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U. S. Pension Update Inter-Alliance Meeting April 7, 2005. Seth Rosen, Industrial Advisor. Pilot Pensions Update. Current Environment Retirement Plan Comparisons Airline Summaries Pension Legislation. The Current Environment. Attacks on Health Care Erosion of Benefits Cost Sharing
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U. S. Pension UpdateInter-Alliance MeetingApril 7, 2005 Seth Rosen, Industrial Advisor
Pilot Pensions Update • Current Environment • Retirement Plan Comparisons • Airline Summaries • Pension Legislation
The Current Environment • Attacks on Health Care • Erosion of Benefits • Cost Sharing • Decline in Defined Benefits • Growth in Defined Contributions • Pension Plans Under Duress • Restructuring, Waivers, Terminations, etc. • Legislative Changes Required
US-ALPA Response and Strategy • US-ALPA Pursuing Legislative Remedies • Bargaining After Educating Membership • Reviewing Plan Design Changes • Protesting Waiver Applications
Pension Update - AAA • USAirways Retirement Plan has now gone to its fourth iteration : • Modified pay first • Modified benefit formula (65% to 50% FAE) • Targeted DC Approach (avg 38% DC rate) • Now @ flat 10% DC Plan • Plus remains of DB Plan paid by PBGC
Pension Update - DAL • Delta Pilot Defined Benefit Plan “soft frozen” ( FAE component can increase but not decrease) • Associated DC Plan frozen, no further 5% Company Contribution • Company Contribution to 401(k) Plan reduced from 3% to 2% • New DC Plan established, 9% of pay spread on a targeted basis, 0 – 19.2% is the range of contributions, new hire DC rate is 10%
Pension Update - UAL • Pilots agree not to contest termination of the Defined Benefit Plan and replace it with additional 6% DC contribution (existing B Plan is now 9% of pay) • Company agrees to 90 day period to explore alternative solution to the A Plan termination (including legislative solutions) • PBGC filed for involuntary termination of Pilot Plan in December 2004 • Judge reverses Company attempt to stop paying non-qualified payments
Pension Update - CAL • Agreement will hard freeze DB Plan and provide DC Plan contributions to a new DC Plan and Variable contributions based on profits to the 401(k) Plan • 7/05 -- 6.75% of pay, 7/06 -- 10% of pay, 6/07 --12.75% of pay • Based on Profit: 9/06 -- 0 to 6% of pay, 9/07 -- 0 to 2.75% of pay, 9/08-- 0 to 2% of pay
Pension Update - Legislation • Permanent solution required • Legislative Outlook (current relief for 2004 and 2005 only). Passenger airlines only. • Depends on your perspective (funding relief vs tougher funding requirements) • ALPA/NWA/DAL legislative outlook • AMR aligned with US ALPA
Pension Update – Legislation • US ALPA proposed legislation would provide funding relief for single employer plans maintained by commercial passenger airlines if plan were “frozen” (hard or soft) • Relief would come in the form of : • Use of higher interest rate used in valuing plan’s unfunded past service liability • Use of a longer amortization period to fund the plan’s unfunded past service accrued liability (up to 25 yrs)
Pension Update – Legislative • PBGC liability limited to amount as if Plan was terminated as of the first day of plan year where relief is given • Any benefit increases would need to be funded immediately • Allows follow on DC Plans – not DB Plans