Member Article

In the United States, a federal judge approved on 10 May 2005 of the plan of United Airlines (“UA”) to terminate four employees’ defined-benefit pension plans and the pension responsibility are shifted to and assumed by the government’s pension insurer, the Pension Benefit Guaranty Corporation (“PBGC”). The decision will have a great impact on pension obligations to 120,000 current and former employees of UA and could have far-reaching implications for the pensions industry worldwide. The move will lead to an estimated saving of US$645 million a year for UA and can greatly strengthen UA’s financial position so that it can emerge from Chapter 11 bankruptcy as soon as possible. In exchange for assuming the pension responsibility, the PBGC will get up to US$1.5 billion in notes and convertible stock in the reorganised UA company. However, the employees will lose a large sum off their pensions because the PBGC would only guarantee about half of the US$10 billion pension fund. The Judge said that the settlement did not violate any law or UA’s collective bargaining agreement and he said that UA’s employees might end up with fewer or even no benefits if no arrangement had been made and the company went broke. As the decision has a huge implication on employees’ pension payments, UA’s labour union is considering legal options regarding an appeal and one should pay close attention to the developments. It is unlikely that a Hong Kong court will adopt the approach for companies in receivership in Hong Kong but it is interesting to note the view of a US court.