provide at least some 
discretion for the PBGC in a situation like this?
    Mr. Keightley. It would have to--the termination would have 
to happen, and then the reversal of the business trends would 
have to take place, and then that decision would be made. I am 
not aware of any suggestion that there would be a reversal of 
business trend.
    Senator Specter. Are----
    Mr. Keightley. In point of fact, the opinion of counsel for 
the US Airways suggested the sole purpose was to adjust the 
funding requirements, and had no other real purpose behind the 
termination restoration.
    Let me do one final point?
    Senator Specter. Well, just a minute.
    Mr. Keightley. Okay.
    Senator Specter. Focusing for another moment here on your--
--
    Mr. Keightley. Certainly.
    Senator Specter [continuing]. Language of reversal of 
business trends, would the reversal of business trends for US 
Airways caused by the terrorist attack of September 11 be a 
factor to be considered?
    Mr. Keightley. It is--``a favorable reversal of business 
trends,'' is the language in the legislative history, so I do 
not think they were intending that it be a negative trend in 
business. It would be a favorable trend in business that they 
were trying to suggest----
    Senator Specter. Well----
    Mr. Keightley [continuing]. Where a company could then 
afford to fund the plan.
    Senator Specter. Well, how about a favorable reversal of 
business trends when US Airways is able to get concessions from 
all its employees and its suppliers and move forward with a new 
plan?
    Mr. Keightley. I would not normally----
    Senator Specter. That is a reversal of business trends in a 
favorable direction.
    Mr. Keightley. Well, I do not know that I would 
characterize that as a favorable reversal of business trends. I 
would suggest, more normally, you would think of it as 
increased business, or greater profitability, an ability to 
have more income to pay your bills and credit. So I am really 
trying to analyze how we got to our position.
    Finally, we looked at the statutory structure. The three 
points I am making is----
    Senator Specter. Well, Mr. Keightley, in addition to 
analyzing how you got to your position, I would like you to 
analyze how you might change from your position if you say that 
there is a standard here on a reversal of business trends in a 
favorable direction. Although what has happened to US Airways 
does not fit into some of the categories which you have 
described, is there not a little flexibility here as to what 
constitutes a reversal of business trends in a favorable 
direction?
    Mr. Keightley. I thought I was trying to be responsive to 
that. I do not think renegotiating and going through bankruptcy 
constitutes a favorable trend in your business. Now, I do not--
I really did not research or do an opinion on that, but I would 
not normally characterize it that way.
    Let me move on to my final point, which is that we looked 
at the statutory structure of ERISA when it was created. The 
IRS was clearly given the waiver authority. And going back to 
your point about what says we cannot do something, I would 
suggest you can infer from--that Congress gave waiver authority 
to the IRS and the absence of any language in our implementing 
provisions, that we were not given any waiver authority.
    Finally--the waiver authority really deals with short-term 
business problems. And so Congress, in its wisdom, said short-
term business problems would have waivers; long-term business 
problems, you will have a distress situation. And that is the--
that is how it all ties together as a statutory matter and how 
I come to the conclusion that the corporation is without 
statutory authority to agree to a termination restoration with 
a 30-year funding.
    Senator Specter. Mr. Keightley, picking up on your opinion 
on page 2, the last sentence, the second paragraph: ``While 
section 4047 broadly authorizes restoration of a terminated 
plan whenever PBGC determines that a restoration is, 
`appropriate and consistent' with its Title IV duties, we do 
not believe it would be appropriate and consistent with PBGC's 
duties to use restoration in this manner.''
    Now, I understand what you are saying about the IRS 
authority, but the IRS authority is interwoven with the PBGC 
authority where you really have a much broader range of 
responsibilities on pension plans. And where you pick up this 
language, ``appropriate and consistent,'' is that language not 
really the broad authorization that you referred to in the 
early part of the sentence, which could give you the sufficient 
flexibility if, as a matter of your discretion, you chose to do 
so?
    Mr. Keightley. I do not think that it is a matter of 
discretion. I believe, in light of the waiver authority 
provided to the IRS, for us to interpret that provision as we 
have characterized it, a super-waiver provision, would be 
essentially ultra vires for the corporation.
    Senator Specter. On page 2 in your first full paragraph, in 
the second sentence, you are referencing, again, section 4047, 
and you say: ``It empowers PBGC, `in any such case in which 
[PBGC] determines such action to be appropriate and consistent 
with its duties under [Title IV], to take such action as may be 
necessary to restore the plan to its pre-termination status.''
    While the US Airways plan which was approved by the pilots 
is different as to funding schedule, could it not really be 
regarded as bringing restoration to its pre-termination status, 
which would, under your own analysis, give the PBGC the 
discretion as to what is appropriate and consistent with the 
underlying purpose of the statute?
    Mr. Keightley. I do not believe that allowing them to 
restore the plan with 30-year funding, contrary to the current 
statutory funding requirements, would be returning the plan to 
its current status or its pre-termination status. Funding is 
critical to the survival of these pension plans.
    A point to be made is that the funding--my view, although I 
cannot cite legislative history--was intentionally structured 
very specifically and objectively so that employees could not 
be sort of manipulated into saying: ``Oh, you don't have to put 
my money in there.'' So when we talk about if all the employees 
agree that: ``I don't have to put money in,'' that would be a 
difficult, I think, precedent for Congress even to endorse, 
because of, in some cases, the strong leverage that an employer 
would have over the employees to extort, essentially, funding 
waivers.
    So I think there is a good policy behind very tightly 
structured, objective funding requirements.
    Senator Specter. As I had referenced before Senator 
Santorum arrived at the hearing, he and I had introduced 
legislation last Thursday. Have you had a chance to examine 
that, Mr. Kandarian?
    Mr. Kandarian. I have seen the legislation, yes.
    Senator Specter. Would you render a negative view as to 
discouraging Congress from adopting that?
    Mr. Kandarian. Yes, Senator. Our concern is basically the 
slippery slope argument, so that if we give it for US Airways, 
where do we draw the line? A lot of companies right now are 
highly underfunded in their pension plans, and a number of 
companies in the economy today are not doing well. They have 
financial problems.
    Senator Specter. If we level the slope by specifying a very 
narrow range of circumstances applicable to this case so that 
it does not become a precedent for other cases, would you 
withdraw that objection?
    Mr. Kandarian. I do not see how we can do that, Senator. I 
do not see how we can say this company gets one set of funding 
rules but other like companies do not. We think that will be 
unfair in terms of the competitive environment in the 
marketplace as well.
    We also think that the funding-rule tightening that 
occurred in those other years I mentioned in my testimony was 
important to try to limit underfunding, to limit things like 
this in terms of plans being highly underfunded. And currently 
within the administration we are looking at ways to further 
tighten these rules. For us to endorse something as stretched-
out funding at a time when we are looking at ways to make 
funding stronger would be inconsistent, Senator, which is why 
it is hard for us to support something like this.
    Senator Specter. What are you looking at to make the rules, 
as you say it, stronger?
    Mr. Kandarian. There are a number of proposals that are 
being discussed within the administration. Nothing has been 
endorsed at this time that I can really state publicly. But 
basically, to make funding more stringent, to not allow plans 
to get as underfunded as these plans are.
    Senator Specter. Well, does the IRS have the authority 
under existing law to step in and look at underfunded plans and 
require corrective action?
    Mr. Kandarian. If there is missed minimum funding. But, for 
example, these plans, as you point out, are underfunded and 
there was no missed minimum funding. So that goes to the issue 
of the funding laws themselves. Are they adequate?
    Senator Specter. Well, should there be modifications of the 
funding laws?
    Mr. Kandarian. Again, we are discussing that internally 
within the administration. I have put together some thoughts on 
that, and it is still being considered.
    Senator Specter. Do you have any reason to believe that US 
Airways could not carry forward the plan which they have 
proposed on the 30-year funding and make a success of the 
revised funding proposals?
    Mr. Kandarian. In terms of their ultimate success as a 
company?
    Senator Specter. Correct.
    Mr. Kandarian. I do not know whether they will be 
successful. There are a number of factors that we cannot 
predict here today, in terms of war in Iraq and business 
travel----
    Senator Specter. I know----
    Mr. Kandarian [continuing]. And all the rest.
    Senator Specter [continuing]. I know you do not know, and I 
know that there are a lot of contingencies. But the question 
is, Do you have any factual reason to believe that US Airways 
would not be successful in its proposed plan for the extended 
funding?
    Mr. Kandarian. Well, I have seen their numbers, and I have 
seen their business plan, and it is a tight plan, even with all 
the things they are doing. And I applaud their efforts. But 
still, it is very tight financially.
    Senator Specter. Okay. I will take that, tight, but no 
factual reason to believe it could not work. Correct?
    Mr. Kandarian. I think I will stand by my answer, Senator.
    Senator Specter. Well, that would be fine if I knew what 
your answer was, Mr. Kandarian.
    That would be fine, Mr. Kandarian. Do you have any reason 
to think US Airways cannot succeed, except for the various 
contingencies like the Iraq war? We are trying to find an 
answer here, Mr. Kandarian. If you have some reason to doubt 
it, say so. And if you do not have some factual reason to doubt 
it, say that.
    Mr. Kandarian. Well, I am not expressing an opinion about 
whether US Airways will or it will not be successful with its--
their business plan. What I am discussing is the integrity of 
the defined benefit insurance system that protects 44 million 
working Americans, and that is what I am focused on.
    I think this effort would, in the long-run, be detrimental 
to the overall system. That is my position.
    Senator Specter. Senator Santorum, would you care to 
question?

               OPENING STATEMENT OF SENATOR RICK SANTORUM

    Senator Santorum. Thank you, Mr. Chairman. Can I use that 
term? ``Chairman''?
    Senator Specter. There was a long colloquy on that before 
you arrived, Senator Santorum, and----
    Senator Santorum. Well, Mr. Chairman, slash, ranking 
member----
    Senator Specter [continuing]. The answer to that is about 
as vague as Mr. Kandarian's testimony.
    Senator Santorum. We have been working on that. And I 
apologize for being late, but I have been working on several 
issues and trying to get us moving here in the Senate, and I 
will dispense with my opening statement and ask for it to be 
placed in the record.
    [The statement follows:]

              Prepared Statement of Senator Rick Santorum

    Chairman Harkin and Ranking Member Specter, I appreciate you 
holding this important hearing today on the status of the US Airways' 
pension plan. US Airways employs more than 17,000 people in the 
Commonwealth of Pennsylvania through two hubs in Pittsburgh and 
Philadelphia. Without a doubt, the airline is a major presence in the 
Commonwealth, and it's been an honor to work closely with their 
employees and management team over the past several years on a variety 
of issues. I am pleased that we are joined today by Allegheny County 
Chief Executive Jim Roddey who has been an effective partner in the 
Pittsburgh region.
    The status of US Airways' pension plan is pivotal to the successful 
restructuring of the airline. In July 2002, the airline was granted 
conditional approval by the Air Transportation Stabilization Board 
(ATSB) for a $1 billion loan guarantee. A condition of that loan was 
presenting a solid financial plan proving the airline could meet its 
financial obligations over a seven-year period throughout all segments 
of its operations. Currently, US Airways' obligation to its pilots' 
pension fund--along with other obligations--compromise the ability to 
make required payments to both the pilots' pension fund and a potential 
loan guaranteed by the ATSB.
    Last week, Senator Specter and I spearheaded an effort that would 
have paved the way for US Airways to restructure their pilots' pension 
plan. In an unprecedented effort, the pilots and the airline management 
came together in late 2002 to forge a revised pilot pension plan that 
would significantly help the airline in the reorganization efforts. The 
plan would spread the funding payments over a schedule of 30 years. The 
airline would fully honor its obligations to pay pension benefits to 
its pilots, and the extension would not interfere in the payment of 
those benefits. That proposal was then presented to the Pension Benefit 
Guaranty Corporation (PBGC) for their approval.
    In late 2002, the plan was considered by the PBGC, and the result 
was that there is no legal authority in pension law to grant the 
request. Last week, I introduced S. 119 with Senator Specter. This bill 
would have provided a change in ERISA law allowing for the PBGC to 
approve the 30-year pension payment schedule. S. 119 was considered on 
the Senate floor last week. Members of the Finance Committee objected, 
however, on the grounds that it should be considered in the realm of 
overall pension reform.
    While I was certainly disappointed with the outcome of considering 
S. 119, I look forward to working with my fellow Finance Committee 
members in the near-term as the committee focuses on the important 
issue of pension reform. Further, I trust this hearing will result in a 
constructive dialogue with the PBGC who is testifying today. I look 
forward to hearing from them regarding viable options as the airline 
continues to pursue a financial restructuring that is sound for the 
employees and ultimately the longevity of the airline.
    I appreciate having the opportunity to share my thoughts with you 
on this issue of importance to the Commonwealth and the thousands of 
employees and families who are affected by these decisions. Thank you, 
Mr. Chairman and Senator Specter for holding this hearing, and I look 
forward to our continued work and cooperation on this matter.

