Agreement Q & A

General | Negotiations | 401(k) | 401(k) Options | Convertible Notes

General

Who is eligible to participate in the Defined Contribution Plan?

All Flight Attendants on the AFA System Seniority List are eligible to participate in the Defined Contribution Program.
Who is on the AFA System Seniority List? Does this exclude current Flight Attendants who are on furlough or other leave status?

The AFA System Seniority List includes all Flight Attendants who have completed training and are a current employee of United Airlines. Furlough or other leave status does not exclude a Flight Attendant from the System Seniority List.
What if I am not eligible for a 401(k) account?

United is working to develop and implement 401(k)-like plans that would allow Flight Attendants who are not eligible for a 401(k) account to invest the proceeds from the sale of these Convertible Notes, the Equity Distribution, as well as employee contributions from their own wages, and Company contributions as dictated in the Tentative Agreement, on a tax-deferred basis to the extent possible by law and economics. The Company has already engaged Towers Perrin to explore options and possible plan structures. For those who are currently eligible to participate in the 401(k) but have not yet established an account, an account will be created for you.
If ratified, how long will it be before I receive my contributions?

The first deposit of Company contribution will be made as soon as possible following exit from bankruptcy.
How often will the Company make contributions to my account?

The Company will make Direct and Matching contributions to our Plan accounts once a month or more, if possible.
What is the difference between a Company paid Direct contribution and the Company paid Matching Contribution?

The difference is that Flight Attendants will receive the Company Direct contribution without having to take any action or make any contribution of their own Earnings to a Plan account. The Company Matching Contribution will only be contributed by the Company if Flight Attendants contribution their own Earnings to their Plan account, after the first six months of the Plan.
What happens with the Company Matching Contribution in the first six months of the Plan?

For the first six months of the year, from January 1, 2006 through June 30, 2006, all Flight Attendants will receive the Company Matching Contribution of 3% of Earnings regardless of Flight Attendant participation in the Plan. This means that for the first six months of 2006, whether or not a Flight Attendant defers a portion of their wages into an account, the Company will contribute a total of 5% of a Flight Attendant’s Earnings to his or her Plan account. After July 1, 2006 a Flight Attendant must contribute to the Plan in order to receive the Company’s Matching Contribution.
If this Tentative Agreement is ratified, does that mean I forfeit my guarantee from the Pension Benefit Guaranty Corporation (PBGC)?

No. The PBGC guaranteed pension benefit remains in place and paid to you by the PBGC. Retirees will continue to receive their monthly payments from the PBGC as they do today. If our Agreement is ratified, the total value of our pension going forward would be comprised of the Replacement Plan in combination with the previously accrued pension benefit paid by the PBGC.
What is the "elapsed-time" method of counting service as provided under ERISA and the Internal Revenue Code?

The elapsed-time method counts service from the day you start working as a Flight Attendant to the day you retire. Future Flight Attendants will be required to graduate from United’s new hire training and gain FAA Certification (part of training process) before working as a Flight Attendant on the AFA System Seniority List.
What are the improvements in the Profit Sharing?

The Profit Sharing Program is the same plan for all employees. The program is triggered when the Company makes $10 million in pre-tax earnings. Of those earnings a pool of money is created consisting of 7.5% of pre-tax earnings in 2006 and 15% of pre-tax earnings in years beyond. All employees will receive a distribution of the cash payment based on her or his Considered Earnings.

Members will decide whether to have Profit Sharing payments paid into the 401(k) Plan accounts of all Flight Attendants. The entire group must be treated the same. AFA-CWA will advise the Company of the decision no later than May 31, 2006.
The Agreement includes a provision that pays “fees” to AFA for expenses associated with this Agreement. What does that mean and why is it a part of this Agreement?

These fees are a part of United's expense for the bankruptcy - and we are not the only Union or constituency of the bankruptcy who is reimbursed for fees associated with negotiating a new Contract -- forced under the bankruptcy law. In this case, Flight Attendants are only receiving what other groups of the bankruptcy are receiving.

