[Congressional Record Volume 151, Number 74 (Tuesday, June 7, 2005)]
[House]
[Pages H4162-H4164]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                     UNITED AIRLINES PENSION CRISIS

  The SPEAKER pro tempore. Under a previous order of the House, the 
gentlewoman from Illinois (Ms. Schakowsky) is recognized for 5 minutes.
  Ms. SCHAKOWSKY. Mr. Speaker, first of all, I will submit for the 
Record an article in the New York Times entitled, ``Pension Loopholes 
Helped United Hide Troubles.''
  The article, by Mary Williams Walsh, discusses loopholes in the 
current laws that allow corporations to grossly underfund their 
employees' pensions, and to do so legally. They use accounting tricks 
to give the appearance of healthy financial standing; and as Senator 
Grassley says, ``We saw similar practices and events at Enron but, 
unfortunately, this time it is perfectly legal.''
  These companies keep the poor health of their pension funds hidden 
from the public until they decide to terminate them, as United Airlines 
currently is doing. United knowingly underfunded its pension fund as it 
faced bankruptcy, shielding from its workers the truth about their 
retirement futures.
  I would like to share two statements from hard-working people in 
Illinois who are personally affected by pension-accounting sleight of 
hand. These statements are from the more than 2,000 dedicated United 
Airlines employees and retirees who submitted testimony to the online 
hearing that the

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gentleman from California (Mr. George Miller) and I held highlighting 
the United pension crisis and clearly showed just how devastating 
losing one's retirement security can be.
  The first letter is from Joseph Krist, Jr., Schaumburg, Illinois: ``I 
am 68 years old and worked for United Airlines at O'Hare Field as an 
aircraft mechanic from September 1959 until October 2000. I was an 
aircraft mechanic in the United States Air Force from 1954 to 1958.
  ``My job at United Airlines was very challenging. We accomplished 
much work outside in all kinds of weather. In the winter months, if the 
hangars were full, the work was done outside with one man working while 
another would hold a heater on his hands. We worked with all kinds of 
hazardous fluids, which has given me and many of my fellow mechanics 
cancer and other medical problems. My oldest son was a mechanic for 
United for 11 years when he came down with leukemia and died 9 weeks 
later at the age of 34.
  ``Now that the pensions are being dropped by United Airlines, dumping 
it on the PBGC, we will be losing more of the money promised to us. I 
do not live high on the hog. We have two older cars and a 28-year-old 
house in Schaumburg, Illinois, which still carries a $124,000 mortgage 
on it. We presently have this house on the market, as we will not be 
able to afford the mortgage and the real estate taxes with the 
estimated reduction in our pension. How will we pay for the increased 
cost of gas and other living expenses in the years ahead? How will we 
pay for medical insurance, treatments, and prescriptions?
  ``The thousands of people and their families who are being hurt by 
allowing United Airlines to terminate our pensions will surely snowball 
and affect everyone in the country as more companies shirk their 
responsibilities. We need someone to support us and give the retirees 
who sacrificed and dedicated their lives to making this airline and 
country great the money they earned by the sweat of their brow.''
  Another one from Karen Harvey-Kincaid of Streamwood, Illinois, and 
she writes to Congressman Miller:
  ``I have been a United flight attendant for 20\1/2\ years, never 
missing a trip, never being late for check-in. I have truly been the 
friendly skies. I am now 46 years old, not old enough to retire from 
United, and not young enough to start over at another company. The 
truth is I do not want to work anywhere but United. But will I be able 
to afford to work there? I am not talking about the financial toll this 
has taken on me. It's the emotional roller coaster they have put us 
through for the last 2\1/2\ years. I honestly believe my health, 
sleeping, and eating habits have all suffered.
  ``I am now divorced after 12 years of marriage. I didn't take half of 
my husband's pension because I wanted to keep mine. If I only would 
have known. I lie in bed at night worrying if I will lose my house, 
thinking how many more trips can I pick up this month, knowing that I 
am paid $9 per hour less, paying for all of my benefits, losing 
thousands in vacation pay, and now, a reduced pension.
  ``I implore you to use this letter as part of your Congressional 
Record. I have tears in my eyes as I write this. I got up at 4:15 a.m. 
and walked into my house at 7:21 p.m. tonight, after going to San 
Francisco and back. I welcomed and made happy all 694 passengers today. 
I only wish I was welcomed and happy at work.''
  That is again from Karen Harvey-Kincaid from Streamwood, Illinois, 
one of the more than 2,000 people who wrote to tell their personal 
stories, how they are being affected by the loss of their pensions. 
This may only be the beginning, Mr. Speaker, of what we hope will not 
be the opening of a floodgate of companies that want to escape their 
pension responsibilities.