    Senator Santorum. I want to thank Senators Harkin and 
Specter for calling this meeting. This is a very important 
hearing, obviously of great importance to the people in my 
State and, I would argue, all travelers in the--particularly in 
the eastern seaboard.
    I just want to follow up with, maybe, Senator Specter's 
line of questioning here. Let me understand this, that US 
Airways was meeting their obligations under law. They were 
funding at the level that they were required to under law. Is 
that correct?
    Mr. Kandarian. That is correct.
    Senator Santorum. Okay. And that the concerns, from what I 
read from your document, that the Congress had and that you had 
was that companies would deliberately underfund their pensions, 
not meet their obligations, and then go into this situation 
where they would seek waivers, or they would seek relief. That 
was----
    Mr. Kandarian. I do not think we said that, Senator.
    Senator Santorum. Okay. I thought I read that.
    Mr. Kandarian. I am not sure who you are referring to.
    Senator Santorum. I do not know whose testimony I was 
reading. I was trying to catch up here real quick.
    Well, that is my--that was the impression I got from 
reading this, that that was what the Congress was concerned 
about. And as soon as I page through here and find that--I 
think it was--let me see, where is it? Yes, ``The Senate 
Finance Committee believed that these tighter waiver rules were 
necessary because of--they used, for funding waivers in the 
past, to minimize plan contributions and that, you know, GAO 
found that 30 percent of the claims against PBGC during the 
period resulted from failure of employees to make required plan 
contributions prior to plan termination.''
    I mean, this is in your testimony, is it not?
    Mr. Kandarian. I thought you were referring to my 
comments----
    Senator Santorum. No, I said your testimony.
    Mr. Kandarian [continuing]. About US Airways.
    Senator Santorum. No, in your testimony----
    Mr. Kandarian. Yes.
    Senator Santorum [continuing]. I think I mentioned ``the 
Finance Committee's concern.''
    Mr. Kandarian. Right. We were quoting the Finance 
Committee's----
    Senator Santorum. I think I said that.
    Mr. Kandarian [continuing]. Deliberations at that time.
    Senator Santorum. Okay. My point was that that is what is 
Congress' concern, that there would be some deliberate attempt 
here for people to game the system. Are you suggesting that US 
Airways was gaming the system here and--before they asked for 
this?
    Mr. Kandarian. No, but those were for waivers. And US 
Airways can still----
    Senator Santorum. I understand.
    Mr. Kandarian [continuing]. Apply for waivers.
    Senator Santorum. I understand.
    Mr. Kandarian. And we do not object to US Airways applying 
for waivers under the existing rules.
    Senator Santorum. I understand that. But I guess the point 
I tried--I think is illustrative is that Congress was 
concerned--and I know I, as a Congressman, was concerned, as a 
member of the Ways and Means Committee, when we dealt with this 
issue at the PBGC--was concerned about systematically 
underfunded plans and the result and impact of that on the 
taxpayer and that obviously, if that was the case here, coming 
in and trying to get a reorganization or restructuring, I would 
not be particularly sympathetic to. That is not the case here. 
That is clear, correct?
    Mr. Kandarian. We are not suggesting that US Airways 
deliberately underfunded their plans, but their plans are 
highly underfunded. They had flexibility at points in their 
history to better fund these plans. They did not take that 
avenue.
    Senator Santorum. Okay. Here is the other point that I am a 
little bit concerned about. And again, just speaking from the 
standpoint of a Member of Congress, and looking at what actions 
are--or certainly seem to be in the offing here, we have a 
situation where if we proceed with US Airways terminating their 
plan and PBGC picking it up--did you already testify as to what 
the cost associated with that would be for the taxpayers?
    Mr. Kandarian. We did not testify to that yet.
    Senator Santorum. Do you have a figure on that, what the 
cost----
    Mr. Kandarian. Are you referring to all plans, or one plan, 
or how many plans?
    Senator Santorum. Well, let us just assume that they--for 
purposes of this discussion, since the biggest--obviously, the 
biggest plan is the pilots' plan, let us just look at the 
pilots' plan. What would that be if they terminated that plan?
    Mr. Kandarian. Based upon the data we have been given to 
date, we think it is about $500 million.
    Senator Santorum. $500 million over how long a period of 
time?
    Mr. Kandarian. That would be paid out over a number of 
years, based upon the lives of the people who are receiving the 
pensions.
    Senator Santorum. Okay. And if we were to--if they were to 
terminate all the plans, what would that be? Do you know?
    Mr. Kandarian. Excuse me, the $500 million number is a 
present-value number. Okay? So it is discounting back those 
payments.
    Senator Santorum. Okay.
    Mr. Kandarian. It is worth, today, $500 million.
    Senator Santorum. Okay. And if they were to terminate all 
the plans, do you----
    Mr. Kandarian. We think----
    Senator Santorum [continuing]. Have that?
    Mr. Kandarian [continuing]. It would be just over $2 
billion, in terms of our guarantee.
    Senator Santorum. Okay. Now, my question to you is, again, 
I--just from a public-policy point of view--I am trying to 
figure out why it makes sense, from a public-policy point of 
view, to take on that liability when there is an opportunity to 
defray that liability--potentially indefinitely, potentially 
forever--and why that makes good public-policy sense.
    Mr. Kandarian. For two reasons. One I mentioned, perhaps, 
before you entered the room, Senator. In the late 1980s, there 
were funding waivers that were much more liberally granted than 
today, and they were given to, for example----
    Senator Santorum. But we are not asking for a funding 
waiver here, are we?
    Mr. Kandarian. No, but it would be similar in its impact in 
stretching out the funding by a company, to fund the existing 
underfunded part of their plan.
    Senator Santorum. Then why does my question about waivers 
count, and yours, analogizing waivers, does not count? I mean--
or the other way around--why, when I analogize this issue to 
waivers, you say it is not valid, and now you are analogizing 
this situation to waiver, and it is valid?
    Mr. Kandarian. I do not know, Senator, exactly what you are 
referring to, but let me----
    Senator Santorum. Well, I analogized that you--I made the 
comments that the Finance Committee said that we had these 
deliberate underfundings----
    Mr. Kandarian. Right.
    Senator Santorum [continuing]. And you said: ``Well, that 
only deals with waivers; that does not deal with plan 
terminations and restarts.'' And I said: ``Okay, I will accept 
that, that it deals with waivers,'' and now you are answering 
my question--answering it with a waiver.
    Mr. Kandarian. We characterize the restoration proposal by 
US Airways as a super waiver, in a sense. It stretches out, 
over 30 years, payments that would normally be made over 5 or 7 
years. So the answer to your question is two-fold. Number one, 
the hole may get larger over time. And if the plans are 
terminated at some point down the road, there could be a much 
larger hit to the system.
    Senator Santorum. Can you not restructure--I mean, from a 
negotiating standpoint, can you not require certain payments 
from US Airways to make sure that that does not occur? I mean, 
is there not a way to avoid that problem down the road?
    Mr. Kandarian. It literally cannot be done. And it cannot 
be done because there are factors out of our control and US 
Airways' control that relate to the value of the assets in 
their plan, the stock market interest rates, experience with 
people retiring, at what age they retire, a number of lump 
sums--people taking lump sums out of the plan, which could be 
significant.
    If you are a worker at US Airways and you are worried about 
this plan because it is so underfunded and you have an option 
to take a lump sum out, you might just well take that money out 
with you rather than be a creditor, if you will, to the plan.
    Senator Santorum. I understand that, but can you not put 
something in a negotiated settlement that would require 
increased funding of a plan if such an occurrence happened in 
the future to make sure that there was a certain level----
    Mr. Keightley. I was just going to say, they do not have 
the money to do it. I mean, being--knowing what is going on in 
the bankruptcy, it is all driven by a limited resource pool and 
a limited income stream. And so there is really no----
    Mr. Kandarian. If they could do that, they would not need 
what they are asking for. So what they are saying is, as we 
understand it: ``Unless we can get our pension obligation down 
to this fixed amount''--they are using, I think, $285 million--
``we cannot get our loan, we cannot get this, we cannot get 
that.''
    Mr. Keightley. Right.
    Mr. Kandarian. PBGC cannot turn around and say: ``Now give 
us the monies we need to fill our hole,'' because now there are 
lenders--there are equity players who will say: ``Wait a 
minute, if that goes out the door for the same reasons we are 
saying no to you right now about giving you a loan or 
equity''----
    Senator Santorum. Well, this is post the restructuring of 
their plan, though. So assuming they have restructured their 
plan to anticipate these things--I mean, I assume that--no one 
is going to sign off--that the union and that creditors are not 
going to sign off on a plan that is a pie-in-the-sky kind of 
payout plan--I mean, I would make that assumption. I mean, 
these are solid--this is an arm's-length transaction with 
business people who are going to look at this: ``Is this a 
reasonable amount to anticipate, as far as payout, over the 
next x-number of years to--on these pension plans?'' And what 
you are saying is--are you saying that you do not believe that 
those numbers are a reasonable approximation of what would be 
anticipated?
    Mr. Kandarian. I was trying to answer your question--``Can 
we limit our liability from growing?'' I thought was your 
question.
    Senator Santorum. It is my question. But what you are 
saying----
    Mr. Kandarian. And my----
    Senator Santorum [continuing]. Your answer to that question 
was, no, you cannot, because you anticipate that there are 
contingencies that will develop that will cause a bigger hole. 
That is what you said.
    Mr. Kandarian. We do not know whether that will occur or 
not.
    Senator Santorum. Well, I know you do not know, but what I 
am asking you is: Are you suggesting that what they have done 
is not taken into account those contingencies in laying out 
this plan?
    Mr. Kandarian. Yes, they have not taken that into account.
    Senator Santorum. Okay. And you think that the lenders have 
gone along with what you would argue is a rather tight non-
contingent kind of arrangement?
    Mr. Kandarian. The lenders do not care about PBGC's 
fortunes. They care about their fortunes. So if the hole gets 
bigger for us, that is not a concern to the lenders or to the 
equity players. We are an unsecured creditor. We are behind the 
secured creditors. That does not affect them.
    Senator Santorum. Yes, well, I would think they would be 
concerned if they get in a position where they have a situation 
where they cannot meet their pension obligations and end up 
with a lot of problems with their unions. I would think that 
that might draw into their concern. But again, I could be wrong 
on that.
    Mr. Kandarian. Well, let me say that the second reason why 
we are concerned--not just that there may be a bigger hit down 
the road to us--is the integrity of the overall system and the 
slippery slope. How do we say no to the next air carrier that 
has a problem today? How do we say no to other industries that 
have difficulties today with highly underfunded plans? I think 
all of us have been reading in the press recently the extent to 
which underfunding has now been created based upon lower 
interest rates and lower stock-market values. If we start 
breaking down the integrity of that funding system on a case-
by-case basis, I do not know how we say yes to one and no to 
the others.
    Then we are back to a situation where--we began with in 
ERISA in 1974, when the funding rules were very loose and plans 
came in highly underfunded, and we got bitter letters and 
complaints from constituents and from Members of Congress 
about: ``I had no idea my plan was so underfunded. I had no 
idea that PBGC limits that are set by Congress were going to 
haircut me in this way or that way.''
    So we are trying to look at the entire system, the 
integrity of the system, for the 44 million Americans who count 
on us for their retirement security.
    Senator Santorum. Have you ever had something like this 
brought to the PBGC before, where management and labor came in 
and offered to do a restructuring like this?
    Mr. Keightley. I have been there 7 years, and I have never 
seen it done formally. We, at least once before, had somebody 
come in, sort of: What do you think? And we went: No, that is 
not going to work. So we have not seen any.
    The point I was making earlier, it is not purely a matter 
of the employees. There might be some cases where that kind of 
arrangement would--could be used by a strong employer to really 
extort inappropriate changes in the pension funding. I am just 
saying that is a decent policy reason why you want a tightly 
structured funding system. And even at that, companies have 
some discretion as to how they fund and what assumptions they 
put in there. And there is some judgment in there being done by 
actuaries and outside people, but--so there is some discretion 
in the process.
    Senator Santorum. Yes, I understand. But in this case, are 
we not looking at what the renegotiated--well, the plan 
presented by US Airways would actually be better for their 
employees than if the plan were terminated? Is that accurate?
    Mr. Keightley. It depends on--some people, it would. I do 
not know the--you know, you have to look at everybody to see 
who wins and who loses.
    Senator Santorum. Well, I am not going to go down and ask 
every individual----
    Mr. Keightley. No, no, but I mean, they--some people keep 
their jobs; other people--you have to, sort of, look at that. 
If some--a young employee--and you terminate the plan, the 
company may stay there a long time and may do better by having 
accruals under some other pension plans. You know there are 
winners and losers whenever a plan terminates.
    Mr. Kandarian. Senator, there are 60,000 participants, 
approximately, in the US Airways plan, and about 35,000 active 
workers. The vast majority of the people will get over 90 
percent of their benefits based upon today's cut-off if any of 
these plans came in to us today. The pilots' plan, because it 
is so highly compensated, is where the guarantee limits really 
cut in. So the vast majority of the workers in this plan will 
get over 90 percent of their benefits paid by us.
    Senator Santorum. So basically, you are saying, other than 
the pilots, by and large----
    Mr. Kandarian. Yes.
    Senator Santorum [continuing]. You are talking most of the 
folks are going to get, basically, what they would under any 
kind of renegotiation that has already occurred with US 
Airways.
    Mr. Kandarian. To date, in other words. I mean, if time 
stopped today, our payments would be 90 percent or more for the 
other plans, other than the pilots' plans. Now, if US Airways 
did a distress termination on the other plans and they came to 
us today, of course they would not get accruals for future 
work. So I cannot say they would not be hurt in that sense, but 
I do not think I have heard of any discussion of distress 
terminations for the other plans.
    Senator Santorum. Thank you, Mr. Chairman, I appreciate it.
    Senator Specter. Thank you very much, Senator Santorum.
    I would like to have Mr. Kilberg step forward before Mr. 
Kandarian and Mr. Keightley are excused.
    Mr. Kilberg, would you step forward?
    As I had referenced earlier, there is an opinion from Mr. 
William Kilberg and Mr. Gary M. Ford on the same issue, and 
before Mr. Keightley and Mr. Kandarian leave, I would like to 
ask Mr. Kilberg a question or two.
    This opinion letter was rendered by Mr. Ford--Gary M. Ford 
and William J. Kilberg to US Airways, and may the record show 
that Mr. Ford, who could not be here today, served as General 
Counsel to the Pension Benefit Guaranty Corporation; same 
position that you hold, Mr. Keightley. And the opinion 
registered by Mr. Ford and Mr. Kilberg, the conclusion I will 
read briefly, is contrary to what you have testified to.
    They concluded: ``PBGC has broad authority to restore a 
terminated plan and, once the plan is restored, PBGC can issue 
a restoration funding order that complies with the regulation 
funding regulations. The PBGC has discretion regarding 
restoration and an appropriate restoration funding schedule. As 
applied here, termination/restoration could be made available 
only in the rare circumstance where plan termination is the 
only other option and the plan sponsor is in bankruptcy, can 
not meet minimum funding standards even with funding waivers, 
wishes to continue funding its plans, has taken all other 
reasonable steps to reduce benefit costs and permit 
continuation of the plans and has the resources to meet 
restoration funding requirements.''
    Mr. Keightley, do you disagree with that?
    Mr. Keightley. Clearly.
    Senator Specter. Mr. Kilberg, you have heard the testimony 
of Mr. Keightley. What is your analysis and conclusion of it?
    Mr. Kilberg. I have a great deal of respect for Mr. 
Keightley, but both Mr. Ford and I disagree with his opinion. 
The restoration or the authority to restore a plan is stated in 
ERISA in section 4047. And while Mr. Ford was General Counsel 
at the PBGC, I have had the honor of being Solicitor of the 
Department of Labor, and I was Solicitor in 1974, when the 
statute was passed and the initial restoration authority 
language was put in. It is very, very broad. It allows the PBGC 
to restore a plan when it is to be terminated or is in the 
process of termination. So a plan does not actually have to 
have been terminated in order to have it restored.
    The Supreme Court has had an opportunity to look at this 
language in one case--the LTV case, the only instance where 
there has been a plan restoration--and in that decision, the 
court said that a plan can be restored when restoration would 
further the interest that Title IV of ERISA is designed to 
protect.
    When we look at the interest as set forth in the statute, 
the preamble to the statute, it really--just three--it is to 
keep premiums at a reasonable level and to keep plans going and 
paying benefits. And it was our conclusion that, in this 
instance, a plan termination and a restoration funding schedule 
which allowed a 30-year period of amortization would do 
precisely that.
    The PBGC and Mr. Keightley, in his opinion, says that 
funding relief is not a proper purpose. I cannot disagree with 
that, but I would assert, respectfully, that it is a proper 
