On April 22, 2005, while UAL was still fighting a bankruptcy restructuring, PBGC and UAL entered into a transaction agreement. The basic terms of the agreement called for the termination of UAL`s four pension plans, which were then underfunded by more than $10 billion, and for the settlement of PbGC`s claims against the insolvent airline. In exchange for the payment of its receivables, PBGC received approximately $1.6 billion from the UAL`s bankruptcy in exchange for adrous consideration. As required by law, PBGC shared its recoveries with UAL plan participants. These developments raise questions about the impact of a bankruptcy application on the obligation of a debtor employer to pay pensions and benefits to retired workers under a pre-closing or benefit program. It is generally accepted that the Bankruptcy Act can ease the burden on a debtor who, despite increasingly heavy employment contracts and debts, struggles to recover the profitability of pension benefits, by allowing the debtor to modify or, in some cases, terminate the underlying agreements. However, the options of a debtor company are less understood with respect to a retirement plan that can be critically underfunded, particularly when pension benefits are included in a collective agreement. Here are the options and responsibilities of a debtor and an employer with other federal laws for the rights of retirees, such as the Employee Retirement Income Security Act (“ERISA”). Although the pilot and ground worker retirement plans have already been terminated by the PBGC, the PBGC press release provided sufficient detail indicating that important behind-the-scenes negotiations were held on the final terms of the pensions. Workers played no role in the PBGC/UAL agreement, which would cost retirees dearly over time. Section 365 of the Bankruptcy Code allows a Chapter 11 liquidator or debtor (“DIP”) to accept or reject almost any contract or agreement that did not expire at the time of the insolvency application.
The court will allow acceptance or rejection if it is shown that one of the two measures constitutes a sound assessment of entrepreneurship. Until 1984, it was difficult for the courts to determine whether the same or a higher standard should govern a debtor`s determination to refuse a collective agreement. The U.S. Supreme Court responded to this question in 1984 by deciding in NLRB v. Bildisco- Bildisco that a section 365 collective agreement can be rejected if it has burdened the estate, the actions favour rejection, and the DIP has made reasonable efforts to negotiate a voluntary amendment, without a quick resolution. The PBGC/UAL end-of-pension agreement is a clear example of the government`s attack on workers in that country. The PBGC minimized the damage done to its coffers by exchanging its rights for UAL money at the expense of the voters it claimed to serve. United Airlines used the entire RLA process to postpone a new contract until early 2002.
It took a presidential emergency council to finally break the deadlock in the negotiations. In addition to the wage stagnation imposed by ESOP, the March 14, 2002 agreement increased the full pension multiplier to $87 for mechanics. The current multiplier of $60.04 had been in effect since 1998. The new agreement also reduced the unreased multiplier age from 62 to 60. The agreement would be confirmed by the Bankruptcy Court less than a month later, on May 10, 2005. The provision “ensures that a Chapter 11 debtor employer cannot unilaterally waive its labour obligations, but rather requires that negotiations with the union be conducted in good faith before the refusal can be authorized.” To this end, Section 1113 provides guidance for each proposal submitted by the debtor to the authorized workers` representative.