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Three CEOs of embattled airlines were summoned Tuesday to Capitol Hill to explain their companies’ role in the corporate pension crisis as lawmakers consider reform legislation. Pensions plans at United Air Lines Inc., Northwest Airlines Corp. and Delta Air Lines Inc. are underfunded by a combined $19 billion. Bankrupt United Airlines is responsible for the majority of this figure, since it owes $9.8 billion to its pension plan, which it recently defaulted on. The air carrier has turned its pension plan over to the Pension Benefit Guaranty Corp., the quasi-government agency that backstops corporate pension benefits. United chairman Glenn Tilton testified before the Senate Finance Committee on Tuesday that his airline defaulted on the pension plans as part of a necessary step to emerge from Chapter 11 protection. “Without termination and replacement of pensions, United’s future and the jobs of 62,000 employees would disappear,” he said. “And the pension plans would still be terminated.” In their testimony, executives of United competitors Delta and Northwest did not pile onto their bankrupt counterpart. The CEOs for these two air carriers said unless Congress passes pension reform legislation immediately, they could end up in bankruptcy and will likely unload their pension obligations onto the PBGC as well. “This is the one problem we have that we can’t solve for ourselves,” said Gerald Grinstein, Delta Airlines’ chief executive. “It needs a legislative solution.” Both houses of Congress are readying pension reform legislation. House Education and the Workforce Committee chairman John Boehner, R-Ohio, said he is working with Ways & Means Committee Chairman Bill Thomas, R-Calif., on comprehensive legislation to reform and strengthen the defined benefit pension system. The bill is expected to be ready for introduction in the coming weeks, he has said. But Tuesday, it was the Senate Finance Committee’s opportunity to snatch the spotlight on the issue. “Today, we’re here to look at a tragedy — the bankruptcy of United Airlines and the massive losses in its employee pension funds,” said committee chairman Sen. Charles Grassley, R-Iowa. “The questions we will be asking are simple. How did this happen? Why did this happen? And most importantly, how can we stop it from ever happening again?” Grassley said. “The current pension funding system is broken. We need to fix it,” added Sen. Max Baucus of Montana, the highest-ranking Democrat on the Committee. Meanwhile, the PBGC testified that it, too, is in dire straits. Claims from failed single-employer pension plans totaled $14.3 billion in 2000-2004, the agency said. This represents 70 percent of the $20.6 billion in total claims incurred since Congress set up the insurance program in 1974. The PBGC’s fiscal year-end 2004 deficit increased to $23.3 billion from $11.2 billion a year earlier. “United offers important, albeit painful, lessons that illustrate the flaws in current law and which should guide us in reforming the defined benefit system and pension insurance program,” PBGC executive director Bradley D. Belt testified Tuesday. In January, President Bush unveiled his pension reform proposal that includes three key elements: reforming the funding rules, which govern how much money an employer must put in a pension plan; reforming the premium system; and increasing disclosure to workers, investors and regulators to ensure greater transparency and accountability. The more controversial aspects of Bush’s proposal include increasing the premiums companies pay to the PBGC and removing premium-adjusting authority from Congress. Under the White House proposal, mandatory premiums for companies participating in defined-benefit plans would rise from $19 to $30 per worker. Companies with troubled plans would pay even higher premiums based on the extent that their obligations are underfunded. Copyright �2005 TDD, LLC. All rights reserved.

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