When United agrees to reimburse AFA (or any Union) for the fees associated with the negotiations and ratification expenses, then that agreement becomes a part of the tentative. Just like any other provision of the tentative, if the agreement is not ratified, this provision does not go into effect.

Negotiations Process

1. Why did our focus change from working to preserve a Defined Benefit Plan to obtaining in a Defined Contribution Plan?

Recognizing the unique challenges we faced in the confines of the bankruptcy and political climate, specifically as it relates to pension plans and other workers rights, it was incumbent upon us to take aggressive, deliberate and strategic action to seek the preservation, restoration and ultimately a replacement for the value of our Defined Benefit Pension Plan. We challenged the destruction of our Defined Benefit Plan through an escalating series of pressure tactics in our CHAOS™ Campaign, our pursuit of a legislative solution, and we challenged every decision before the Courts. We did this in order to provide for the best retirement security possible for all Flight Attendants. Our legal and legislative approach to a solution took time, and it was necessary for us to challenge, on every front, including negotiations, the termination of our plan. Had there been the political will in Washington, DC to stop the devastation of our Defined Benefit Pension Plan (and for millions of other workers as well), or if the Courts were willing to be intellectually honest in their rulings, the discussion about a negotiated solution would not have been necessary.
Why would we agree to settle all claims and certain grievances?

The claims we were litigating resulted in several rulings in favor of the Company and the PBGC. Our best judgment, based on the advice of our attorneys, was that, in light of those earlier rulings, our chances on appeal were not good. Most of the issues in the grievances were either already moot, had limited chances of success, or were addressed in prior negotiations and/or this Agreement. The Company refused to agree to settle the pension dispute without wrapping up these issues. We determined the Defined Contribution Program and the other terms of the Agreement had more value for Flight Attendants than continuing those cases with no replacement plan in place.
Why did it take so long to reach an Agreement?

Negotiations are all about timing. We met with the Company periodically at various times over the past year to push them to negotiate and to gauge their willingness to agree to a more acceptable solution for retirement security then what was originally proposed. The other tracks of our strategy, particularly the lawsuits and appeals filed to pressure the Company to restore our pension plan also took time. When we exhausted all viable remedies within today’s political climate in the Courts and on Capitol Hill, we refocused our efforts on Collective Bargaining.

Through our combined efforts we were able to leverage the situation to produce a replacement plan that provided for a greater benefit than what was on the table when the Company sought to terminate and replace our plan during the concessionary negotiations that led to the 2005 – 2010 Collective Bargaining Agreement.

As often happens, the negotiations began to make progress when the Company started to come up against a deadline: the hearing on its Plan of Reorganization. We were able to use the Company's need to wrap up all remaining issues in time for that hearing as the final piece of leverage to get this deal finished. Could it have been done sooner? Possibly, but without fully exploring the legal and legislative efforts to restore and protect our pension. And, agreeing sooner would have produced terms that were as little as half of what we achieved in this final settlement.
Why was the Company adamant for so long that a Replacement Plan for Flight Attendants would be so much less than what this Agreement provides?

United believed throughout this process that Flight Attendants would not be harmed by a Pension Termination. They used a methodology that assumed Flight Attendants would simply work longer to accrue the same pension benefit. For instance, they attempted to present calculations to the Court that compared the dollar value of a Flight Attendant’s Defined Benefit pension at age 56 retirement, to a replacement Defined Contribution Plan at age 65 retirement. (AFA won Court decision to exclude this filing from Court records.) That comparison misrepresented a 100% replacement of benefits for all Flight Attendants. Hence, part of United’s restructuring charted a replacement plan for Flight Attendants that had a value significantly lower than what we were able to achieve in this Agreement.

While it is true that pension benefit losses will be minimized the longer we work, all of the charts and calculations presented in this Agreement Summary Packet compare a Flight Attendant’s Defined Benefit pension value at age 60 to the Agreement Replacement Plan Benefit value at age 60. In every case, the illustrations reflect a comparison of age, to same age.
Why does the Agreement have a Company Match instead of structuring the entire Replacement Plan with a Direct Contribution?