method permitted by the statute in order to achieve the 
statutory objectives of maintenance of plans and their benefits 
and to keep PBGC premiums at a reasonable level.
    That is basically the sum and substance of our 
disagreement. There is relatively little case law. You will 
note Mr. Keightley's opinion does not cite any. There is just 
the LTV decision. But we believe that that, combined with the 
language of the statute and its purposes, would support the 
argument that the PBGC has discretion to work out a restoration 
funding schedule if it chose to do so with an employer like US 
Airways that is in bankruptcy, where there is no question but 
that a distress termination would be appropriate, where it is 
able to fund those benefits over time, and, frankly, where it 
has received unprecedented concessions from its unions, giving 
up going-forward benefits that make the ability to fund this 
plan over time a great likelihood.
    Senator Specter. Would you amplify your analysis of the one 
decision by the Supreme Court of the United States on this 
general area, which signifies to you the Supreme Court's 
interpretation of legislative intent and public policy in this 
matter?
    Mr. Kilberg. Well, in LTV, it was LTV's decision to create 
a follow-on plan which mirrored the plan that it had terminated 
that caused the PBGC to first take the position that the 
termination was a sham and then to insist that it could restore 
the plan to LTV and create a new funding schedule.
    That case was hotly litigated. It went to the Supreme 
Court, and the Supreme Court interpreted the statute to give 
the PBGC an extraordinarily broad grant of discretion, as I 
indicated, to restore a plan when restoration would further the 
interest that Title IV of ERISA is designed to protect.
    The court went further and said that in carrying out this 
specific and what it called an ``unambiguous statute mandatory 
mandate,'' the PBGC is not required to focus on the policies 
and goals of other statutes. In other words, one of the 
arguments that LTV was making was that because of the Internal 
Revenue code and other statutes, the PBGC could not exercise 
its authority to restore the plan and to impose a funding 
requirement upon LTV. The court said that PBGC, in fact, has 
that very, very broad authority.
    Senator Specter. Mr. Keightley, would you care to comment 
on Mr. Kilberg's testimony?
    Mr. Keightley. First, I would like to comment that the 
Supreme Court, contrary to the trial court as well as the Court 
of Appeals, deferred to the interpretation of the PBGC as to 
what a statutory authority was in that particular case. And 
that particular case was not at all analogous to the situation. 
In that case, the LTV plans had been terminated in order to 
avoid shut-down benefits. After that took place, the unions and 
management agreed to, basically, pension plans that made 
retirees, as I understand and read the opinions, 100 percent 
whole and many of the others substantially whole, with the PBGC 
paying the basic benefits, and then they made up the rest in 
this what we would call an ``abusive follow-on plan.'' So they 
were letting us absorb their pension costs; and, to the extent 
that you view that as a labor cost, that is completely. And the 
court said we had the authority to construe the restoration 
authority in that context.
    In my view, that has no connection with the current 
situation at all. I would say that they said we had broad 
authority in interpreting our statute in order to come to that 
result, but they deferred to our interpretation and agreed with 
us. And, as I say, I just do not see taking that language. 
There are limits to what I think we can do under that statute, 
and I think you folks are, you know, US Airways folks are 
asking us to go beyond that.
    I might point out that there is no question that the 
purpose, reading from the joint opinion of the termination 
restoration, is to provide funding relief for US Airways and 
pension plans. There is just no question about that. And so, 
again, we think Congress addressed that issue, told everybody 
who had that authority, limited the waivers. If you remember 
the waivers in the IRS context are, you get to waive it and 
spread the funding over, say, 5 years, I believe. Much shorter 
period of time.
    So Congress has addressed that issue and built that limited 
waiver provision into ERISA, and that is how I get to the 
conclusion that PBGC does not have that statutory authority, 
and other government agencies only have a very limited 
statutory authority, which US Airways has advised us does not 
meet their needs, financial needs.
    Senator Specter. While there is no doubt that the LTV case 
is very different factually, your response does not really go 
to the basic point that Mr. Kilberg made with respect to the 
Supreme Court's determination that the PBGC has broad authority 
and broad discretion to interpret the statute. Do you disagree 
with Mr. Kilberg's statement as to the Supreme Court's decision 
in that respect?
    Mr. Keightley. We have broad authority within the statutory 
limits.
    Senator Specter. Do you think if you made a finding, as Mr. 
Kilberg says you have the authority to do, if that was your 
decision within your broad discretion, that that would be 
upheld by the Supreme Court?
    Mr. Keightley. I do not believe--if the purpose was the 
termination, to provide funding relief for US Airways, I do not 
believe the Supreme Court, or, for that matter, any other 
court, would uphold that position.
    Senator Specter. Mr. Kilberg, do you think the rationale of 
the Supreme Court is broad enough to uphold that position?
    Mr. Kilberg. I do.
    Senator Specter. Senator Santorum, anything further?
    Mr. Keightley. One last point. I might point out that in 
the bankruptcy proceedings in response to our opposition to 
their termination restoration, they have abandoned that 
position and are now pursuing legislative relief plus a 
termination, and we intend to be working with them on some 
other solution. But at this time, they are not pushing that, 
and litigating it in the bankruptcy court is the point.
    Mr. Kilberg. With all due respect to Mr. Keightley, no one 
questions that the PBGC has discretion. The PBGC does not have 
to agree to terminate a plan. The PBGC does not have to agree 
to restore a plan. It certainly does not have to agree to a 
particular restoration funding schedule if it does decide to 
restore a plan. So this is all within the Agency's discretion, 
and we respect the Agency's decision in this regard. Not much 
choice about it. We would not have standing to raise a 
complaint in a bankruptcy court or anywhere else.
    Senator Santorum. Because what you would raise is that they 
have the discretion.
    Mr. Kilberg. Exactly.
    Senator Santorum. You certainly cannot litigate something 
where you are saying they have discretion and then argue that--
I guess you could argue they abused the discretion.
    Mr. Kilberg. That would be a very difficult argument. 
Certainly the PBGC has policy reasons. We may not agree with 
them, but that does not mean that they abuse discretion for 
them to assert them.
    Mr. Keightley. I continue to say we do not believe it is a 
discretionary area when the sole purpose is altering the 
funding. That is the purpose--that is the reason we are being 
asked for this, and that is beyond our statutory authority. 
There may be other areas where we have discretion that is 
within that authority, but it does not extend this far.
    Senator Santorum. Do you agree that is the purpose?
    Mr. Kilberg. No. That is the method, obviously. And I had 
the same point, Senator, that you had earlier, the confusion 
between a restoration funding schedule and a waiver of funding.
    A waiver of funding is a term of art. It does go to the 
Internal Revenue Service. There are very, very strict 
limitations. They would not help US Airways in this instance. 
They are really not for this purpose. What we are looking for, 
clearly, is something far more creative, but something we 
believe that, if it could be achieved, would help US Airways to 
come out of bankruptcy and would serve the interest of its 
employees as well as the company.
    Mr. Keightley. May I read one sentence for the record from 
the December 13 memorandum signed by Mr. Kilberg? ``The 
purpose''----
    Senator Specter. Where are you reading from?
    Mr. Keightley. I am reading from the December 13 memo of 
Mr. Kilberg and Mr. Ford.
    Senator Specter. I understand that, but where from the 
memo?
    Mr. Keightley. In the first paragraph. ``The purpose of the 
termination/restoration''--I underscore ``purpose''--``is to 
provide funding relief for US Airways' pension plans.''
    Senator Santorum. Mr. Kilberg.
    Senator Specter. Well, there is no doubt about that, is 
there?
    Mr. Kilberg. There is no doubt. There is no about that, but 
that is our purpose. The question earlier was ``purpose under 
the statute.'' They said that that was not a purpose under the 
statute. When we use the term ``purpose,'' we are using it as a 
method. That is the method that we thought would best----
    Senator Santorum. To accomplish what purpose under the 
statute?
    Mr. Kilberg. To accomplish the purpose under the statute 
that would--from the PBGC's standpoint, that would maintain 
premiums, and from the company employees' standpoint, that 
would restore the plan and would allow the employees to obtain 
the benefits under the plan. Those are the statutory purposes.
    We used the term ``purpose'' here--we were not talking 
about statutory purpose, we were talking about our purpose.
    Senator Santorum. Mr. Keightley, is the method by which Mr. 
Kilberg has suggested US Airways wants to achieve its purposes 
proscribed by the statute?
    Mr. Keightley. Yes, it is beyond our statutory authority--
--
    Senator Santorum. But is it proscribed?
    Mr. Keightley [continuing]. Whether it is a method or a 
purpose.
    Senator Santorum. Is it proscribed by the statute?
    Mr. Keightley. Is it specifically proscribed?
    Senator Santorum. Is it proscribed----
    Mr. Keightley. There is no statutory language that says we 
cannot do this. But it--my earlier position, as I have 
articulated, is we have to find statutory authority to take the 
actions that we take. There is no statutory to do this. The IRS 
has been given the statutory authority.
    Senator Santorum. Well, is it--are you suggesting that Mr. 
Kilberg's assertion that the purposes that he has outlined are 
invalid, that that is not what is going on here----
    Mr. Keightley. They----
    Senator Santorum [continuing]. Or you do not believe that 
those are--I mean, there may be--let us put it this way. Let us 
assume that you are right, that the purpose is to relieve their 
funding. But that is not prescribed under the statute. But 
additional purposes may be----
    Mr. Keightley. Or authorized.
    Senator Santorum. Pardon?
    Mr. Keightley. Nor authorized.
    Senator Santorum. Let me follow through.
    Mr. Keightley. Okay.
    Senator Santorum. It is not prescribed by the statute. Do 
we all agree that there may be more than one purpose to this 
request?
    Mr. Keightley. Let me address the purposes. The purposes 
are the purposes of ERISA, in general. You can--they do not 
authorize specific acts by the PBGC corporation. So you could 
find all sorts of things that someone might do saying--and 
argue----
    Senator Santorum. But do those purposes not--are those not 
the things that give you the discretion to act?
    Mr. Keightley. No, they do not, in my opinion.
    Senator Santorum. Now, what gives----
    Mr. Keightley. They are----
    Senator Santorum [continuing]. The discretion to act?
    Mr. Keightley. The specific implementing statutory 
authority, the--that we went through earlier. I mean, I can--
let me pull it back out again.
    We are dealing with 4047. That is the authority for 
restoration of plans. I mean, do you want my little spiel?
    Senator Santorum. Yes, I would love to hear you. I am 
sorry. I----
    Mr. Keightley. Okay. That is----
    Senator Santorum [continuing]. Do not want everybody----
    Mr. Keightley. I am sorry.
    Senator Santorum [continuing]. To hear it again, but I have 
not heard it.
    Mr. Keightley. I did not recall whether you were here for 
that or not. Anyway----
    Senator Santorum. I was not.
    Mr. Keightley [continuing]. That is the authority, 4047, 
for the restoration of plans. We looked at the statutory 
authority. In there, there is some specific language which says 
that--to restore the plans to their pre-termination status. In 
our view, restoring the plans with drastically altered funding 
requirement is not returning them to the pre-termination 
status.
    Senator Santorum. It is also a drastic----
    Mr. Keightley. Okay.
    Senator Santorum [continuing]. It is also a drastically 
altered benefit.
    Mr. Keightley. I do not disagree with that, but I am trying 
to get to what I think this corporation has been authorized to 
do under 4047.
    So anyway, we looked at that piece. We also looked at the 
legislative history, which suggests that we could restore a 
plan if favorable reversal of business trends or some other 
factor made termination no longer advisable. In our view, as I 
said earlier, a mistake of fact, a dramatic improvement in the 
business climate, they discover oil on a piece of property that 
is in the pension plan and suddenly they have got enough money 
to pay everybody off--we think that is the kind of authority 
that we were being given with that particular language.
    Finally, the point we looked at was the overall statutory 
structure of ERISA, which really has dealt with the problem of 
plans--companies and plans not having the ability to pay. They 
have a short-term waiver provision which they have put into the 
statute, and they gave that authority to the IRS. For longer 
terms, they can go into bankruptcy and show the bankruptcy 
court that they are unable to carry these plans and function as 
a successful business, and they can shed that liability. That 
is the way Congress structured it. And they did not provide us 
any statutory authority to enter into this kind of arrangement. 
And that is my analysis of where we are, and I think, you 
know----
    Senator Santorum. Mr. Kilberg, can you deal with the 4047 
issue?
    Mr. Kilberg. Sure. I am not sure anybody is really enjoying 
this debate between lawyers, but sure. When 4047 talks----
    Senator Santorum. Well, this is a serious issue to us, so I 
am enjoying it greatly, actually.
    Mr. Kilberg. When 4047 talks in terms of restoring a plan 
to the status it had, you have to look at how that term, 
``status,'' is used in ERISA. That means a non-terminated 
status. In other words, return it to its active status. It does 
not mean return it exactly as it was before.
    Indeed, the PBGC's regulations do not talk about returning 
it to its precise mirror-image plan or terms; it says: ``to 
ongoing status and to help ensure that the restored plan will 
continue to be ongoing consistent with the best interest of the 
plan's participants and beneficiaries.''
    Senator Santorum. So pre-termination status does not mean 
identical to----
    Mr. Kilberg. No.
    Senator Santorum [continuing]. What it was prior to 
termination.
    Mr. Kilberg. I do not believe it does. I do not believe 
that is the way it was supposed----
    Senator Santorum. Well, I understand you do not believe it 
does, but what does--what do the statute and the regs say?
    Mr. Kilberg. Well, the regulations--the language of the 
regulations would be consistent with our interpretation, I 
believe; inconsistent with the corporation's interpretation.
    Senator Santorum. Can you stop there? Can you please 
address that?
    Mr. Keightley. It is pretty clear that you have to look at 
the whole statutory structure here to see where the waiver 
authority is located. And we are taking some broad language and 
sort of inferring the ability to enter into these waiver 
arrangements. And that is not what those regulations cover, and 
that is not what they were intended. We have to deal with the 
statutory limits on what we can do.
    Senator Specter. Well, if you deal with the statutory 
language under 4047--and we will put this language as part of 
this record, together with the opinions of both sets of 
lawyers--if you take a look at this language, it has broad 
articulation of restoration, termination, and reinstitution.
    I think what it really boils down to is your concession, 
Mr. Keightley, that the PBGC is not prohibited from doing--let 
me finish now--is not prohibited from doing what US Airways 
asks. And you come back to say that the PBGC is not 
specifically authorized to do what US Airways asks. But in the 
course of your many decisions, you do many things for which you 
cannot find a specific statutory authorization. But in the 
absence of a prohibition, you take a look at the purpose of the 
statute, of the broad discretion which the Supreme Court said 
you had in LTV, and you exercise that discretion.
    One final question, Mr. Kilberg. We are going to have to 
move on. We have quite a few others----
    Mr. Keightley. I would like to strike ``the concession'' on 
my part----
    Senator Specter. Just a minute.
    Mr. Keightley [continuing]. Senator, any conceding----
    Senator Specter. Just a minute.
    Mr. Keightley [continuing]. On my part.
    Senator Specter. Just a minute, Mr. Keightley. We will give 
you a chance to make a concluding comment.
    What is your evaluation of the last statement I just made, 
Mr. Kilberg?
    Mr. Kilberg. Well, I--obviously, Senator, I am in agreement 
with you. We think the PBGC does have discretionary authority. 
As I said earlier, even if we are right, that does not mean 
that they have to exercise it in the way in which we would--we 
would ask them to exercise it. We happen to believe that US 
Airways' situation is somewhat sui generis. That is to say, it 
is unique. We do not believe it would open floodgates for 
others to walk through or to flow through.
    Senator Specter. Well, that is the follow-up question, 
whether--what do you make of Mr. Keightley's articulation, Mr. 
Kandarian's articulation, of the horrors which would follow if 
others use this as a precedent?
    Mr. Kilberg. Well, we respectfully----
    Senator Specter. Is there anything to that?
    Mr. Kilberg [continuing]. We respectfully disagree.
    Senator Specter. Okay, Mr. Keightley, if you have something 
to say, we will give you an opportunity to say it.
    Mr. Keightley. I would only like to say I continue to stick 
by my opinion and I do not view myself as having made any 
concessions in terms of what we are doing here. We lack the 
statutory authority to allow, as they have requested, a 
termination restoration to provide funding relief for US 
Airways' pension plans.
    Senator Specter. We are not saying you made any 
concessions. You have not made any concessions at all.
    If you said that you were making this judgment as a matter 
of your discretion, or because you think it is a bad plan which 
is coming forward, we could see that. When you say that the 
statute prohibits it, we cannot see that.
    Mr. Keightley. Well----
    Senator Specter. Do you want the last word, Mr. Keightley?
    Mr. Keightley. I just respectfully disagree with that.
    Senator Specter. Oh, I understand that.
    Next panel.
    Thank you all very much.