                [From the New York Times, Jun. 7, 2005.]

             Pension Loopholes Helped United Hide Troubles

                        (By Mary Williams Walsh)

       Loopholes in the federal pension law allowed United 
     Airlines to treat its pension fund as solid for years, when 
     in fact it was dangerously weakening, according to a new 
     analysis by the agency that guarantees pensions. That 
     analysis is scheduled to be presented at a Senate Finance 
     Committee hearing today.
       A second report, by the comptroller general, found that 
     most companies that operate pension funds are using the same 
     loopholes. Those loopholes give companies ways--all perfectly 
     legal--to make their pension plans look healthier than they 
     really are, reducing the amount of money the companies must 
     contribute.
       United's pension fund failure is now the biggest since the 
     government began guaranteeing pensions 30 years ago. Most 
     companies are able to keep their pension plans going, despite 
     the chronic, hidden weakness, because they are generating 
     enough cash to meet their obligations to current retirees. 
     Only when a company files for bankruptcy, as United did in 
     December 2002, and terminates its pension plan, as United 
     has, does the government step in and make the plan's true 
     economic condition apparent.
       ``We saw similar practices and events at Enron, but 
     unfortunately, this time it's perfectly legal,'' said Senator 
     Charles E. Grassley, the Iowa Republican who is chairman of 
     the finance committee. He said he had scheduled today's 
     hearing because he wanted to find ways to keep pension 
     disasters like the $10 billion failure at United from 
     happening at other companies.
       ``The rules are full of serious holes that need to be fixed 
     as soon as possible,'' Senator Grassley said. ``No on should 
     make the mistake that this is an airline-only problem. The 
     reality is that companies everywhere have used the same 
     arcane pension-funding rules'' to shrink their contributions.
       Many analysts believe that the federal Pension Benefit 
     Guaranty Corporation will one day require a bailout because 
     it has been forced to pick up a number of large failed 
     private pension plans. The more big defaults there are in the 
     meantime, the more the eventual bailout will cost.
       The federal pension law was enacted in 1974 after a number 
     of scandals in which companies went bankrupt and their 
     workers discovered there was little or nothing set aside to 
     pay the pensions they had been promised. The law was supposed 
     to make pension failures a thing of the past by requiring 
     companies to set aside money in advance--enough each year to 
     pay the benefits the work force earned that year.
       The law also required that if a pension fund got into 
     trouble, its sponsor was to quickly pump in more money, warn 
     its employees about the problem and pay higher premiums to 
     the federal pension insurance program.
       United did none of those things, even as its pension fund 
     withered, because its calculations were making the fund look 
     healthy. The fund is made up of four individual plans for 
     various groups of employees.
       United's calculations followed the letter of the law until 
     July 2004, when the airline announced that it owed $72.4 
     million to its pension fund but would not make the 
     contribution. By that time, the company had filed for 
     bankruptcy protection.
       The $72.4 million would have done little good by then, 
     because the pension guaranty agency told the bankruptcy court 
     that the pension fund had a shortfall of $8.3 billion.
       In its analysis, the Pension Benefit Guaranty Corporation 
     found that in 2002, when United was determining how much it 
     had to contribute to its four plans, it calculated that the 
     plans for its pilots and its mechanics each had more money 
     than needed. It further calculated that the plans for its 
     flight attendants and its managerial workers were close to 
     being fully funded, and did not need any special attention.
       On the basis of those calculations, United, a unit of the 
     UAL Corporation, made no pension contributions that year.
       Those numbers are on file with the Labor Department. But 
     they do not square with the pension numbers United provided 
     to the Securities and Exchange Commission. That agency 
     requires companies to calculate pension values in a different 
     way. At United, that method showed the four pension plans to 
     be only 50 percent funded; that is, they had only half as 
     much money as they needed to make good on United's promises 
     to its workers.
       Pension calculations done for S.E.C. filings have nothing 
     to do with the rules for calculating contributions. But had 
     United been required to use the S.E.C. pension numbers to 
     determine its contribution that year, it would have had to 
     pump money into the plans quickly. The pension law requires 
     companies to make special catch-up contributions any time 
     their pension funds fall below an 80 percent funded level, or 
     even when they fall below 90 percent funded, if they stay at 
     those levels for several years. A plan that was only 50 
     percent funded would be considered a real emergency.
       But the law allowed United to say its pension plans were 
     fully funded, or nearly so, and, therefore, no more money was 
     needed. United's employees were not informed that anything 
     was amiss, as the law requires of badly weakened plans. Nor 
     did United have to pay the higher premiums to the pension 
     guaranty agency that the law expects.
       The discrepancy between a company's pension report to the 
     S.E.C. and the Labor Department is but one example of the 
     problems. At today's Senate hearing, David M. Walker, the 
     comptroller general, is expected to testify that companies 
     have so many ways of tweaking their pension calculations that 
     they almost never have to make the special catch-up 
     contributions that Congress required of plans that are 
     slipping.
       A recent study by the Government Accountability Office, 
     which Mr. Walker runs, examined eight years of records for 
     the nation's 100 largest pension funds, and found

