Federal pension insurers have agreed with United Airlines' parent,
, to take over all of the bankrupt airline's traditional pension obligations.
The $6.6 billion claim will be the largest for a single company since the federal government established the
Pension Benefit Guaranty Corp.
, or PBGC, in 1974. The largest previous claim was $3.7 billion from Bethlehem Steel in 2003.
The PBGC said the agreement must still win approval of the court overseeing UAL's Chapter 11 bankruptcy. UAL has been trying to free itself from its pension burden in order to exit bankruptcy, but had disagreed with the PBGC over the effective date for its pilots' plan takeover.
The PBGC says UAL's pension plans are underfunded by $9.8 billion, $6.6 billion of which the agency has guaranteed. The four plans cover the following groups: pilots, ground employees, flight attendants and management, administrative and "public contact" employees.
"We believe that this agreement, under the circumstances, is in the best interests of the pension insurance program and its stakeholders," said PBGC Executive Director Bradley D. Belt. "The PBGC has an obligation to reduce its losses for the protection of workers and retirees, other companies that pay insurance premiums, and taxpayers. By reaching a settlement now, we further that goal."
UAL will now have significantly lower costs, which will give it an advantage over rivals such as
Delta Air Lines
, which have underfunded pension plans.
Like UAL, the PBGC is in a perilous financial position. The agency, which functions like an insurance company for defined-benefit pensions, had a $23.3 billion deficit at the end of last September.
By law, the PBGC is required to keep premiums as low as possible and can't tap the U.S. Treasury beyond a $100 million line of credit.
Congress is weighing different pension reform proposals, including one from the White House that several large airlines oppose. A Georgia senator has also introduced a bill they support that would give them more time to make required pension payments.
The PBGC has voiced support for the administration's proposal.
"This again highlights the need for the comprehensive pension reform," Belt said. "Unless and until Congress fixes the rules that allow pension plans to become so underfunded, the insurance program and plan participants are at risk of suffering large financial losses."