Corporations Use Bankruptcy To Dump Workers’ Pensions

You and your family wouldn't dream of filing for bankruptcy, except as a last resort. The new bankruptcy law signed by President Bush in April makes it harder than ever for ordinary individuals to wipe out debt and get a fresh start.

But big corporations? If they get overextended, filing for reorganization under Chapter 11 bankruptcy allows them to renegotiate — or sometimes throw out — their union contracts and dump their pension obligations onto the federal government.

The Pension Benefit Guarantee Corp. (PBGC), set up by Congress in 1974 to insure defined benefit corporate pensions, provides for a maximum pension of about $45,000 a year, and most workers get far less. So many corporations have rushed into bankruptcy that now the PBGC is running its own deficit of $23.3 billion.

Two cases in point: United Airlines and Delphi Corp. United, just now emerging from bankruptcy, dumped the AFA-CWA defined benefit pension onto the PBGC, but ultimately negotiated a new defined-contribution plan with its flight attendants. Delphi, still in the process of presenting its reorganization plan to the court, has said it would not seek to terminate IUE-CWA's pension plan, but the company has not yet reached agreement with its unions on a new cost-cutting contract. While Delphi is hoping for a pension bailout from former parent company General Motors, the threat remains that it could move to dump its pensions onto the PBGC and taxpayers.

Taking Flight
"While we are pleased to be able to offer a replacement plan for the United flight attendants, these kinds of plans will never provide the dignified and secure retirement guaranteed by the defined benefit plan destroyed through the bankruptcy process," said AFA-CWA President Pat Friend.

"It's only because we are a strong union and that we fought back aggressively through the courts and at the bargaining table that we have an agreement that preserves much of the retirement benefit our members could have expected under their original defined benefit plan," said Greg Davidowitch, president of AFA-CWA's United Master Executive Council.

The rash of corporate bankruptcies began in earnest during the 1990s, with the steel and airline industries leading the way. Bethlehem Steel alone unloaded $4.3 billion of pension obligations on the PBGC in 2003.

When United tried to dump its $6.6 billion pension obligations on the PBGC, AFA-CWA filed suit in federal bankruptcy court.

The union lobbied Congress for legislation to bar the PBGC from taking over pension plans before conducting a six-month review. The 18,000 affected AFA-CWA members around the country called their senators and representatives, asking them to support the legislation. They also conducted a CHAOS (Create Havoc Around Our System) campaign, leafleting the public at numerous airports, building support for their position.

"All of this put tremendous pressure on United to bargain a new contract that includes an acceptable pension plan," Davidowich said.

United officially emerged from bankruptcy protection on Feb. 1, and AFA-CWA members at United through Feb. 24 are conducting a ratification vote on a new agreement. The pact replaces their defined benefit plan with a defined-contribution, or 401(k) plan. Flight attendants who contribute to the plan will receive a company match of up to 3 percent along with a 6 percent total company contribution during the contract term. Those vested in the old defined benefit plan will receive pension benefits from the PBGC as well as from the new plan.

"If the agreement is ratified, flight attendants now will receive, on average, 77 percent of what they would have received under the old plan if they retire at age 56," Davidowitch said. "If they work until age 60, they'll get, on average, 98 percent of what they would have received at age 56.

"The system allows corporations to reward the same managers who got the company into trouble in the first place, while sticking it to the workers."

Under the reorganization plan accepted by the bankruptcy court, United's top executives will receive as much as $115 million in stock over the next four years.

On the Skids
Delphi Corp., the largest parts supplier in the auto industry, filed for bankruptcy in October 2005. The company angered IUE-CWA members with a proposal to reward 486 executives with a $110 million compensation package while slashing workers' pay and benefits and ending its pension plans.

IUE-CWA, representing about 8,500 of Delphi's 34,000 workers, joined with the UAW and four other unions in a Mobilizing@Delphi coalition, organizing around the message of "jobs, dignity and community." And they turned out thousands of active members and retirees for a Human Rights Day rally in Dayton, Ohio, on Dec. 8, and for another huge rally Feb. 25 in Warren.

Delphi withdrew its draconian demands on Dec. 19 and sought help from General Motors to lessen the impact of its bankruptcy on workers and retirees. GM guaranteed it would help pay for the pensions of Delphi workers when it split off the parts manufacturer in 1999 and, as the CWA News went to press, Delphi had not formally requested a bailout from the PBGC.

IUE-CWA leaders also have met with GM management and were awaiting a new offer from Delphi at press time.

"The solidarity among our members and the other unions has been tremendous," said Henry Reichard, IUE-CWA Automotive Conference Board chairman.