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…
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
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
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.