STATEMENT OF HON. JAMES C. RODDEY, CHIEF EXECUTIVE, 
            ALLEGHENY COUNTY, PA

    Senator Specter. Our first witness is the chief executive 
of Allegheny County, Hon. James C. Roddey. Prior to becoming 
the chief executive of the second biggest county in 
Pennsylvania, in Pittsburgh, he had a distinguished career in 
business as chairman of Turner Communications Corporation, very 
active in civic affairs, a member of many boards including the 
Pittsburgh Regional Alliance, once named Pittsburgh Man of the 
Year, a graduate of Texas Christian University and a former 
captain of the U.S. Marines.
    Mr. Roddey, we appreciate your being here. We thank you for 
all the work that you are doing on so many, many lines and 
following so closely all of the activities of US Airways, which 
is so important to your city, your county, your State, and your 
country.
    The floor is yours, Mr. Roddey.
    Mr. Roddey. Thank you, Mr. Chairman and Senator Santorum. 
Good afternoon.
    I shall practice my latest Beatitude, and that is: Blessed 
are those that are brief, for they shall be invited back.
    I am pleased today to speak about the issue of US Airways. 
First, I want to publicly applaud the pilots, the machinists, 
the flight attendants, fleet service, simulator captains, 
dispatchers, reservation and gate attendant unions for agreeing 
to another $82 million in concessions. All of these unions have 
played an instrumental role in assisting the airline with their 
financial situation.
    US Airways continues to be a vital economic force in 
Allegheny County and Southwestern Pennsylvania. They generate 
approximately $1.6 billion in economic impact in the Pittsburgh 
region and over $2.3 billion to the Commonwealth of 
Pennsylvania.
    I am here today to ensure that they remain a strong part of 
our community by requesting your support for immediate 
assistance to US Airways' bankruptcy plan. If the plan is to 
succeed, the Air Transportation Stabilization Board must 
approve the $1 billion loan guarantee, labor give-backs must be 
realized, and pension-fund issues must be solved.
    The Retirement System of Alabama, which will hold 36.6 
percent of the stock of the post-bankruptcy carrier, must come 
through with the additional investments to which it has agreed. 
Allegheny County has led a regional effort, along with the 
State, to assist US Airways with a new maintenance training 
facility. We were out front in support of the United Airlines 
and US Airways merger.
    I applaud the efforts made by Senators Specter and Santorum 
to permit US Airways to extend the $3.1 billion in payments to 
its employees' pension plan over 30 years. This amount 
represents a gap over the next 7 years between what it will owe 
in pension benefits and how much US Airways' pension fund is 
expected to earn.
    As you are aware, this legislation would have assisted US 
Airways tremendously and would have eliminated the need to pass 
the cost on to the Pension Benefit Guaranty Corporation. 
Unfortunately, last week, passage was prevented because of an 
objection by the Senate Finance Committee. Unless US Airways 
lowers its pension obligation over the next few years, its 
chances of obtaining the $1 billion Federal loan guarantee and 
securing $240 million in new equity financing from the 
Retirement System of Alabama is in serious jeopardy. Therefore, 
if the Retirement System should pull its financing or the 
Transportation Stabilization Board should reject the airline's 
loan application, US Airways would be forced to liquidate.
    Unfortunately, without this legislation, US Airways is down 
to two options for dealing with the underfunded pension 
obligations. They can either go back to the employee unions and 
ask for further benefit cuts or terminate the pension plan, 
which would then be taken over by the Federal Pension Benefit 
Guaranty Corporation, or PBGC.
    I urge the committee to work with the PBGC to resolve this 
problem. I cannot stress enough how important it is to 
Allegheny County and Southwestern Pennsylvania.
    It is imperative that the U.S. Government participate in US 
Airways' reorganization to help ensure a financial turnaround. 
It is important that they sign off on final approval of the US 
Airways loan guarantee and urge the Pension Benefit Guaranty 
Corporation to work with US Airways and their unions to reach a 
solution to the pension issue. Failure to act on these matters 
now will only result in catastrophe if US Airways is forced to 
suspend operations and/or liquidate.
    Please consider that US Airways is the main air connection 
for most of the East Coast, from Maine to Florida, and west to 
the Mississippi River, with no other airline in good enough 
financial condition to be able to step in and fill the gap in 
any reasonable time frame. This would have a negative effect to 
our national economy as well as a devastating impact in the 
Pennsylvania region--in the Pittsburgh region, Pennsylvania, 
and other regions and States served by US Airways. We have 
already lost 20 percent of the US Airways local workforce and 
25 percent of our flights. And shareholders, of course, have 
lost everything. I urge the Federal Government to assist US 
Airways before any further loss to the Pittsburgh region and 
other regions throughout the United States occurs.

