GRAND RAPIDS — Jim Razmus just took a $53,000 pay cut. The recently retired United Airlines captain and his wife, Shirley, were settling in to retired life at their Rockford-area lakefront home when the news of the Pension Benefit Guarantee Corp.’s takeover of United’s pension plans hit. Razmus, who flew for United for 25 years, saw his defined benefit pension payments drop from $82,000 a year to $29,000 at the most.
“This pension has been part of my employment contract for my whole career,” Razmus said. “It’s part of your compensation. You count on it.”
To make matters worse, the 60-year-old Razmus is caught in a retiree’s no-man’s-land as far as the federal government is concerned. The Federal Aviation Administration requires airline pilots to retire at 60. Federal agencies, including PBGC, recognize 65 as the legal age of retirement. As such, PBGC will dock Razmus up to 35 percent of his benefit for retiring “early.”
“The paltry amount that we would realize — which is a fraction of what we were promised — would be penalized even further for each year we supposedly retire early,” said an active United captain. The pilot, whose employment contract prevents him from speaking on the record to the media, said that he now faces the possibility of starting a second career when he is forced to retire in 2006.
“I’m looking at about $28,000 a year, less the percentage rate,” he said. “When you’re 58 years old, it’s pretty hard to walk away from a six-figure income.”
Although it may be too late for United’s retirees, a number of efforts are currently underway to protect other pilots from the loss of their pensions and to close the retirement-age loophole.
Last week, the Senate finance committee heard testimony from airline officials and representatives of labor unions who urged the legislators to sign into law a bill that would allow the airlines a longer period to fund their pensions.
The “Employee Pension Preservation Act” was introduced in April by West Virginia Democrat Jay Rockefeller and Georgia Republican Johnny Isakson. Under the act, an airline that is forced to cease future accrual (or “freeze”) its pension plans would have 25 years to fully fund the amount it owed employees at the time of the “freeze.” Current law allows two years.
According to Senate testimony from Captain Duane E. Woerth, president of the Air Line Pilots Association International, passage of the bill would be beneficial to all involved: workers, the PBGC, the airlines and consumers.
For the workers, he said, there would be a greater chance of receiving the benefits they had earned throughout their careers. The PBGC would not be saddled with large un-funded liabilities, like the $6.6 billion it absorbed from United. The airlines would have an opportunity to keep their commitments to their employees and stay out of bankruptcy court. Consumers would continue to enjoy the level of service and pricing the major carriers currently provide.
Passage of the bill, according to Woerth, would also prevent the “domino effect” of other “legacy” carriers following United’s lead into bankruptcy in order to “level the playing field.”
The airlines seem to agree. Both Northwest and Delta airlines warned that they will face the risk of bankruptcy (and the subsequent termination of their pension plans) if changes are not made to the pension-funding regulations.
Another bill that is under consideration on Capitol Hill is the Pilots Equitable Treatment Act. This bill, brought by Hawaii Democrat Daniel Akaka, would eliminate the PBGC’s penalty on pilots for “early” retirement.
Yet another bill, this one introduced by Oklahoma Republican James Inhofe, would raise the FAA’s legal pilot retirement age to 65, allowing pilots nearing the current retirement age five more years of top salary-earning potential.
For the younger pilots coming up through the ranks, Razmus has one piece of advice: “Put every penny you can into your 401(k),” he said. “You’re going to need it.”