THIS LETTER OF AGREEMENT is made and entered into in accordance with the Railway Labor Act by and between UNITED AIR LINES, INC. (hereinafter referred to as the “Company”) and the ASSOCIATION OF FLIGHT ATTENDANTS – CWA (hereinafter referred to as “AFA-CWA”).
WHEREAS UAL, the Company, and the AFA-CWA previously reached agreement concerning revisions to the 2003 – 2009 Flight Attendant Agreement necessary for the Company to emerge from Chapter 11; and
WHEREAS the United Flight Attendant Defined Benefit Plan has been terminated; and
WHEREAS the AFA-CWA has agreed to modifications to Section 34 of the Flight Attendant Agreement in order to establish a new Defined Contribution Program in the 401(k) Plan and eliminate all requirements under the Agreement for the Flight Attendant Defined Benefit Pension Plan;
THEREFORE the parties to this Letter of Agreement hereby agree to the following:
1. Settlement and Release of All Claims Related to Termination of the Defined Benefit Pension Plan. The AFA-CWA waives any and all claims that the termination of the Flight Attendant Defined Benefit Pension Plan violates the terms and conditions of the 2005 – 2010 Flight Attendant collective bargaining agreement (“Flight Attendant Agreement”) or any predecessor agreement, the Employee Retirement Income Security Act of 1974 (“ERISA”), or any other legal requirement. On the Effective Date of this Letter of Agreement, the AFA-CWA will withdraw with prejudice its opposition to and not otherwise oppose the termination of the Defined Benefit Pension Plan, and will withdraw with prejudice any and all legal, administrative, grievance, or other actions related to the termination of the Defined Benefit Pension Plan (including but not limited to any litigation related to the Company’s settlement agreement with the PBGC and the PBGC’s termination of the Defined Benefit Pension Plan, and Grievances MEC 7-05, MEC 6-05, MEC1-04, and MEC 8-04).
2. Defined Contribution Plan. Effective January 1, 2006, (“Effective Date”) the Company shall establish and maintain a Flight Attendant Defined Contribution Program by changing the current United Airlines Flight Attendant 401(k) Plan (“401(k) Plan”).
a. The Company shall establish a 401(k) deferral account in the 401(k) Plan for each eligible Flight Attendant who does not currently participate in the 401(k) Plan or, upon becoming eligible to participate, for each Flight Attendant who does not elect to make deferral contributions.
b. A Flight Attendant shall become eligible to participate in the 401(k) Plan after she/he has completed training as prescribed by the Company and the Federal Aviation Administration and her/his name appears on the Flight Attendant System Seniority List.
c. For purposes of calculating contributions pursuant to the 401(k) Plan, Earnings (“Earnings”) shall include “Considered Earnings,” as defined in Exhibit C – Profit Sharing Plan, and payments made pursuant to Section 5.J.1. of the Flight Attendant Agreement (Success Sharing – Performance Incentive Program).
d. Certain Flight Attendants may be ineligible to participate, on a tax-deferred basis, in the 401(k) Plan because it is established pursuant to the United States Internal Revenue Code. The Company will seek to establish similar tax-deferred arrangements, in accordance with Exhibit A. Until such plans are established, or where they cannot be economically or legally established, the Company will make a cash payment to each Flight Attendant covered by this paragraph in an amount equal to the sum of the Direct Company Contribution and maximum Matching Company Contribution the Company would have made to the 401(k) Plan on behalf of such Flight Attendant but for the regulatory and economic barriers cited above. Such cash payments will not be included for the purposes of determining the Flight Attendant’s Considered Earnings or for the purpose of determining the Flight Attendant’s compensation under any other employee benefit plan maintained by the Company. The Company shall be under no obligation to establish a tax-deferred arrangement if impossible or impractical to do so.
e. The Company will meet annually to confer with the AFA-CWA about investment options in the 401(k) Plan and review investment performance and Flight Attendant participation.
f. The initial Company contribution to the 401(k) Plan will be made in a single payment as soon as practicable following the Company’s exit from bankruptcy.
g. Subsequent to the initial Company contribution, Company Direct Contributions and Company Matching Contributions will be made on a regular basis, no less frequently than monthly.
h. Section 34 of the Flight Attendant Agreement will be modified to be consistent with the terms of this Letter of Agreement.
3. Direct Company Contributions to the 401(k) Plan.
a. Effective January 1, 2006, the Company will make a direct contribution to the 401(k) Plan each year (the “Direct Company Contribution”). The Direct Company Contribution shall be made in accordance with the following schedule:
1. For Flight Attendants on the System Seniority List on January 1, 2006, the Company will make the following Direct Company Contribution as a percentage of each such Flight Attendant’s Earnings:
Effective 01/01/2006: 2.0%
Effective 01/01/2007: 2.5%
Effective 01/01/2008: 3.0%
2. For Flight Attendants who are hired and placed on the System Seniority List after January 1, 2006, the Company will make the following Direct Company Contribution as a percentage of each such Flight Attendant’s Earnings:
Effective 01/01/2006: 0%
Effective 01/01/2007: 1.0%
Effective 01/01/2008: 2.0%
Effective 01/01/2009: 3.0%
b. A Flight Attendant will not be required to contribute to the 401(k) Plan to receive the Direct Company Contribution.
