United's Chapter 11 Includes Wage, Incentives Cuts

December 9, 2002 (PLANSPONSOR.com) - United Airlines' filing for Chapter 11 also includes plans to cut corporate officers' pay by an average 11% and that of salaried and management workers as much as 10.7% depending on salary levels.

Salaried and management employees’ wage reductions will be based on current wages, ranging from 2.8% for employees earning $30,000 or less, up to 10.7% for employees at the highest management salary level. The announced wage reductions are effective December 16, the company said.  

In addition to their wage cuts, all salaried and management employees have given up their planned 2002 merit salary increase and a 2002 incentive payment.

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ESOP Impact

The bankruptcy filing will come at a steep price for the 83,000 employees who currently own 55% of the company. A bankruptcy judge is almost certain to order wage and job cuts and could dissolve the employee stock-ownership plan, or ESOP.

Monday, the day the Chicago-based filed its bankruptcy petition, officials also announced that they will start talks with company unions to see how unionized United workers “will contribute to the company’s cost-control efforts.”

“Filing for Chapter 11 is the means by which we can stem United’s continued losses and get our costs under control so we can transform our company into a more competitive airline,” Glenn Tilton, United’s chairman, president and chief executive officer, said in a statement. “We have said for some time now that reducing labor costs are a critical component of our recovery effort and will need to be implemented as soon as possible.”

Bankruptcy Stats

The Chapter 11 filing was the fifth-largest ever as measured by assets. The previous largest was by Continental Airlines a decade ago.  United listed almost $25.4 billion in assets as of Sept. 30 — more than twice Continental’s when it filed, according to the WSJ.  It is the 11th time a major US airline has filed for bankruptcy since deregulation in 1978, including three times for carrier TWA.

The suburban Chicago-based company has lost $4 billion in the last two years due to a slumping economy, flawed business strategies and the September 11 terrorist attacks. It faced debt payments of $875 million later this week, according to the WSJ.

If At First You Don't Succeed… – 3-

August 24, 2001 (PLANSPONSOR.com) - Wealthier Americans can bridge the "advice gap" by hiring an investment advisor. But few working families can afford such a luxury on their own. Instead, they end up getting their advice from Bob at the coffee shop.

PLANSPONSOR:  What kind of impact will these new competitors have on the advice market?

BOEHNER :  Today there are all these firms out there, making investment decisions which impact the investment returns of many of these 401(k) plans.  And yet these same firms are largely prohibited from sharing that expertise with these same [plan] participants.  I’m optimistic that the additional competition will enhance both the type and quantity of investment advice available to participants.

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One of the phenomena that we have noticed is that despite a growing number of advice offerings, most participants don’t yet seem to be taking advantage.  Of course, we are still early in the product cycle, but do you think the Retirement Security Advice bill will make a difference in participant behavior?

Look, I’m just a congressman.  What may happen in the marketplace is anyone’s guess.  I don’t know that it will – but I’m convinced that the American people, most of the time, get it right.

– Nevin Adams            editors@plansponsor.com

Editor’s note:  Early August, the bill passed the Employer-Employee Relations (EER) Subcommittee by a voice vote.  As we went to press, the bill had attracted 42 co-sponsors from both parties, including nine Democrats.  The current list of co-sponsors includes Rep. Martin Frost (D-Texas), the chairman of the House Democratic Caucus, the third-ranking Democrat in the House, House Majority Leader Dick Armey (R-Texas), House Financial Services Committee Chairman Michael Oxley (R-OH) and Representative Rob Portman (R-Ohio).

The full committee is expected to vote on the bill sometime soon after Congress returns in September.

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