CHARLOTTE, N.C. (TheStreet) -- US Airways pilots said they are losing out on their rightful pension benefits because they were once required to retire at age 60, but the Pension Benefit Guaranty Corp. won't pay full benefits unless they delay retirement until age 65.
"As pilots approach their federally mandated retirement age, they are finding that the PBGC chooses, for its convenience, to penalize them should they elect to receive their benefits at the retirement age to which they were insured," said Gary Hummel, president of the U.S. Airline Pilots Association, which represents US Airways pilots.
USAPA is aggressively lobbying Congress for a change in the law governing PBGC pension payouts. The campaign has generated more than 8,000 emails to U.S. representatives and senators -- with particularly strong support in North Carolina, where nearly 1,000 USAPA members reside.
In 2003, airlines "were required to pay annual (identical) premiums for each pilot in their employ for a plan that was payable at their normal retire age of 60," said Pete Machtel, vice chairman of USAPA's government affairs committee, and part of a team of pilots that is lobbying this week in Washington.
But after the PBGC took over the plan, it ruled that most pilots would receive 35% less if they retired at age 60 than if they retired at age 65, Machtel said. That was on top of the 50% decline in pilot pension payouts that occurred due to the PBGC's maximum payout rules, he said.
"It is not the restoration of the full benefit that we seek, but rather the elimination of the arbitrary and unethical 35% penalty," Machtel said.
The Air Line Pilots Association previously backed legislation to remove the inequity, which also impacts pilots at ALPA carriers including Delta (DAL) and United (UAL). Machtel said ALPA is now backing the USAPA effort. The bill has languished due to lack of an appropriate vehicle to which to attach it, he said. "The current effort seeks an administrative/executive fix by creating sufficient representational inquiry to the PBGC director."
PBGC spokesman Marc Hopkins said the higher benefit for age 65 retirees is not unique to pilots. Benefits would be reduced by 7% annually, or about 35% in total, for anyone who retires at age 60, he said, noting: "Any person who started a benefit at age 60 would have the same haircut."
In the case of US Airways employees, the equation is also complicated because the agency took over an underfunded plan with "not nearly enough to pay the promised benefits," he said.
Also, PBGC has a maximum benefit. In 1974, the maximum was $750 monthly at age 65; by 2003, it had grown to $3,665 monthly at age 65. The 2003 maximum applies to US Airways employees because their plan was terminated in 2003.
The PBGC benefits formula is set by Congress, not by the agency. Generally, the agency pays the higher of two measures -- the maximum allowable under the law, or the amount that can be provided by the plan's assets.
The US Airways pilot pension plan had about 7,000 participants when it was terminated in 2003, according to the PBGC, while plan assets were valued at $1.2 billion. "PBGC expects to pay $1.7 billion in benefits," Hopkins said. "That means PBGC will pay about a half billion dollars to participants from its insurance funds to make up the shortfall."
Machtel said US Airways pilots had expected to be eligible for pensions of $80,000 annually if they retired at age 60. Instead, those who remained at the carrier are instead eligible for about $28,500 annually at age 60 or $44,000 annually at age 65. "A reduction of $1,283 a month -- that's a mortgage payment," he said.
In 2007, the Federal Aviation Administration upped the mandatory retirement age for pilots to 65. Machtel said the principal impact was to reduce the number of pilots likely to be harmed by the gap between age 60 payouts and age 65 payouts.
Initially, about 14,000 pilots from a variety of legacy airlines were impacted, he said; it is unclear how many of them managed to continue working. Often, medical issues encourage retirements at ages that are earlier than optimal.
At the American Airlines annual meeting on Wednesday, the most contested issue was a change in retiree flight privileges. The carrier has combined US Airways and American employee flight privileges into a first-come, first-served policy that places retirees behind current employees, even new hires, and has upset many retirees. Several voiced their concern at the meeting.