Many are wondering how best to address the problem of the Pension Benefit Guaranty Corporation’s ballooning deficit (now $23.3 billion, up from $11.2 billion in 2003) and the further strain to the system of recent airline bankruptcies. Steven A. Kandarian, Douglas M. Steenland and Duane E. Woerth offer their proposal for a solution in a commentary published in today’s Wall Street Journal entitled “Chapter 11 Doesn’t Fly“:
We believe that the airlines, airline unions and the administration should work together to propose to the Congress a new alternative to the “lose-lose-lose” Chapter 11 approach. This would present an airline and unions with the following new choice: First, management and a union would need to agree collectively to freeze an existing defined-benefit pension plan. Importantly for the PBGC, its liability as guarantor of the plan would be capped as of the freeze date and would decrease over time. Second, the unfunded liability of the frozen plan then would be amortized over a specified time period that would be longer than what current law allows. Here’s where compromise is needed — the PBGC will want a shorter period for the unfunded pension liability to be paid; the airlines will want longer. One thing is clear: The existing pension funding law, particularly the so-called deficit-reduction contribution provisions, so accelerate the funding of significantly underfunded pension plans as to make the freeze option unrealistic absent a longer time period to satisfy the unfunded liabilities. Finally, management and labor would negotiate and agree upon a new, replacement defined-contribution pension plan.
The commentary goes on to note that the proposal would serve the interests of “all stakeholders” in that the airlines would “get to continue their transformation without filing for Chapter 11”, employees would “get the chance to keep hard-earned pension benefits” and the PBGC would be “spared having to step in as guarantor of a terminated pension plan.”
(Mr. Kandarian is the former executive director of the PBGC. Mr. Steenland is president and CEO of Northwest Airlines. Capt. Woerth is president of the Air Line Pilots Association, International.)