                           PREPARED STATEMENT

    I understand that there is risk for the Federal Government. 
However, the loss of US Airways may facilitate even greater 
impact, a domino effect through the airline industry. Either 
the Federal Government takes a risk, a little risk now, to save 
the airline or face paying more later with a greater chance of 
significant negative consequences.
    Mr. Chairman, I appreciate you allowing me to make this 
testimony.
    [The statement follows:]

                 Prepared Statement of James C. Roddey

    Good Afternoon Honorable members of the Appropriations Sub-
Committee on Labor, Health and Human Services, Education, and Related 
Agencies. I am pleased to speak before you today on the issue of US 
Airways.
    First, I want to publicly applaud the machinists, flight 
attendants, reservation, and gate attendant unions for agreeing to 
another $82 million in concessions. All of these unions have played an 
instrumental role in assisting the airline with their financial 
situation.
    US Airways continues to be a vital presence to Allegheny County and 
Southwestern Pennsylvania. They generate close to $1.6 billion in 
economic impact to the Pittsburgh region and over $2.3 billion to the 
Commonwealth of Pennsylvania. I am here to ensure that they remain a 
strong part of our community by requesting your support for immediate 
assistance to US Airways bankruptcy plan. If the plan is to succeed, 
the Air Transportation Stabilization Board must approve a $900 million 
loan guarantee; labor givebacks and pension fund issues must be 
rationalized; and the Retirement System of Alabama (RSA), which will 
hold 36.6 percent of the stock in the post-bankruptcy carrier, must 
come through with the additional investments to which it has agreed.
    Allegheny County has led the regional effort with the state to 
assist US Airways with a new maintenance and training facilities and 
was out front in support for the United Airlines/US Airways merger. 
Now, Allegheny County urges the Senate to support Senators Santorum and 
Specter's efforts to permit US Airways to stretch out $3.1 billion in 
payments to its employee pension plan over 30 years. As you are aware, 
this legislation would assist US Airways tremendously in addition to 
the cost to the Pension Benefit Guaranty Corp. Specifically, this Bill 
would permit US Airways to stretch out its pension obligations from the 
current seven years to 30 years. The airline is estimated to have $3.1 
billion in under-funded pension obligations. This represents a gap over 
the next seven years between what it will owe in pension benefits and 
how much the US Airways pension fund is expected to earn.
    Unless US Airways lowers its pension obligations by $1 billion over 
the next few years, its chances of obtaining a $900 million federal 
loan guarantee and securing $240 million in new equity financing from 
the Retirement Systems of Alabama is in serious jeopardy. Furthermore, 
if the Alabama pension fund should pull its financing or the Federal 
Air Transportation Stabilization Board should reject the airline's loan 
application, US Airways could be forced to liquidate.
    Unfortunately, without this legislation, US Airways will be down to 
two major options for dealing with the under-funded pension fund 
obligations. They can either go back to the employee unions and ask for 
further benefit cuts or terminate the pension plan, which would then be 
taken over by the federal Pension Benefit Guaranty Corp., or PBGC. In 
that case, pilots could face up to a 75 percent cut in their benefits.
    I urge the committee to work with Senators Specter and Santorum to 
make this legislation work. I cannot stress enough how important it is 
to Allegheny County, Southwestern Pennsylvania.
    It is imperative that the U.S. Government participate in US Airways 
reorganization to help ensure a fiscal turn-around. It is important 
that the Senate revisit the proposed merger with United Airlines, sign 
off on final approval of US Airways' loan guarantee, and urge the 
Pension Benefit Guarantee Corp. to allow US Airways to spread their 
pension liability out over the next few years. Failure to act on these 
matters now will only result in catastrophe if US Airways is forced to 
suspend operations and/or liquidate. Remember this it the main air 
connection for most of the East Coast from Maine to Florida and west to 
the Mississippi River with no other airline in good enough financial 
shape to be able to step in and fill the gap in any reasonable 
timeframe. This would continue to have a devastating effect to our 
national economy, as well as the tremendous negative impacts it would 
have in the Pittsburgh region, PA, and other regions and states served 
by US Airways. We have already lost 20 percent of the US Airways local 
workforce. There are 25 percent fewer flights and shareholders and 
local stakeholders have already lost everything.
    I urge the Federal Government to assist US Airways before any 
further loss to the Pittsburgh region and other regions throughout the 
United States is affected. I understand that there is considerable risk 
for the federal government; however, the loss of US Airways may 
facilitate greater impact and a domino effect throughout the airline 
industry. Either the Federal Government pays a little now to save the 
airline or risk paying more later with a greater chance of significant 
and negative consequences.
    Thank you for your time.

    Senator Specter. Thank you very much, Mr. Roddey.

STATEMENT OF DAVID N. SIEGEL, PRESIDENT AND CEO, US 
            AIRWAYS

    Senator Specter. We turn now to Mr. David N. Siegel, 
president and chief executive officer of US Airways. Prior to 
joining US Airways, he was chairman and CEO of Avis Rent A Car 
System, president of Continental Express, received his bachelor 
of arts degree in applied mathematics and economics from Brown 
University and an M.B.A. from Harvard Business School.
    Thank you for joining us, Mr. Siegel, and we look forward 
to your testimony.
    Mr. Siegel. Thank you, Senator Specter and Senator Santorum 
and members of the subcommittee.
    I am David Siegel, president and chief executive officer of 
US Airways. I appreciate the interest of the subcommittee in 
our company's restructuring efforts, and, in particular, the 
restructuring of our employee pension plans, which is the 
specific subject of today's hearing.
    Since joining US Airways in March, the efforts of our new 
management team have been focused on executing a successful 
restructuring that would position our airline for short-term 
survival----
    Senator Specter. Mr. Siegel, let me interrupt you just long 
enough to say that we will not be asking any questions which go 
to propriety interests or any confidential information of US 
Airways in this hearing.
    Mr. Siegel. I appreciate that. That would position our 
airline for short-term survival and long-term success and 
profitability.
    The cornerstone of the restructuring was the Federal 
guarantee of a $1 billion loan from the Airline Transportation 
Stabilization Board, ATSB, created by Congress to respond to 
the industry's financial crisis following the September 11 
attacks. As the subcommittee is aware, US Airways has been 
granted conditional approval of a loan guarantee whose funds 
will be made available after we emerge from Chapter 11.
    The fact that we have $1 billion in new capital available 
to us as exit financing has been invaluable in attracting 
Retirement Systems of Alabama as our new equity partner and 
achieving success with our major lenders, lessors, and 
financial partners. We have committed to a restructuring in 
which we would work closely with all of our labor groups to 
reach consensus on the cost savings and efficiencies that were 
necessary to make our company competitive in a fast-changing 
industry.
    To that end, we have worked to complete a successful 
restructuring that will save as many jobs as possible, preserve 
as much pension and benefit compensation as possible in 
combination with competitive wages and competitive work rules, 
and, most importantly, create a vibrant and viable competitor 
on the east coast.
    That commitment did not mean that this would be a painless 
process. In fact, we have negotiated two rounds of concessions, 
with nine different labor groups, over the past 8 months, an 
achievement most industry executives and analysts would have 
viewed as impossible 1 year ago. But as difficult as this 
process has been, our unions and our employees, to their 
credit, have stepped up and delivered when the company said the 
savings were necessary in order to save the company.
    Of the remaining issues to be resolved is the approximately 
$3.1 billion in pension obligations the company faces over the 
next 7 years as a result of the dramatic drop in both the stock 
market and the interest rates.
    The majority of this obligation is related to the pension 
program for our pilots. In fact, we have committed to the 
unions representing our flight attendants and our mechanics 
that we can work out the funding issues for their respective 
members and will not consider any plan to terminate those 
pension programs. At this point, the pilot pension plan is the 
one at risk of being terminated.
    To their credit, the Air Line Pilots Association has agreed 
to two rounds of significant changes to the pension plan which 
lowers the accrual rates, company contributions, and benefit 
payouts on a go-forward basis. In our initial restructuring 
agreement last summer, pay reductions up to 37 percent allowed 
us to reduce go-forward pension expenses by nearly $600 million 
during the term of the ATSB loan. This, however, was not 
enough. So last month, we reached a second agreement with our 
ALPA group to further reduce labor costs and restructure our 
pilot pension program.
    In spite of the substantial reduction in our go-forward 
pension costs, we must still face the problem of funding 
obligations of the current plan. Unfortunately for us, under 
ERISA, an employee cannot do anything about obligations that 
have already been accrued, and it is the 2004 and 2005 pension 
contributions that are the most troubling for the company.
    The typical way an employer might deal with this problem is 
through a waiver request with the IRS which allows the company 
to postpone the pension-plan payment. In our case, such a 
tactic would only postpone the problem and do nothing to solve 
it. We therefore propose to the PBGC a restoration funding plan 
by which we would amortize and smooth out the $3.1 billion, 
making $300 million per year in contributions in each of the 
next 7 years and then a payment plan for the remaining $1 
billion.
    Unfortunately, after several weeks of negotiations, the 
PBGC has concluded it does not have the legal authority to 
implement this alternative. Accepting our responsibility while 
being fair to our pilots is very important to us and was the 
basis for our proposal to the PBGC. To that end, I have 
personally met with members of the President's Cabinet and 
senior advisors at the White House on this very matter.
    While I respect the PBGC's decision, I cannot say that I 
agree with it. But I have advised ALPA that, for the sake of 
our company's future, we must begin to consider the 
alternatives and work constructively with the PBGC on that 
effort.
    Recognizing that our plan of reorganization and disclosure 
statement is hopefully to be approved by the bankruptcy court 
on January 16, the time we have to resolve this is very short. 
This date cannot be delayed and still allow us to emerge from 
bankruptcy by the end of March. This time line is set by 
requirements of our debtor-in-possession financing as well as 
our credit card processing agreements.
    Last week, our pilots asked us to assist them in getting 
legislative relief to expand the authority of the PBGC. And as 
you know, Mr. Chairman, we willingly agreed to do so. You and 
other Republican Senators introduced S. 119 on January 9, and 
that very evening took it to the Senate floor and sought 
unanimous consent for its consideration. Although an objection 
was heard preventing further action on that measure, I want to 
applaud you and the other sponsors for taking such swift and 
positive steps to protect the pensions of our employees.