One of our goals was to maximize the amount of money the Company would contribute to a Flight Attendant replacement plan. Enhancing the Defined Contribution Plan, with a mix of Company Direct and Matching contributions does that. The Company was unwilling to do the entire 5%, escalating to 6%, as a Direct Contribution.

Why? Because the Company bets on the fact that some Flight Attendants might choose not to make employee contributions that qualify for the Company Matching contribution. So, their accountants tell them that 3% in a Matching contribution will cost the Company a little less than a 3% Direct contribution. We also heard from many of you who told us that a United paid Matching contribution was an important element of any possible replacement plan due to the tax benefits associated with an individuals contribution to a 401(k). Our job is to make sure that everyone who is eligible participates to the fullest extent possible.
Why did the Company retain right to use Section 1113 to Terminate our Defined Benefit Pension Plan?

The Company sought Bankruptcy Court approval to retain the right to reject our Contract to eliminate our pension plan under Section 1113 of the Bankruptcy Code because, in the company's view, the cost of restoring our pension plan would risk throwing United back into bankruptcy. We vigorously opposed this motion in Bankruptcy Court, but the judge ruled in the Company’s favor. This will only become a factor if several things happen together:
1. the Agreement is voted down,
2. we win one of the lawsuits seeking to force a review of the termination of our pension plan,
3. the PBGC orders the pension plan to be restored.
As explained in other sections of this Q & A document, it is unlikely we would win the litigation and it is even more unlikely that the PBGC would restore our pension plan. So while the Court retains jurisdiction if the Agreement is not ratified, the chances of United ever invoking Section 1113 of the Bankruptcy Code in this manner are remote.
What happens if this does not ratify?

United would still emerge from bankruptcy, but we would be without a Defined Contribution Program unless and until we could reach an agreement on a new replacement plan. We would attempt to negotiate again, but we would be doing so without the leverage gained with the conclusion of the bankruptcy case. The cold hard reality is that the Company doesn’t really care if we have decent retirement security. It’s just another cost to them, so the incentive for them to make another agreement with us would not be as pressing.

Our action would be to continue along our three-track fight through legal appeal, legislative action and our collective bargaining/CHAOS™ track.
Why are the new hires on a different contribution schedule than current Flight Attendants?

The new hires, by definition, were never covered by our old pension plan and therefore lost nothing when that plan was terminated. The Agreement covers current Flight Attendants who have not yet retired and who have lost their former Defined Benefit Pension Plan. These Members involuntarily lost potential retirement income due to the termination of that plan. With the new terms for the replacement plan we sought to make up that loss to the greatest extent possible. Developing an equitable balance between new hires and incumbent Flight Attendants helped to offset the loss for current Members. At the same time, even though they are phased-in initially, new hires could ultimately have more than 100% of the retirement income than they would have had under the old pension plan. This is because of the combination of the 401(k) funding levels and because they will have more years to participate in the 401(k) than a current Member. Perhaps most important, all Flight Attendants will be on the same schedule of funding by the time we enter Section 6 negotiations and have the opportunity to fight for the pay and retirement security we rightly deserve.
Did our legislative track play a part in the negotiations?

Yes. The momentum built on Capitol Hill through your calls, letters and e-mails to representatives, along with AFA Government Affairs’ frequent contact with Congressional leaders played a substantial role in pressuring United to return to the bargaining table. While the anti-worker political climate did not ultimately produce legislation to preserve or restore our Defined Benefit Pension Plan, our efforts educated lawmakers on the importance of pensions and forced the debate on Capitol Hill. Two of our strongest advocates, Representatives George Miller (D-CA) and Jan Schakowsky (D-IL), led the charge in the House of Representatives to preserve our retirement security. The Congressional on-line United Airlines Pension Hearings in which you participated and the House votes in our favor placed substantial pressure on management. Senators Dick Durbin (D-IL) and Barack Obama (D-IL) worked diligently to get management to take part in meaningful discussions about our pensions. There is no doubt that our legislative efforts made a significant difference in our fight.
Why didn't we strike with CHAOS™?

