The federal Pension Guaranty Benefit Corporation, the quasi-governmental pension insurer, challenged the key portion of United Airline’s new debtor-in-possession financing arrangement in United’s Bankruptcy Court on Friday by asserting that the agreement violates federal-pension law by forbidding the company from contributing to its underfunded retirement plans. Earlier posts on United’s chapter 11 case can be reviewed here.
The PBGC, which is a member of United’s creditors’ committee, appears to have a clear conflict of interest now with most other unsecured creditors of United, who face receiving a greatly reduced dividend — or nothing at all — on their unsecured claims if United has to meet its underfunded pension obligations.
The PBGC alleges that if United terminates the pension plans — which would require the permission of the Bankruptcy Court and the PBGC — it would be on the hook for $6.4 billion. In the event of a termination, the benefits that UAL’s 120,000 workers and retirees would lose would amount to around $2 billion because they exceed the guarantee limits set by Congress.
United also asked the bankruptcy judge on Friday to extend to the end of the year the company’s exclusive right to file a plan of reorganization, meaning it wouldn’t have to compete with other plans filed with the Court by creditors. United’s exclusive right currently expires on Aug. 30.