                           PREPARED STATEMENT

    While the chairman and ranking member of the Senate Finance 
Committee agreed to hold a hearing before the end of January to 
examine the funding problems U.S. industry has with its 
pensions, any protracted legislative process will simply be too 
late to accommodate the very tight timeline of our emergence 
plan. Our equity sponsor and DIP lender, the Retirement Systems 
of Alabama, as well as the ATSB, expect a resolution to this 
matter within days, not weeks or months.
    Mr. Chairman, I appreciate your interest and support of our 
company's efforts to complete a successful restructuring.
    [The statement follows:]

                 Prepared Statement of David N. Siegel

    Chairman Specter and members of the subcommittee: I am David 
Siegel, president and chief executive officer of US Airways. I 
appreciate the interest of the subcommittee in our company's 
restructuring efforts, and in particular, the restructuring of our 
employee pension plans, which is the specific subject of today's 
hearing.
    Since joining US Airways in March, the efforts of our new 
management team have been focused on executing a successful 
restructuring that would position our airline for short-term survival 
and long-term success and profitability. The cornerstone of the 
restructuring was the federal guarantee of a $1 billion loan from the 
Air Transportation Stabilization Board (ATSB), created by Congress to 
respond to the industry's financial crisis following the September 11 
attacks. As the subcommittee is aware, US Airways has been granted 
conditional approval of the loan guarantee, whose funds will be made 
available after we emerge from Chapter 11 protection this spring. But 
the fact that we have $1 billion in new capital available to us as exit 
financing has been invaluable in attracting the Retirement Systems of 
Alabama as our new equity partner, and achieving success with our major 
lenders, lessors and financial partners.
    We have committed to a restructuring in which we would work closely 
with all of our labor groups to reach consensus on the cost savings and 
efficiencies that were necessary to make our company competitive in a 
fast-changing industry. To that end, we have worked to complete a 
successful restructuring that will:
  --Provide for long-term success
  --Save as many jobs as possible
  --Preserve as much pension and benefit compensation as possible, in 
        combination with competitive wages.
    That commitment did not mean that it would be a painless process. 
In fact, we have negotiated two rounds of concessions with nine 
different labor groups over the past eight months--an achievement most 
industry executives and analysts would have viewed as impossible a year 
ago. But as difficult as that process has been, our unions and our 
employees--to their credit--have stepped up and delivered when the 
company said the savings were necessary in order to save the airline.
    One of the remaining issues to be resolved is the approximately 
$3.1 billion in pension obligations the company faces over the next 
seven years, as the result of the dramatic drop in both the stock 
market and interest rates. The majority of this obligation is related 
to the pension program for our pilots. In fact, we have committed to 
the unions representing our flight attendants and mechanics that we can 
work out the funding issues for their respective members and will not 
consider any plan to terminate those pension programs. At this point, 
the pilot pension plan is the one at risk of being terminated.
    To their credit, the Air Line Pilots Association has agreed to two 
rounds of significant changes to the pilots' pension plan, which lowers 
the accrual rates, company contributions, and benefit payouts on a go-
forward basis. In our initial restructuring agreement last summer, pay 
reductions of up to 37 percent allowed us to reduce go-forward pension 
expenses by $575 million during the term of the ATSB loan. This, 
however, was not enough. So, last month, we reached a second agreement 
with ALPA to further reduce labor costs and restructure the pilot 
pension program.
    In spite of a substantial reduction in our go-forward pension 
costs, we still must face the problem of funding the obligations of the 
current plan. Unfortunately for us, under ERISA, an employer cannot do 
anything about obligations that have already been accrued, and it is 
the 2004 and 2005 pension contributions that are the most troubling for 
the company.
    The typical way an employer might deal with this problem is through 
a waiver request to the Internal Revenue Service, which allows a 
company to postpone the pension plan payment. In our case, such a 
tactic would only postpone the problem and do nothing to solve it. We 
therefore proposed to the Pension Benefit Guaranty Corporation (PBGC) a 
``restoration funding'' plan, by which we would amortize and smooth out 
the $3.1 billion--making a $300 million contribution in each of the 
next seven years, and then a payment plan for the remaining $1 billion. 
Unfortunately, after several weeks of negotiations, the PBGC has 
concluded that it does not have the legal authority to implement this 
alternative.
    Accepting our responsibility while being fair to our pilots is very 
important to us, and was the basis for our proposal to the PBGC. To 
that end, I have personally met with members of the President's cabinet 
and senior advisers at the White House on this matter. While I respect 
the PBGC's decision, I cannot say that I agree with it. But I have 
advised ALPA that for the sake of our company's future, we must begin 
to consider the alternatives, and to work constructively with the PBGC 
on that effort.
     Recognizing that our plan of reorganization and disclosure 
statement is hopefully to be approved by the Bankruptcy Court at a 
January 16 hearing, the time we have to resolve this is very short. 
This date cannot be delayed and still allow us to emerge from 
bankruptcy by the end of March. This timeline is set by requirements of 
our Debtor-in-Possession (DIP) financing and credit card processing 
agreements.
    Last week our pilots asked us to assist them in gaining legislative 
relief to expand the authority of the PBGC and as you know, Mr. 
Chairman, we willingly agreed to do so. You and other Republican 
Senators introduced S. 119 on January 9 and that very evening took it 
to the Senate floor under the unanimous consent calendar. Although an 
objection was heard preventing passage of the measure, I want to 
applaud you and the other sponsors for taking such swift and positive 
steps to protect the pensions of our employees.
    While the Chairman and Ranking Member of the Senate Finance 
Committee agreed to hold a hearing before the end of January to examine 
the funding problems U.S. industry has with its pensions, any 
protracted legislative process will simply be too late to accommodate 
the very tight timeline of our emergence plan. Our equity sponsor and 
DIP-lender--the Retirement Systems of Alabama--as well as the ATSB 
expect a resolution to this matter within days, not weeks or months.
    Mr. Chairman, I appreciate your interest and support of our 
company's efforts to complete a successful restructuring.

    Senator Specter. Thank you very much, Mr. Siegel.

STATEMENT OF CAPTAIN DUANE E. WOERTH, PRESIDENT, AIR 
            LINE PILOTS ASSOCIATION

    Senator Specter. We now turn to Captain Duane Woerth, a 
pilot with Northwest Airlines for 17 years and now president of 
the Air Line Pilots Association. For 5 years, he was a board 
member under Northwest employees stock ownership plan as a 
Boeing 747 captain. Captain Woerth served for 6 years in the 
U.S. Air Force, accumulated over 20 years of active and reserve 
duty, primarily with the Strategic Air Command, and is a 
graduate of the University of Nebraska and holds a master's 
degree from the University of Oklahoma.
    What kind of schizophrenia does that give you on game day?
    Captain Woerth. As long as I have a red sweater on, I am 
okay.
    Senator Specter. I went to the University of Oklahoma for a 
year, Captain Woerth, so I am a little distressed to say that 
you are from Nebraska, too.
    Captain Woerth. We tried to make it up to this year, 
Senator.
    I am Duane Woerth, president of the Air Line Pilots 
Associations, and we represent 66,000 airline pilots who fly 
for 42 airlines in the United States and Canada. And I am 
accompanied by Captain Bill Pollock, chairman of the US Airways 
Pilots in ALPA. And the US Airways pilot group in particular, 
appreciate the opportunity to present this statement in this 
very critical pension-plan funding situation that currently 
exists at US Airways.
    I also want to express ALPA's strong support for S. 119 
that you, Senator Specter and Senators Santorum, Warren, and 
Dole, introduced last week that would provide a special funding 
rule for US Airways.
    Now, ALPA firmly believes that passage of this bill is the 
only solution remaining to prevent termination of the pilots' 
defined benefit retirement plan. Without this relief, the plan 
will terminate and the pilots will lose significant retirement 
benefits. In addition, significant liabilities in the plan will 
be transferred to the Pension Benefit Guaranty Corporation. And 
last and most important, plan termination would also create new 
doubts and uncertainties surrounding the airline's effort to 
reorganize despite the enormous reductions in pay and benefits 
and employment that all of the unions at US Airways have 
reached voluntarily in negotiation with management.
    Now, among these concessions, US Airways pilots have agreed 
to a 33 percent pay cut and significant reductions in their 
work rules, retirement plans, and other benefits, resulting in 
a savings of $643 million per year. As a part of the 
restructuring, the US Airways pilots have also agreed to 
significant reductions in the accrual benefits under the 
retirement plan, which effectively freezes the plan for most 
pilots. This means that a significant percentage of pilots will 
not accrue any additional retirement benefits while they work 
for US Airways.
    Now, in order to retain the loan guarantee from the ATSB 
and to emerge from bankruptcy, US Airways must restructure the 
pension contributions that would otherwise be required over the 
next 7 years under ERISA and the Internal Revenue Code. If it 
cannot do so, it will seek plan termination. The plan 
termination will result in pilots losing up to 75 percent of 
their anticipated retirement benefits because they exceed the 
PBGC guarantees.
    Now, US Airways is facing estimated pension contributions 
of $1 billion in 2004 and $800 million in 2005 for its defined 
benefit plans. Now, the pilot pension obligation, alone, is 
estimated to be $575 million in 2004 and $333 million in 2005. 
Now, these large obligations did not result from the company's 
failure to fund the plan in accordance with the minimal legal 
requirements nor have these enormous obligations resulted from 
increases in retirement benefits. As I just mentioned, the 
pilots have agreed to substantial reductions in their benefit 
accruals. And the large pay cuts they have agreed to also 
reduce their benefits under the defined benefit plan.
    Now, in 1999, the US Airways pilots'--or retirement plan 
had enough assets to cover approximately 97 percent of the 
pension benefit liabilities under the plan. And in 2000, the 
plan was more than fully funded, with assets covering 104 
percent. That was just in 2000. But by 2002, however, the level 
of funded benefits dropped to 74 percent, and it is estimated--
that is, as of January 1, 2003--the plan is only around 50 
percent funded.
    Because the benefit funding level is less than 80 percent, 
so-called deficit reduction funding laws kick in, requiring the 
company to make extraordinary additional pension contributions. 
The company cannot make these large pension payments, at least 
not on the schedule required by current law; hence, our efforts 
here.
    US Airways is not alone in facing astronomical increases in 
pension contributions this year. In 1999 and 2000, defined 
benefit plans sponsored by other airlines were also at or in 
excess of 100 percent funding. But by the end of 2002, they saw 
their funding levels drop significantly.
    It is important to point out that all of these plans met 
the minimum funding requirements. In fact, many of these plans, 
including US Airways' pilot plans, had significant credit 
balances in their funding standards at the beginning of 2002. 
However, several factors--namely, low interest rates and 
abysmal market performance--have contributed to create pension 
funding crises in our country, as reported in The New York 
Times yesterday. Interest rates are at levels not seen since 
the 1960s, and stocks are experiencing their longest and 
deepest bear market since the Great Depression. Employers, and, 
in particular, airline carriers, are now required to contribute 
additional funding to pension plans when they cannot--when they 
can least afford to pay them.
    There has been much discussion lately about whether 
traditional defined benefit plans are the best vehicles for 
American workers. Well, in a country where most workers' jobs 
change on a regular basis, airline employees are somewhat 
unique. For them, seniority, pensions, and other benefits are 
not portable, so they tend to work for the same employer for 
their entire career. And that makes traditional defined benefit 
plans the ideal mechanism for providing a major portion of 
these retirement benefits.
    I would like to kind of cut to the chase and answer some of 
the questions that were raised in other testimony.
    I really believe that what we are faced with right here was 
a perfect storm. US Airways got caught in a perfect storm. Who 
was going to predict the events of September 11? Who was going 
to predict that National Airport was going to get closed down, 
which drastically affected US Airways, infinitely more than any 
other airline. Those circumstances, combined with the economic 
conditions we just described--a stock market that has not been 
like this for decades and decades, interest rates that have not 
been this low for 40 years--these circumstances are not 
forever. And I think that is very important in the 
determination, certainly of the PBGC, but certainly, if they 
will not, of Congress.
    It was described as a slippery slope. I see our industry, 
but this company in particular, at a temporary cliff that can 
be fixed. These are--the reversal of fortune is upon us, and it 
is in the hands of those assembled around here. If US Airways 
emerges from bankruptcy, there has never been a better reversal 
of fortune in the airline industry. This amount of concessions, 
a loan guarantee, this is a reversal of fortune people would 
dream about. So I am--really was lost in some of this debate 
why we cannot go forward here.

