Pension Plan Helps IAM in Campaign at US Airways

CHARLOTTE, N.C. ( TheStreet) -- As the Teamsters union seeks to raid mechanics at US Airways ( LCC), the toughest question the union has to answer concerns the impact that a change could have on the mechanics' pensions.

The International Association of Machinists provides members, including 3,500 US Airways mechanics, access to the IAM National Pension Fund, the fifth-largest multi-employer pension fund in the U.S. which has a record of strong performance. By contrast, the biggest Teamster pension plan, the Central States fund, is troubled, although the International Brotherhood of Teamsters said US Airways mechanics would be able to choose among hundreds of other Teamster pension funds if the Teamsters win a union election.

Not only is the IAM fund financially strong but also the IAM has battled to preserve members' access to it, most notably at United ( UAL), which emerged from bankruptcy in 2006 with only IAM-represented fleet service workers and passenger service agents still covered by a defined benefit pension plan. In 2010, United merged with Continental, which provided a corporate defined benefit pension plan to its workers; ongoing contract negotiations will determine the future of that plan.

Three weeks ago, the International Brotherhood of Teamsters announced that it had filed enough signatures with the National Mediation Board to prompt a union election among US Airways mechanics. On Tuesday, the IBT said it had also filed with the NMB for an election among American mechanics, who are represented by the Transport Workers Union. The IBT is not part of the AFL-CIO, which prohibits members from raiding other members.

Pension funding is a controversial issue. Central States, like many corporate plans, is considered to be underfunded, partially as a result of historically low interest rates, which under accounting standards are the basis for computing the future value of the plans. However, even applying these standards, the IAM National Pension Fund is funded at 106%, fund director Steve Sleigh said in an interview.

"We're strong because we have a diverse membership base and we don't have a single concentration from one industry or region," Sleigh said. "We have a very strong contribution base, which is a key thing in these multiemployer funds. Because of our diversification across the country, we continually have new employers joining."

In comparison with corporate funds, the IAM plan has the advantage of taking in corporate contributions monthly. Often, in individual corporate plans, the timing of the funding is not regulated by a union contract, which "creates a lot more volatility for a company," Sleigh said. "Usually, contributions come at the worst time. But every month we take in about $40 million in contributions from employers."

With the stock market rising, the IAM fund's assets recently exceeded $10 billion for the first time. The fund has 250,000 participants including 105,000 active participants. About 85,000 members receive a monthly check, while about 70,000 additional members are vested. Besides the two airlines, key members include Spirit Aerosystems ( SPR), General Dynamics ( GD) and UPS ( UPS), largely a Teamster employer but also home to 2,848 IAM mechanics.

Sleigh said the fund's 2012 return was 16%, compared with 13.4% for the S&P 500. "We look at comparisons to our peers and we always rank in the top 5%," Sleigh said. "You're not going to totally beat the market, but we've done somewhat better. Over the last 30 years we have averaged above an 8% return. We have great trustees from the union and from employers."

Were the Teamsters to defeat the Machinists in a representation election, the airline would cease contributing to the IAM fund. Members would remain vested, as long as they have five years of participation in the fund. But future contributions would go elsewhere.

If the Teamsters sought to introduce a substitute plan, the plan would require the airline's approval. IBT Spokesman Galen Munroe said the union offers plentiful options, including a "defined variable pension" that union negotiators are currently discussing with United. "The Teamsters have hundreds of pension funds," he said. "Once we are the representative, we will work with the US Air mechanics to determine the best option.

"The IAM pension has its own problems, the largest being a declining membership base," Munroe said. Additionally, he said, "there is absolutely no guarantee that the IAM pension will be negotiated into the contract with the merged airline. The critical fact is that it has to be negotiated."

IAM spokesman Joe Tiberi said US Airways fleet service workers, as well as US Airways mechanics, are already in the IAM plan, so as long as they remain in the union they would remain in the plan. By contrast, Tiberi said, no Teamster-represented employee has a defined benefit pension plan at an airline.

The problems of the Teamsters' Central States plan are well-known. Its obligations are only about 60% funded and it is considered to be in "critical" condition by the Pension Benefit Guaranty Corp. "There is a reasonable possibility that this plan could run out of money in about a dozen years," Thomas Nyhan, Central States executive director, said in an April interview with The Wall Street Journal . Unlike underfunded corporate plans, Central States has no apparent funding source; in fact, some employers who are in are trying to get out. In 2008, UPS paid the fund $6.1 billion in return for the ability to withdraw its employees, and Republic Services recently withdrew workers and moved them to a stronger Teamster pension plan.

Munroe said it makes no difference. "The Central States plan is not an option at US Airways so there is no reason to discuss it," he said.

-- Written by Ted Reed in Charlotte, N.C.

>To contact the writer of this article, click here: Ted Reed

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