In an earlier blog I mention GM's
pension plan. Most people know that United Airlines is trying to
default on its pension plan. GM might very well join United, but
first it has to enter bankruptcy and that is not an easy choice.
What is going on?
There are two kinds of pension plans:
defined contributions and defined benefits. The terms are self
explanatory. Who makes the contributions is open, the employee or
the company can make the contribution in any proportion. In a defined
contribution plan the payout at retirement depends on the earnings in
the pension portfolio. In the defined benefit plan the payout at
retirement is preset. Companies buy federal insurance for the
defined benefit plans. That is why the government takes over the
plan when the corporation is in bankruptcy.
I couldn't figure out why United was
showing the relief it sought by getting the government to take over
its plan as $9.6 billion, but the government insurer (Pension
Benefit Guaranty Corporation (PBGC) only showed a liability of
$6.6 billion. The answer: the PBGC insurance only covers the first
$45,600 per year of each pension.
Some people will cry for the pilots who will probably take the brunt of this lack of pension coverage. So why are the cabin attendants talking about striking?