4. Employee Contributions and Company Match. In addition to the Direct Company Contribution, a Flight Attendant may make contributions to her/his 401(k) Plan accounts on a pre-tax basis to the maximum amount allowed by the Internal Revenue Code.
a. Automatic Deferral. The 401(k) Plan will provide, effective July 1, 2006, for an automatic deferral election equal to 1% of Earnings for each Flight Attendant who has not made a specific deferral election. Each Flight Attendant will have the right, at least forty-five (45) days before the automatic deferral election becomes effective, to elect to opt out of this automatic deferral. For any Flight Attendant who first becomes eligible after July 1, 2006, the effective date of the automatic deferral election will be forty-five (45) days after she/he becomes eligible in accordance with paragraph 2.b. above. A Flight Attendant may change or revoke an automatic deferral election at any time and from time to time.
b. Company Matching Contribution. Effective January 1, 2006, the Company will enhance the 401(k) Plan by providing a Company matching contribution equal to one-hundred percent (100%) of the first three percent (3%) of Earnings that a Flight Attendant contributes to her/his 401(k) Plan account on an annual basis (“Company Matching Contribution”). In order to provide Flight Attendants with a period of transition, from January 1, 2006 through June 30, 2006, Flight Attendants will not be required to make 401(k) contributions in order to receive a three percent (3%) Company Matching Contribution on Earnings from January 1, 2006 through June 30, 2006. On or after July 1, 2006, a Flight Attendant must contribute to her/his 401(k) Plan account in order to receive the Company Matching Contribution.
Examples:
- Flight Attendant defers 3% of Earnings each month. Company matches by contributing an amount equal to 3% of the Flight Attendant's Earnings.
- Flight Attendant defers 1% of Earnings each month. Company matches by contributing an amount equal to 1% of the Flight Attendant's Earnings.
- Flight Attendant defers 5% of Earnings each month. Company matches first 3% by contributing an amount equal to 3% of Flight Attendant's Earnings.
- Flight Attendant defers 12% of Earnings for three months and 0% for the remaining nine months. Company matches by contributing an amount equal to 3% of the Flight Attendant's Earnings for the entire twelve months (assuming constant monthly earnings throughout the entire period).
- After July 1, 2006, Flight Attendant opts out and does not contribute to the 401(k) Plan. Company does not make matching contribution.
c. A Flight Attendant who elects to opt out will not have any compensation deferred into the 401(k) Plan and will not receive the Company Matching Contribution. Despite electing to opt out, such Flight Attendant will continue to receive the Company Direct Contribution to her/his 401(k) Plan accounts in accordance with the terms of the 401(k) Plan.
5.Vesting. Flight Attendants on the System Seniority List on January 1, 2006 shall be one-hundred percent (100%) vested in Direct Company Contributions and Company Matching Contributions to the 401(k) Plan. Individuals who are hired and placed on the System Seniority List after January 1, 2006, shall be subject to the following vesting schedule for Direct Company Contributions and Company Matching Contributions:
| Less than one year of service |
0% |
| 1 year of service but less than 2 |
33% |
| 2 years of service but less than 3 |
67% |
| 3 years or more of service |
100% |
All service with the Company will be counted for purposes of vesting using an “elapsed-time” method of counting service. Forfeitures under the 401(k) Plan will be used to reduce future Company contributions to the 401(k) Plan.
6. Documentation. In conjunction with implementation of the terms of this Letter of Agreement, the Company will provide the MEC President, or designee, with the following documentation in a timely manner:
a. The amended 401(k) Plan document filed by the Company with the Internal Revenue Service (“IRS”);
b. The determination letter issued by the IRS; and
c. A copy of the final 401(k) Plan document upon IRS approval of the Plan.
7. Convertible Notes. The Company will provide for the issuance of UAL Convertible Notes valued at $20,000,000 (or their proceeds, net of standard expenses) to a trust or other entity or entities designated by the AFA-CWA. The terms of the UAL Convertible Notes, will be as described in Exhibit B or with mutually-acceptable modifications to optimize implementation for all parties from an accounting, securities law, employee benefits law and tax law perspective. To the extent permitted by ERISA, or any applicable prohibited transaction exemption that may be issued by the Employee Benefits Security Administration of the U.S. Department of Labor, the Parties will seek to have proceeds of the UAL Convertible Notes contributed to the 401(k) Plan for allocation to participants’ accounts in accordance with the terms of the 401(k) Plan and this Letter of Agreement.
8. Profit Sharing. Section 5.J.2. of the Flight Attendant Agreement shall be modified to provide that Flight Attendants will participate in the revised profit sharing program described in Exhibit C to this Letter of Agreement. AFA-CWA may elect to have profit sharing payments paid into the 401(k) Plan accounts of all Flight Attendants. AFA-CWA will advise the Company of its decision on this matter no later than May 31, 2006.
9. Indemnity. UAL and the Company shall provide indemnification on the Effective Date as described in Exhibit D to this Letter of Agreement.
10. Dispute Resolution. A grievance filed by AFA-CWA alleging a violation of this Letter of Agreement shall, at the request of either party, bypass the initial steps of the grievance process and shall be submitted and heard on an expedited basis directly before the System Board of Adjustment sitting with a neutral arbitrator. The dispute shall be heard by the System Board of Adjustment no later than thirty (30) days following the submission to the System Board and decided no later than thirty (30) days after the conclusion of such hearing, unless the parties agree otherwise in writing. This paragraph shall not apply to disputes covered by the United Air Lines, Inc. Flight Attendant Retirement Board established in Section 34 of the Flight Attendant Agreement.
11. Fees. The Company shall reimburse AFA-CWA for certain fees and expenses in accordance with Exhibit E to this Letter of Agreement.
FOR UNITED AIR LINES, INC:
______________________________
Peter B. Kain
Vice President - Labor Relations
FOR THE FLIGHT ATTENDANTS
IN THE SERVICE OF UNITED AIR LINES, INC.
_____________________________
Patricia A. Friend, International President
Association of Flight Attendants-CWA, AFL-CIO
_______________________________
Gregory E. Davidowitch, President
United Master Executive Council
Association of Flight Attendants-CWA, AFL-CIO