Report: US agency erred on United pension values
WASHINGTON—A watchdog report says the agency that insures pensions for millions of U.S. workers made serious errors in valuing pension plans for United Airlines employees and as a result some retirees may have received less than they were due.
The report issued Wednesday by an assistant inspector general of the Pension Benefit Guaranty Corp. found "serious flaws" in the agency's handling of pension plans for about 126,000 United employees.
The agency took over the pension plans in 2005 after United filed for bankruptcy court protection in December 2002.
When the PBGC takes over plans, it pays promised benefits to retirees up to certain limits. The agency on Wednesday acknowledged its "poor work" on the United pensions and said it has taken action to correct problems and redo its valuations.
The agency said in a statement it doesn't yet know how many people were affected by the errors or by how much, but that its policy is to correct "any underpayments regardless of amount." If people were underpaid, the agency said it will pay the amounts due with interest. In cases of overpayment, it said it will reduce future benefits payments gradually, with no interest or penalty required.
The errors and omissions were made by both the pension agency and a consulting firm it hired to work on auditing and processing the United pension plans, according to the report by Assistant Inspector General Joseph Marchowsky.
A key House lawmaker called on the PBGC's board of directors to take immediate action to identify and fix the errors.
"Workers and retirees depend on PBGC to do its job correctly," Rep. George Miller of California, the senior Democrat on the House Education and Workforce Committee, said in a statement. "Over the years, countless workers gave their working lives to their companies and through no fault of their own, were stripped of their retirement plans."
Miller said the agency and its board owe the United employees and retirees "prompt and professional treatment."
United merged with Continental Airlines last year. Chicago-based United Continental is now the world's biggest airline, based on the number of passenger miles flown in 2010.
News of the deficiencies in the agency's handling of the pension plans came a day after the parent of another big carrier, American Airlines, filed for bankruptcy protection seeking relief from crushing debt. AMR Corp. was one of the last major U.S. airline companies that had avoided bankruptcy. Rivals United and Delta had used bankruptcy to shed costly labor contracts, reduce debt and start making money again. They also grew through mergers.
The PBGC's director, Josh Gotbaum, said Tuesday the agency estimates that American Airlines employees could lose $1 billion in pension benefits if American terminates their plans.
When the agency has taken over airline pension plans, "many people's pensions were cut, in some cases dramatically," Gotbaum said in a statement. Therefore the agency always tries first to preserve plans, even after companies enter bankruptcy, he said. "We will encourage American to fix its financial problems and still keep its pension plans," Gotbaum said.
The American Airlines plans, covering nearly 130,000 people, currently have about $8.3 billion in assets to cover some $18.5 billion in benefits, according to the PBGC.