Yesterday’s post mentioned the New York Times story on United Airlines’ delay of contributions to its defined benefit pension plans – allowed because of the peculiar “crediting” system of allowing past contributions to count toward current requirements, even if the assets have evaporated into thin air.
It was an interesting real-life illustration of what the Government Accountability Office discussed in their report on chronic underfunding of these plans. Yesterday, Senate hearings were chaired by Sen. Charles Grassley of Iowa, and an analysis of the United situation was offered by Bradley Belt, the executive director of the Pension Benefit Guaranty Corporation.
According to Belt:
“During the period from 2000 onward, when the true funded status of each of the company’s pension plans was deteriorating and the financial health of the company was becoming more precarious, the company:
* put little if any cash into the plans;
* rarely made a deficit reduction contribution;
* never provided any notices of underfunding to participants; and
* almost never paid a variable rate premium.
Yet the company still could claim that their plans were “fully funded” on a current liability basis.”
You know the rest of the story: United dumped its severely underfunded plans on the PBGC, which is chest-deep in underfunded plans and will need a bailout of its own. Belt pinned the blame not so much on the company, but on the nonsensical rules on “credits” for previous contributions and the smoothing mechanism for averaging pension assets and obligations. (For determining …