CHAOS was one of the tools we used to generate leverage in these negotiations. A strike is just one of the possible components of a CHAOS campaign. The CHAOS events around the system helped to keep the negotiations going, even when there was little forward progress. We said from the beginning that we would not put Flight Attendants’ jobs at risk unnecessarily. The pressure and press coverage from our CHAOS events throughout the year created the environment for negotiations to resume. Further negotiations resulted in the Agreement that is now before you for ratification. If the Company had not moved from their earlier proposals we would have had no alternative but to strike. But with this Agreement we believe we have the best deal possible under the circumstances.
Why isn't the agreement retroactive to the date of pension plan termination?

First, there are legal and tax issues with retroactive changes to a Define Contribution Plan. Even assuming those issues could be solved; the Company insisted that there would be no retroactive application of the Defined Contribution Plan. We could have made a deal earlier in the process, but we chose to continue our three-track fight and it produced a much better plan than what the Company had proposed. Had retroactivity been the focal point of preserving our retirement security, we would have agreed to a replacement plan at a lower amount.

Had we settled earlier for a 3 or 4% contribution in order to get those contributions for six months, we would have lost the opportunity to make up that amount quickly and make much more for the long-term with the higher contributions. We could have made that bad deal anytime, instead we chose to fight and now we have a deal that provides a 6% Company contribution – netting us far more than would have resulted from retroactivity.

General 401(k) Information

If you're like most people, you have questions about your 401(k) retirement plan. You might be wondering what is a 401(k) how a 401(k) works.

A 401(k) plan is an employer sponsored retirement plan and is a form of a Defined Contribution Plan. The plan defines the contributions that an employer can make but not the benefit that the employee will receive at retirement.

Companies are prohibited by law from tapping into the money in their employees’ 401(k).

What is a 401(k) retirement plan?

A 401(k) retirement plan is a special type of account funded through pre-tax payroll deductions. The funds in the account can be invested in a number of different stocks, bonds, mutual funds or other assets, and are not taxed on any capital gains, dividends, or interest until they are withdrawn.

The retirement savings vehicle was created by Congress in 1981 and gets its name from the section of the Internal Revenue Code that describes it; section 401(k).
What are the benefits of a 401(k) retirement plan?

There are five key benefits to investing through a 401(k) retirement plan, including: tax advantage, employer match programs, investment customization, flexibility and portability, loan and hardship withdrawals and tax advantage of 401(k) retirement plans. The primary benefit of a 401(k) retirement plan is the favorable tax treatment. Dividend, interest, and capital gains are not taxed until they are disbursed; in the mean time, they can compound tax-deferred inside the account. In the case of a young worker with three or four decades ahead of them, this can mean can mean make a significant difference in retirement security.
Why should I contribute to my account and receive the Company Matching Contribution?

The Matching Contribution provides you with an immediate return on your investment. You are guaranteed a 100% return on your investment of up to 3% of Earnings. Factor in the tax-deferred gains generated by the 401(k) plan, as well as the time value of money and the benefit becomes even greater.

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401(k) Plan Options

Can I transfer money from a previous employer's plan or an IRA?

It depends on what kind of IRA it is that you want to roll over. You cannot roll over a Roth IRA into the 401(k) for instance.
How often can I reallocate the money in my account between investment options?

As often as you want.
Can I access my account via the Internet and if so, how?

Yes, at www.Fidelity.com or www.401(k).com. You will input your Social Security number and pin. You will be asked to create a pin if you have not yet done so. Once on the site, you may also create a different ID number if you do not want to use your Social Security number.
How often will I get a statement that reflects the current status of my account?

You may generate an online statement as often as you wish. If you chose to receive one through the mail, contractually it will be sent on a quarterly basis.
Are loans allowed from the plan?

Yes, loans are allowed from the plan.
Are hardship withdrawals allowed from the plan?

Yes, hardship withdrawals are allowed with the plan, however a participant must avail themselves of the loan provision of the plan first before any hardship withdrawal is allowed.
May I withdraw my contributions to the 401(k) plan without a tax penalty while still working for United?