                           PREPARED STATEMENT

    I want this airline to restructure. It has done everything 
it can, and I think the pilots deserve to have this pension 
plan preserved and restored. And I am certainly hopeful and 
very respectful of you, Senators Specter and Santorum, for 
willing to support this legislation.
    [The statement follows:]

                 Prepared Statement of Duane E. Woerth

    I am Captain Duane Woerth and I am President of the Air Line Pilots 
Association, International (ALPA) that represents 66,000 airline pilots 
who fly for 42 United States and Canadian airlines. I am accompanied by 
Captain Bill Pollock, Chairman of the US Airways Master Executive 
Council. ALPA, and the US Airways pilot group in particular, appreciate 
the opportunity to present this statement on the critical pension plan 
funding situation that currently exists at US Airways. I also want to 
express ALPA's strong support for S. 119 that you, Mr. Chairman, and 
Senators Santorum (R-PA), Warner (R-VA) and Dole (R-NC) introduced last 
week that would provide a special pension funding rule for US Airways. 
ALPA firmly believes that passage of this bill is the only solution 
remaining to prevent termination of the pilots' defined benefit 
retirement plan. Without this relief, the plan will terminate, and the 
pilots will lose significant retirement benefits. In addition, 
significant liabilities under the plan will be transferred to the 
Pension Benefit Guaranty Corporation (the ``PBGC''). Plan termination 
would also create new doubts and uncertainty surrounding this airline's 
effort to reorganize, despite the enormous reductions in pay, benefits, 
and employment that all the unions at US Airways have reached 
voluntarily in negotiations with management.

                 THE US AIRWAYS PENSION FUNDING PROBLEM

    Having achieved unprecedented contract concessions by ALPA and the 
other labor groups, US Airways is in the final stage of obtaining 
approval of a $1 billion seven year loan guarantee from the Air 
Transportation Stabilization Board (``ATSB'') and approval of a plan of 
reorganization under which US Airways would emerge from Chapter 11 
bankruptcy. A hearing on the adequacy of the disclosure statement 
accompanying the Company's plan of reorganization is scheduled for this 
Thursday. Further action by the ATSB is expected shortly.
    As a result of the unions' concessions and management's efforts, US 
Airways is in a position to emerge from bankruptcy by the end of March 
2003, following confirmation of its plan of reorganization, but only if 
the issue that brings us here today can be resolved. The US Airways 
pilots have agreed to a 33 percent pay cut and significant reductions 
in their work rules, retirement plan and other benefits, all of which 
save the Company $643 million per year. These concessions actually have 
reduced the cost of employing a US Airways pilot by nearly 46 percent. 
Despite this, fourteen hundred US Airways pilots are out-of-work, with 
another 400 expected to be furloughed this year. This actually includes 
pilots who are far from being new hires, and who have up to 15 years of 
service with the Company.
    As part of the restructuring, the US Airways pilots have also 
agreed to significant reductions in the accrual of benefits under the 
pilots' retirement plan, which effectively freezes the plan for most 
pilots. This means that a significant percentage of pilots will not 
accrue any additional retirement benefits while they continue to work 
for US Airways. The danger now is that even benefits that pilots have 
already earned over many years of service will be slashed dramatically 
due to a potential plan termination. A plan termination would result in 
pilots losing up to 75 percent of their anticipated retirement 
benefits, because they exceed the PBGC guarantees. We are here today 
asking your help to protect the US Airways pilots' retirement benefits 
that have already been earned.
    In order to obtain the loan guarantee from the ATSB and to emerge 
from bankruptcy, US Airways must restructure the pension contributions 
that would otherwise be required over the next seven years under ERISA 
and the Internal Revenue Code. If it cannot do so, it will seek plan 
termination. US Airways sponsors defined benefit plans for its pilots, 
flight attendants, mechanics and other employees. The Company is facing 
estimated pension contributions of $1.0 billion in 2004 and $800 
million in 2005 for its defined benefit plans. The pilot pension 
obligation alone is estimated to be $575 million for 2004 and $333 
million for 2005. These large obligations did not result from the 
Company's failure to fund the plan in accordance with minimum legal 
requirements. Rather, the precipitous decline in the equity markets 
combined with the very low current interest rates have driven up the 
Company's funding obligations to unacceptable levels. Nor have these 
enormous obligations resulted from increases in retirement benefits. As 
stated, the pilots have agreed to substantial reductions in their 
benefit accruals, and the large pay cuts they have agreed to also 
reduce their benefits under the defined benefit plan. The Company can 
not make these large pension payments, at least not on the schedule 
required by current law. Additionally, the ATSB has advised the Company 
that it will not approve the loan guarantee if the Company cannot 
restructure these large pension funding obligations coming due over the 
seven year loan guarantee period. Without the loan guarantee, US 
Airways cannot continue to operate.
    Present law contains two methods of allowing employers to 
restructure their pension obligations. However, neither of these 
methods will help US Airways. The traditional funding waiver permitted 
under the Internal Revenue Code and the Employee Retirement Income 
Security Act (ERISA) will not solve the pension funding problem for US 
Airways. The extension of the amortization period for certain unfunded 
liabilities permitted under the Internal Revenue Code and ERISA 
likewise will not help US Airways. Both the PBGC and the IRS have said 
that they do not have the authority to help US Airways in restructuring 
the pension obligation in a manner that would provide adequate relief 
short of plan termination.
    In 1999, the US Airways pilots' retirement plan had enough assets 
to cover approximately 97 percent of the pension benefit liabilities 
under the plan. In 2000, the plan was more than fully funded, with 
assets covering 104 percent of benefit liabilities. By 2002, however, 
the level of funded benefits dropped to 74 percent and it is estimated 
that, as of January 1, 2003, the plan is only 50 percent funded. 
Because the benefit funding level is less than 80 percent, so-called 
``deficit reduction'' funding laws kick in, requiring the Company to 
make extraordinary additional pension contributions.
    US Airways is not alone in facing astronomical increases in pension 
contributions this year. In 1999 and 2000, the defined benefit plans 
sponsored by other airlines were also at or in excess of 100 percent 
funding, but by the end of 2002, saw their funding levels drop 
significantly. In one plan, for example, the funding level exceeded 140 
percent in the year 2000, but is now less than 80 percent. It is 
important to point out that all of these plans, including the US 
Airways pilots plan, met the minimum funding requirements set forth in 
ERISA and Internal Revenue Code. In fact many of these plans, including 
the US Airways pilots plan, had significant credit balances in their 
funding standard accounts at the beginning of 2002. This is an 
indication that they had been funded in excess of the minimum funding 
requirements in prior years. However, current low interest rates and 
abysmal market performance have combined to create a pension funding 
crisis in our country, as reported in the lead story on the front page 
of the New York Times yesterday, January 13, 2003. Interest rates are 
at levels not seen since the 1960s, and stocks are experiencing their 
longest and deepest bear market since the Great Depression. Employers, 
and in particular airline carriers, are now required to contribute 
additional funding to pension plans when they can least afford to pay.
    We are confident that Congress ultimately will enact long-term 
relief. However, U.S. Airways does not have time to wait for such long-
term relief. Given the time constraints of the ATSB and the bankruptcy 
proceeding, the pension funding issue at US Airways must be resolved 
within a matter of a few weeks.
    There has been much discussion lately about whether traditional 
defined benefit plans are the best retirement vehicles from many of 
America's workers. In a country where most workers change jobs on a 
regular basis, airline employees are somewhat unique. They tend to work 
for the same employer their entire careers, making traditional defined 
benefit plans the ideal mechanism for providing a major portion of 
their retirement benefits. While other workers need portability, most 
airline employees need a pension promise they can count on from their 
one and only employer.

                         ALPA'S RECOMMENDATIONS

    ALPA strongly encourages the Senate to pass S. 119. Congress has 
historically recognized the unique circumstances of certain employers 
and has enacted special funding rules for certain employers and certain 
plans. This has been done in the past for LTV, for Greyhound and for 
TWA due to the unique circumstances involved in each case. We feel that 
US Airways is in a unique and deserving situation also. US Airways is 
the largest air carrier east of the Mississippi. It was significantly 
impacted by the events on 9/11 and the resulting extended closure of 
Reagan National Airport. US Airways has successfully positioned itself 
to emerge from bankruptcy within weeks. The ATSB is requiring US 
Airways to resolve its pension funding problem prior to loan approval, 
which would permit the Company to emerge from bankruptcy. Although 
other airlines face high pension contributions in the coming year or 
years, US Airways does not have enough time to wait for a long-term 
solution to this national crisis.
    S. 119 would provide a special minimum pension funding rule for US 
Airways. Under S. 119, the US Airways defined benefit plans would be 
treated as if they had been terminated and then restored as of January 
1, 2003, with the plans' unfunded accrued liability and unfunded 
current liability amortized over a 30-year period. The 30-year 
amortization period is the period currently allowed in the law for 
plans that are terminated and later restored to their sponsors. Such a 
30-year amortization would permit the Company to, in effect, refinance, 
not eliminate, its funding obligations to the plans. This would allow 
US Airways to continue to maintain and fund a significantly less 
expensive retirement plan for its employees. Enactment of S. 119 would 
protect the retirement benefits of US Airways pilots, who would lose 
hundred of millions of dollars in pension benefits that are not 
guaranteed by the PBGC if the plan is terminated. It also protects the 
solvency of the PBGC by providing substantial funding for a plan that 
if terminated, would leave the PBGC with billions of dollars in 
liabilities that will not be recovered in bankruptcy. ALPA strongly 
urges the Senate to enact S. 119.
    In conclusion, Mr. Chairman, I want to thank you for holding this 
hearing on this critical and current topic and for inviting me and 
Captain Pollock to present the views of ALPA and the US Airways MEC. We 
will be pleased to answer any questions that you or other members of 
the Subcommittee might have.

    Senator Specter. Thank you very much, Captain Woerth.

STATEMENT OF CAPTAIN BILL POLLOCK, CHAIRMAN, US AIRWAYS 
            MASTER EXECUTIVE COUNCIL, AIR LINE PILOTS 
            ASSOCIATION