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     that only six plans in the entire group ever had to pay the 
     special contributions in that period.
       For two of the plans, it was already too late by the time 
     the special contributions came due. Years of insufficient 
     contributions had taken their toll, and those plans collapsed 
     and were taken over by the government.
       The G.A.O. study attributes some of the misleading pension 
     math to the use of inappropriate actuarial assumptions in 
     projections and some to a process called ``smoothing,'' in 
     which actuaries attempt to eliminate short-term volatility by 
     spreading changes over several years.
       But the pension agency's analysis of United's case shows 
     that the rules for tracking contributions made in prior years 
     have also caused a great deal of trouble. The rules allow 
     companies that put in more than the required minimum in any 
     given year to keep the excess amount on their books and to 
     use it to offset their required contributions in years when 
     cash is tight.
       These excess contributions from the past are kept in a 
     running tab called a credit balance.
       The trouble is that at United, as at many companies, money 
     contributed in the 1990's was invested in assets that lost 
     value during the bear market that began in 2000. But the 
     pension rules allow companies not only to keep their pension 
     credit balances on the books at the original amount, but they 
     are even permitted to allow their credit balances to compound 
     in value at some interest rate determined by the plan's 
     actuary.
       When United's calculations finally began to show that 
     contributions were quickly needed, in 2003, the airline was 
     able to satisfy the requirement with just a small amount of 
     cash and lots of bookkeeping entries from its credit balance.
       Senator Grassley said he believed many companies were 
     ``booking phony investment gains to hide that workers' 
     pensions are going down the tubes.''
       He said he hoped the hearing would lead to legislation that 
     would eliminate the loopholes that made such maneuvers 
     possible.
       In a later session today, the finance committee is 
     scheduled to hear from executives of some of the major 
     airlines, and from the leaders of some of the unions for 
     airline employees.

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