Yes, if you are at least age 59 and a half. You should talk to your accountant prior to any withdrawal.
Does the plan allow me to make catch-up contributions when I'm age 50 or older?

Yes. If you are age 50 or older the Catch-Up Contribution Limit for 2006 is $5,000 in addition to the $15,000 for a total of $20,000.
What happens to my money if I quit working for this company?

You may leave it with Fidelity, or you are eligible to move it somewhere else. Before doing anything, you should talk to a professional.
If I do leave my account with Fidelity, will I still have access to the loan and hardship provisions of the plan?

No, once you leave United, you will no longer be eligible for the hardship or loan provisions in the Flight Attendant plan. Check with Fidelity for further information.
Who do I contact if I have questions about the plan?

Call Fidelity Investments at from the US 1-800-245-9034, or 1-972-556-1464 from International locations.

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Convertible Notes

Under the terms of the Agreement, United would be required to issue $20 million in “Senior Subordinated Convertible Notes Due 2021” (“Convertible Notes”) to a trust or similar non-permanent vehicle for the benefit of eligible Flight Attendants.

Why does the Agreement include a provision for Convertible Notes?

We insisted that as part of a Agreement, Flight Attendants be compensated in a form which produces cash at the earliest date consistent with the Company’s ability to pay.
What exactly are Convertible Notes?

The Convertible Notes are corporate debt issued by United with a specific interest rate still to be determined, and the Convertible Notes will mature in 15 years. The “convertible” feature means the Convertible Notes can be converted into United stock. That stock can then be sold on the stock market to generate cash, rather than wait for the Convertible Notes to reach maturity in 15 years. The Convertible Notes themselves can be sold to investors who want to hold the Convertible Notes for the interest they will generate, or who want to convert them into stock.
When will the Convertible Notes be issued?

The Agreement requires that the Convertible Notes be issued not later than 180 days after the date United emerges from bankruptcy.
What will happen to the Convertible Notes once they are issued?

The Convertible Notes will be sold as soon as reasonably possible after issuance. Prompt sale turns the Convertible Notes into cash as soon as possible and minimizes the length of time the Flight Attendants’ Convertible Notes are subject to market risk. After the Convertible Notes are sold, the proceeds from the sale will be distributed to Flight Attendants at the direction of the AFA United Master Executive Council (MEC).

The sale of the Convertible Notes will be completed at the direction of the MEC for the Flight Attendant group as a whole; individual Flight Attendants will not have to take any action or determine how or when to sell the Convertible Notes
For how much will the Convertible Notes sell?

It is not possible to predict for how much the Convertible Notes will actually sell. The face amount of the Convertible Notes is $20 million, but that amount is only due at the maturity date in 15 years. The Agreement provides that the interest rate on the Convertible Notes will be set shortly before issuance, based on market conditions at that time, with the objective of ensuring that the Convertible Notes will sell as close as possible to the face amount, although virtually all Convertible Notes sell at some discount.
Who will share in the proceeds from the sale of the Convertible Notes?

Flight Attendants on the AFA System Seniority List as of December 30, 2005 will participate in the proceeds of the sale of the Convertible Notes. The proceeds of the sale of the Convertible Notes will be allocated to each Member’s 401(k) account (or similar). The MEC has not reached a conclusion on how the allocation of proceeds will be distributed to each Member. The MEC is consulting its legal, financial and actuarial advisors before making a final decision.
How much will each Flight Attendant receive from the Convertible Notes?

Under the Agreement, the MEC is consulting its legal, financial and actuarial advisors and is working to determine how the proceeds should be divided up among the eligible Flight Attendants. All discussions in the course of deliberations on the Agreement have contemplated that the allocation formula will take into account the losses Flight Attendants will suffer as a result of the termination of our defined benefit pension plan.
Why hasn’t the MEC decided on the allocation formula already?

The development of a formula is extremely complex and requires the development of significant actuarial data. The MEC has to decide on a fair and equitable distribution methodology by looking at detailed information. We need to fully understand the effects of appropriate formulas before making that determination. Our actuarial consultants are being tasked to develop the data the MEC will need.