    Senator Specter. Captain Bill Pollock is here, available 
for questions. A US Airways pilot, he serves as chairman of the 
US Airways Air Line Pilots Association Master Executive 
Council, a 17-year veteran of US Airways, holds a captain 
position on the A-320, and flew the P-3 Orion in the U.S. Navy, 
where he served for 21 years in combined active and reserve 
duty. He is a graduate of Norwich University.
    Now, Captain Pollock, of course, we were together earlier 
today in Pittsburgh, and I think the subcommittee would benefit 
from hearing your testimony, so we will ask you to proceed.
    Captain Pollock. Thank you, Senator.
    I do believe that the US Airways pilots do deserve to have 
their day in court, and I am thankful for you and Senator 
Santorum for affording us this opportunity.
    US Airways and its employees have been involved in major 
restructuring efforts to gain ATSB approval for a $1 billion 
Federal loan guarantee. The company and its employees have 
participated in the US Airways restructuring plan to meet the 
conditions for cost savings and revenue enhancement. Now, 
through no fault of labor or the company, the ATSB loan is in 
jeopardy because of what I would call these out-of-the-ordinary 
Federal pension funding requirements.
    The US Airways pilot pension plan is currently underfunded 
due to a combination of events--the effects of September 11, 
2001, the general economy, and the aviation industry, in 
particular, as well as a decline in the stock market and 41-
year-low interest rates. These actions and financial events 
have rapidly created a funding shortfall, and based on US 
Airways' estimate, it must pay over $3.1 billion in retirement 
plans over the next 8 years, or over $1 billion more than would 
be required if not for the precipitous decline in equity 
markets and interest rates.
    US Airways is still working to emerge from reorganization, 
and requires the ATSB loan to provide necessary exit financing. 
US Airways states that it meets--if it meets its current 
pension funding obligations, then that very business plan 
submitted to the ATSB would no longer qualify US Airways for 
that loan.
    The ATSB is requiring that the pension funding issue be 
resolved with the PBGC, which is taking the arguable position 
that we have discussed today, that it does not have the 
authority to help. The PBGC's mission statement says that it 
protects the retirement incomes of American workers' private 
defined pension benefit plans and encourages the continuation 
and maintenance of defined benefit pension plans.
    To help US Airways obtain a 30-year deferred funding 
schedule from the PBGC, our pilots agreed to modify pension 
plan benefits, including reducing the maximum earnings benefit 
by 15 percent. Unfortunately, the PBGC refused US Airways' 
deferred restoration funding solution. And without the PBGC's 
authorization for restoration funding, US Airways employees, on 
top of tremendous job losses in pay and workrule concessions, 
could now be stripped of nearly all their pension benefit, the 
benefit they have spent decades working to earn and often the 
sole basis for their retirement.
    In an industry that has weathered the worst of September 
11's impact, US Airways was impacted the most. One of our 
domicile airports, Reagan National, was closed for a protracted 
period and only gradually reopened. US Airways suffered 
millions of dollars of lost revenue at that fiscally critical 
time. US Airways' restructuring has cost employees thousands of 
jobs, including the jobs of nearly 1,900 pilots.
    US Airways was the first major airline to file for 
reorganization after September 11. US Airways employees have 
provided billions of dollars worth of concessions to win 
conditional approval for an ATSB loan that would be used upon 
emergence from reorganization. Recently, with the industry 
still depressed and the ATSB asking for further cost savings, 
US Airways employees authorized even more concessions.
    US Airways employees have sacrificed a great deal to ensure 
that US Airways would survive and already participated in two 
rounds of concessionary negotiations. During these 
negotiations, the pilots provided the company with the bulk of 
the concessions that are needed to allow US Airways to receive 
approval of the ATSB loan.
    Until our pension issue is solved, however, the ATSB will 
not provide the billion-dollar loan guarantee for which US 
Airways applied and already received unanimous conditional 
approval during the summer. Although our pension benefits are 
insured by the PBGC, that is little consolation to the pilots, 
many of whom have spent their entire flying career at US 
Airways. The PBGC can only pay a limited amount of monthly 
benefits to workers whose plans have been terminated.
    Following the leadership of Captain Woerth, to my right, I 
would like to go right to the chase, as well, on a couple of 
points that were raised earlier. And if you would permit me, I 
would just----
    Senator Specter. Proceed, Captain Pollock.
    Captain Pollock [continuing]. Like the opportunity to jump 
right in.
    Based on a previous speaker, who had recognized that the 
funding laws will need to be changed, I would observe that the 
funding laws have failed. And the very people that the PBGC was 
intended to protect, among the 4,300 pilots of US Airways, the 
horse has left the barn, and that failure, you know, could very 
well come home to roost with this pilot group with a failed 
pension plan.
    Second, another speaker from a previous panel mentioned 
that short-term solutions were the fix to short-term problems. 
And I would submit that this short-term problem of the funding 
of the pension plans in 2004 and 2005 is exclusively, or near 
exclusively, the result of conditions beyond the control of the 
company, Congress, or anyone else. It is a precipitous decline 
in equity markets, values, the asset base of the fund, and 
interest rates.
    What is being contemplated here is a termination of a plan 
with permanent ramifications--more than long-term 
ramifications--permanent ramifications to the pilots that we 
represent for what, in all likelihood, is a short-term problem 
that will be corrected with an improvement in equity markets, 
interest rates, and the general economy.
    Third, there was a question as to the integrity of the plan 
and the precedent-setting potential of some special 
dispensation. And the rhetorical question was raised, How do we 
differentiate? And I would suggest that differentiation could 
be done very much the same way the ATSB differentiates 
different companies or airlines that step before it to get a 
Federal guaranteed loan which assumes risk. That is what we are 
asking the PBGC to do, assume risk. That is what the ATSB has 
to do under their charge. And so, in much the same way the ATSB 
evaluates a business plan and determines whether it is worthy, 
the PBGC could differentiate between different corporations, as 
well. That is a thought.
    Finally, I might have misunderstood the speaker, but early 
on in testimony, there was an assertion that if US Airways was 
to be allowed to defer payments, that there might be some 
competitive advantage to the company. To the contrary, if the 
plan was terminated, there would be a competitive advantage to 
the corporation because the funding requirement would be wiped 
out.
    Now, as much as I want US Airways to be competitive and as 
much as we have contributed a great deal to that very end, I 
would like to see US Airways be left on the hook for our 
pensions, something that they have agreed to do and something 
that would provide the win-win-win solution that we had talked 
about earlier.
    Thank you very much.
    Senator Specter. Thank you, Captain Pollock.
    Mr. Siegel, Senator Santorum and I intend to pursue this 
matter. We had made the unanimous consent request, as you 
noted, on Thursday, and it may be possible for us to bring this 
bill up under so-called rule XIV. And we will be consulting and 
considering the alternatives which we have. And we understand 
the tight timeline that you have.
    If the PBGC adheres to its position, notwithstanding what I 
think is very positive testimony that they have the discretion 
to do differently, and we cannot get a legislative correction, 
does US Airways have any alternative but to terminate the 
pension plan?
    Mr. Siegel. No, we do not. And let me just say that, again, 
it is the position of the company that the PBGC has the 
discretion to grant the relief that we are requesting. We also 
understand it is within their discretion not to do it. So we 
continue to have that difference.
    It is still our preference to have the legislative solution 
to restoration funding, because, as I said earlier, the company 
is not trying to walk away from this obligation. We think that 
the taxpayers of this country win by not having to, either 
directly or indirectly, fund that deficit through the PBGC. We 
think our employees win, because we can preserve our plan. And 
we think that our business plan enables us to, contrary to Mr. 
Kandarian's testimony, not have a solution--a situation where 
the hole gets bigger, but, in fact, closes the gap.
    So I am in agreement with Captain Pollock's testimony, with 
the exception of--I do not think we are asking the PBGC to take 
on risk. I think our plan reduces the risk.
    That said, if we cannot get legislative relief, we have to 
be able to demonstrate to the ATSB, in order to get the 
guarantee and emerge successfully from bankruptcy, that there 
is a funding solution to our pension, and so the company will 
have no alternative but to pursue a distress termination of the 
plan. We are proceeding on that basis as a backup, if you will, 
and working together with our ALPA pilot group and the PBGC on 
some kind of follow-on plan that is----
    Senator Specter. On a distress termination plan, then, does 
US Airways have no further obligations to the pension plan?
    Mr. Siegel. Not to that plan, no. PBGC----
    Senator Specter. But to a new plan which may be instituted?
    Mr. Siegel. Well, the company has, we believe, at least a 
moral obligation, if not a legal obligation, to our pilot group 
to make good on the substantially reduced pension benefits that 
they have agreed to that are unprecedented in our industry. And 
so we would seek to put in place a follow-on plan that was 
acceptable to both the IRS and PBGC that would certainly be 
within their guidelines and limits but also seek to provide a 
benefit to our pilot group. And we have to remember that----
    Senator Specter. So that would call for a contribution from 
US Airways?
    Mr. Siegel. Absolutely. We are absolutely committed to 
doing that.
    Senator Specter. And what would the benefits then be to the 
pilots?
    Mr. Siegel. Well, it is unclear. It depends on the plan 
that is accepted. We would--you have to remember that the--if 
you look at the pilot plan, it has been substantially reduced 
twice. When I mentioned that we had pay cuts up to 37 percent, 
our pilots, specifically in the first round, agreed to that 
kind of dramatic cut on the pay rate on which our pilot group 
retires.
    Senator Specter. So you are saying that there would be a 
pension plan, but it would be a reduced plan, and you cannot 
say exactly now what it would be.
    Mr. Siegel. We would seek to try and put in place a plan, 
when you took it--took the PBGC guarantee, in combination with 
the new follow-on plan, it would seek to replicate the 
economics, not of the original plan, not of the reduced plan 
after the first round of concessions, but the substantially, 
dramatically unprecedented new plan that our pilot group agreed 
to with us in the second round of negotiations.
    Senator Specter. Well, are you saying, then, that the plan 
which was finally agreed to is something that you would 
duplicate by the PBGC's contributions and by the contributions 
which you would make to a new plan?
    Mr. Siegel. The company could not guarantee that we could 
do that. We believe that we could come up with a plan that 
would substantially replicate the economics of that second 
round of concessions that we agreed to with our pilot group, 
when you take the follow-on plan, in combination with the PBGC 
guarantee. And we think that that would--that should be 
acceptable to the PBGC because it is substantially different 
from the original plan.
    Senator Specter. Have you discussed that with the Pilots 
Association?
    Mr. Siegel. We are in discussions with the pilots and the 
PBGC, and we are working on a joint solution to the problem.
    Senator Specter. Captain Woerth or Captain Pollock, would 
you care to comment on the satisfactory or unsatisfactory 
nature of that proposal?
    Captain Woerth. When you are in active negotiations, you 
are trying to reach the answer. But I think we both have good-
faith effort that we will do so, but we have to have--when we 
are asking for the legislative help here if we cannot get PBGC, 
we are not going to use the Nebraska term of ``buying a pig in 
a poke.'' We are going to--we want to negotiate this under 
collective bargaining, and we do not want to agree to a plan 
termination without knowing what a substitute is.
    We are perfectly willing to bargain. We are very pragmatic 
about the situation at US Airways and want it to survive. What 
we are trying to do is negotiate up front, in the open, with 
good faith so nobody is--feels like they are being used or 
tricked here.
    Senator Specter. Captain Pollock, do you have anything to 
add to that?
    Captain Pollock. I would only add just this one thing. Any 
substitute plan will be inferior to the plan we have now.
    Well, two things. The other thing is that, if I am not 
mistaken, the PBGC has oversight of the follow-on plan. So the 
panelist we heard from earlier may have sentiments about the 
nature of the follow-on plan that could very well conflict with 
what we think might be a adequate follow-on plan.
    Senator Specter. Senator Santorum.
    Senator Santorum. I am just trying to understand what looks 
to be--what is happening. Instead of the PBGC taking your plan, 
as you submitted it to them, and not incurring any cost as a 
result of that to the taxpayer, but potentially incurring some 
cost if there are problems down the road with funding your plan 
and there be a future termination.
    In place of that--in place of that scenario, they have 
terminated--they are going to terminate the plan--the plan will 
be terminated. They will incur roughly a half billion dollars 
in current liabilities. There will be a follow-on plan that 
would be acceptable to the PBGC that they will incur some 
responsibility for if there is a problem with that plan in the 
future. Or will they not have that responsibility? Do you know 
the answer to that?
    Mr. Siegel. Yes. The kind of plan that would be acceptable 
to the PBGC is likely to be a defined contribution plan.
    Senator Santorum. So they would not have any liabilities--
PBGC would not have any liabilities?
    Mr. Siegel. Not with respect to the follow-on plan.
    Senator Santorum. Not with respect to the follow-on plan. 
So they are basically taking it--just, again, sort of, looking 
at it, sort of, in a cold way, they are taking the one-time hit 
of a half billion dollars and, without any risk of any future 
liability, in place of taking what they would consider an 
unreasonable risk of future liabilities in the plan that you 
have submitted. That is the way they are seeing it.
    Mr. Siegel. Right. In the restoration plan that we 
proposed, we believe that 50 percent over the 7-year period of 
underfunding--which, again, to Captain Woerth's point, was 
fully funded in 2000 before the stock market implosion and the 
change in interest rates--that 50 percent number would grow to 
70 percent over the 7-year period. So we do not believe, as Mr. 
Kandarian testified, that the hole gets bigger. We think that 
the--we narrow the gap over the 7 years, which is one of many 
reasons we believe that, you know, it is a win-win.
    Senator Santorum. Thank you, Mr. Chairman.
    Senator Specter. Well, thank you very much, gentlemen. I 
think that this has been a very illuminating hearing. I believe 
that when you analyze all of the testimony which has been given 
here, it is plain that there is broad discretion in the PBGC, 
that essentially, when Mr. Keightley comes to the conclusion 
that there is no specific authorization and concedes or says 
that there is no prohibition, there is broad discretion as you 
read that statute, and they have chosen not to exercise that 
discretion. And the one Supreme Court decision supports the 
broad discretion which the corporation has. And that is the 
only deviation in the 20-some years that the PBGC has been in 
operation, so that what you really have here is bureaucratic 
intransigence. That is it, pure and simple.
    There have been massive efforts made, really herculean 
efforts made, by the employees and by the company, by US 
Airways, to solve the problem, and you are continuing to work 
on it as best you can. And there are those of us in Congress--
Senator Santorum and I have been in the lead on it, and others 
will be pursuing it, and we will explore other options to bring 
this testimony to the attention of our colleagues.
    I think the testimony of Mr. Kilberg was very impressive, 
his background, and another prior counsel, Mr. Ford, General 
Counsel of the corporation. And we will proceed.
    But we are determined to do our utmost to see to it that 
the employees of US Airways are treated fairly and that the 
pilots are treated fairly. And we applaud what you have done, 
Captain Woerth and Captain Pollock, and what you are trying to 
do, Mr. Siegel, and what Mr. Roddey is doing.

                         CONCLUSION OF HEARING

    Thank you all very much for being here. That concludes our 
hearing.
    [Whereupon, at 5:17 p.m., Tuesday, January 14, the hearing 
was concluded, and the subcommittee was recessed, to reconvene 
subject to the call of the Chair.]

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