Does the United Airlines' Pension Plans' Termination Increase the PBGC Deficit?

There Is Little Impact Actuaries' Fact Sheet Explains

May 12, 2005, 01:00 ET from American Academy of Actuaries

    WASHINGTON, May 12 /PRNewswire/ -- A fact sheet released today by the
 American Academy of Actuaries explains how the termination of United Airlines'
 (UAL) pension plans as part of its bankruptcy proceedings will impact the
 Pension Benefit Guaranty Corporation (PBGC), the federal agency that insures
 defined benefit pension plans. Contrary to some reports in the media, the
 termination of UAL's pension plans will likely not increase the PBGC's
 projected deficit, and may even help to reduce it.
     "The PBGC already included United Airlines' pension plans as a 'probable
 termination' in its 2004 annual report. That means the termination of the
 plans will have no appreciable impact on the PBGC's deficit," said Ron
 Gebhardtsbauer, senior pension fellow at the American Academy of Actuaries.
 "In fact, the $1.5 billion in securities the PBGC may receive as part of the
 termination agreement could help to reduce the PBGC's deficit."
     According to the PBGC's 2004 annual report, it had a $23.3 billion
 deficit, which included $16.9 billion for probable terminations. "The PBGC had
 the foresight to include the liabilities it has assumed from United Airlines'
 pension plans in its deficit projections," said Gebhardtsbauer.
     The Academy has proposed a series of legislative and regulatory reforms to
 strengthen the defined benefit pension system. For further information go to
 the Academy website at
     The American Academy of Actuaries is the nonpartisan public policy
 organization for the U.S. actuarial profession.  The Academy provides
 independent analysis to elected officials and regulators, maintains
 professional standards for all actuaries, and communicates the value of
 actuarial work to the media and the public.
     The following is the fact sheet on PBGC and United Airlines:
                            PBGC and United Airlines
             How does United's termination affect the PBGC deficit?
     The American Academy of Actuaries(1) Pension Practice Council provides
 this educational fact sheet to discuss recent statements regarding the
 termination of United Airlines' pension plans and the impact that termination
 will have on the financial situation of the Pension Benefit Guaranty Corp
     On May 10, a bankruptcy judge approved United Airlines' request to
 terminate its pension plans. The PBGC will take over the UAL pension plans. In
 return, the PBGC may receive up to approximately $1.5 billion in securities
 for the reorganized airline.
     United's total unfunded accrued benefits: $9.8 billion
     United's unfunded guaranteed benefits: $6.6 billion
     The PBGC does not take on the total amount of unfunded accrued benefits,
 which in United's case is $9.8 billion. It will not pay the $3.2 billion in
 nonguaranteed benefits, which consists of certain benefits above the maximum
 guaranteed and recent benefit improvements that have not be fully phased-in.
 The maximum guaranteed benefit for plans terminated in 2005 is $3801.14 per
 month (or $45,613.68 per year) for a worker retiring at age 65. There is a
 lower guarantee for those individuals who retire early or if there is a
 benefit for a survivor.
      Total unfunded accrued benefits:    $ 9.8 billion
      Non-guaranteed benefits:          - $ 3.2 billion
      Unfunded guaranteed benefits:       $ 6.6 billion
     PBGC's deficit according to their 2004 Annual Report was $23.3 billion,
 which included United's plans
     The PBGC includes, in their deficit, certain probable terminations (i.e.,
 companies for which PBGC anticipates taking over pension plans in the near
 future). In its 2004 annual report, the PBGC included $16.9 billion for
 certain probable terminations, which included United Airlines' unfunded
 guaranteed benefits. Therefore, despite some reports to the contrary, PBGC's
 deficit does not increase with United's termination. In fact, the $1.5 billion
 in securities from UAL could decrease the PBGC deficit.
     1. The American Academy of Actuaries is the public policy organization for
 actuaries of all specialties within the United States. In addition to setting
 qualification standards and standards of actuarial practice, a major purpose
 of the Academy is to act as the public information organization for the
 profession. The Academy is nonpartisan and assists the public policy process
 through the presentation of clear, objective analysis. The Academy regularly
 prepares testimony for Congress, provides information to federal elected
 officials and congressional staff, comments on proposed federal regulations,
 and works closely with state officials on issues related to insurance

SOURCE American Academy of Actuaries