United Airlines: A Warning to GM, Ford and Congress

A federal bankruptcy judge set the stage for the largest corporate-pension default in American history by approving a plan to terminate United Airlines' employee pension plans. The responsibility for United's four defined-benefit pension plans will now be assumed by the Pension Benefit Guarantee Corp., the government's pension insurer.

That will save cash-strapped United an estimated $645 million a year, part of the $2 billion in annual savings it says it needs to line up enough financing to emerge from Chapter 11 bankruptcy as soon as this fall.

The result for United's employees? United's pensions, which were underfunded by $9.8 billion, will now be guaranteed only to the tune of approximately $5 billion. Let this be a lesson to GM and Ford, both of which have large pension problems of their own. If the automotive unions don't adjust their own pay practices, they might be suffering the same fate in a few years.

Finally, let this be a lesson to US Congress if it fails to address its own defined-benefit pension plan, a.k.a. Social Security. Except the underfunded amount would be multiplied by a factor of 1,000.