Flight Attendant Pension Plan Background

Page updated: November 03, 2004

Flight Attendant Pension Plan History and Federal Laws

Negotiating a defined benefit pension plan first became an issue of great importance to us in the 1970s. Prior to that time, we had a voluntary defined contribution plan that allowed us to defer a portion of our earnings to create a pension benefit. When we negotiated a defined benefit pension plan, we exchanged potentially higher wages for a more secure and better pension benefit. As our profession became a career, we understood that a defined benefit pension, requiring one hundred percent contribution from the company, would provide Flight Attendants with a reason to stay and ultimately the ability to leave. It would mean that the more we worked during our career, the greater our pension benefit would be. It would also mean that at retirement age, we would have a guaranteed monthly pension check that would provide us with the financial security to retire. The company benefited with engaged, committed employees who understood that every day of work was not just a paycheck for today, but also a contribution to her or his financial future.

As our pension retirement plan evolved, federal laws came into place that regulate qualified private defined benefit pensions. The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for pension plans in private industry. For example, if your employer maintains a pension plan, ERISA specifies when you must be allowed to become a participant, how long you have to work before you have a non-forfeitable interest in your pension, how long you can be away from your job before it might affect your benefits, and whether your spouse/domestic partner has a right to part of your pension in the event of your death.  ERISA establishes certain minimum standards that companies must satisfy. These minimum standards include minimum funding contributions to the plan so that the plan can cover the benefits due to all of the vested participants. Vested participants of the plan include all active and retired employees with at least five years of service.

Status of Pension Plans during United Airlines’ Bankruptcy

United has met the minimum standards to our pension plan throughout its existence and in some cases the corporation has far exceeded minimum funding targets. Only a few years ago, our pension plan was funded to a level that provided United with credits in funding for the following years. However, because of the downturn in the economy and the financial condition underlying United's bankruptcy filing, our pension plan fell below minimum levels in a very short period of time. When the Air Transportation Stabilization Board (ATSB) first denied United’s loan guarantee in December of 2002 and citing future pension obligations as one of the four key issues in its denial of the loan, we all became aware that employee pension plan minimum funding targets may be in jeopardy.

During the Section 1113(c) process which resulted in the Restructuring Agreement in the Spring of 2003, AFA received membership feedback through surveys, e-mails, phone calls, and Local Meetings that strongly indicated that pensions were a priority issue for our Membership. Still, United demanded changes to our pension plan as part of the cost saving agreement. The Restructuring Agreement altered our defined benefit pension plan from a career earnings plan to a final average earnings plan. This change, coupled with the decrease in wages, meant that United’s pension funding obligations were dramatically reduced because Members at retirement age on average would not be able to accrue a greater pension benefit for at least six years, if not for the rest of their careers. It is important to note that ERISA provided that any vested participant in the plan on June 30, 2003 would have that accrued pension benefit under the career earnings plan “frozen” and guaranteed upon retirement age – subject to the Pension Benefit Guaranty Corporation maximums should the plan be terminated. Ultimately, the changes to our Flight Attendant pension plan through the Restructuring Agreement meant an average annual cost savings for United of $45 million, mostly affecting Flight Attendants at retirement age.

Despite the changes, pension funding again became an issue in late 2003 as United would have been required to make additional “catch up” payments called deficit reduction contributions (DRCs). Thanks to a massive lobbying effort coordinated by AFA Government Affairs with other United employees, we were able to gain the support from Congress to enact the Pension Fund Equity Act of 2004 . This Act provided United some relief from DRCs, resolved the pension issue under the ATSB loan guarantee application and ostensibly preserved the security of our pensions. In late June 2004 the ATSB, however, again denied United's application for a loan guarantee.

As United secured additional debtor-in-possession (DIP) financing, attention focused on pension plans. Management at that time stated that extended financing would require skipping minimum pension payments through the duration of bankruptcy. A court hearing revealed that the DIP agreement did not prohibit the company from making its minimum pension funding contributions. Instead the company asserted that not making these contributions was simply a prudent business decision. Since that August court hearing, Glenn Tilton and other United executives repeatedly stated that termination of our pensions is likely and has set United on a course to terminate plans and seek additional concessions.

As we state earlier in our letter:

“One such concession that the company has identified as a likely candidate is the termination of our pension plans. It is therefore important that we all understand what our pensions mean to us. The belief that termination of our pension plan only affects those of us at retirement age or Flight Attendants who intend to work at United until retirement age is not correct. It is those of us who are furthest away from retirement that could potentially lose the most. On the other hand, management would have us believe that termination of our pension plan will have a minimal impact upon the benefits we would otherwise receive. To test the validity of that claim we must be armed with the facts.”

This mailing provides each Member with instructions to determine the facts about your pension benefit.

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