Asymmetrical Information

Per the Employee Benefits Research Council, there were $10.1 trillion in plan assets in 2002.

Link: http://www.ebri.org/facts/0904fact.pdf

A trillion here, a trillion there...

If that's accurate:
10 trillion in plan assets
10 billion shortage = 0.1%

I'm not an economist or an accountant, but won't the current value of the assets vary by more than that on every update from the stock ticker, and on even the smallest change in interest rates?

But it's reality check time. There are about 44,000 United employees. If there is 10 trillion (10^13) in the pension plan, then there's over 200 million per employee. Joe's source must have slipped a few decimal points. I think about 10 billion assets ($220,000 per employee) sounds much more likely.

No, the Slate article is correct.

From the PBGC's news release (http://www.pbgc.gov/news/press_releases/2005/pr05_36.htm):

"Collectively, United’s pension plans are underfunded by $9.8 billion on a termination basis, $6.6 billion of which is guaranteed, according to the PBGC. The four plans are: the UA Pilot Defined Benefit Plan, which covers 14,100 participants and has $2.8 billion in assets to pay $5.7 billion in promised benefits; the United Airlines Ground Employees Retirement Plan, which covers 36,100 participants and has $1.3 billion in assets to pay $4.0 billion in promised benefits; the UA Flight Attendant Defined Benefit Pension Plan, which covers 28,600 participants and has $1.4 billion in assets to pay $3.3 billion in promised benefits; and the Management, Administrative and Public Contact Defined Benefit Pension Plan, which covers 42,700 participants and has $1.5 billion in assets to pay $3.8 billion in promised benefits."

That's a total of $7.0 billion in assets to cover $16.8 billion in promised benefits, for a shortfall of $9.8 billion.

As I mentioned in an earlier thread, according to United Airlines 2004 annual report as of 12/31/2004 its pension funds had assets of $7.152 (all numbers in billions) and obligations of $13.577 (so were underfunded by $6.425). I suspect the difference between $6.4 and $9.8 is due to the fact that corporations are not forced to account for pensions honestly. Btw in the four years prior to 12/31/2004 United contributed $.382 to its plans while its employees accrued $1.287 in benefits and United amended the plans to increase benefits by $.484 sticking the PBGC (and probably ultimately taxpayers in general) for at least another billion dollars.

The link was to total plan assets nation-wide, not to United's plan. That would be a heck of a plan, though.

I see now that Jane says "United" plan assets; I misread as "U.S." I guess I shouldn't comment before coffee.

Dumb questions:

Do all the (admittedly inadequate) assets of the United pension plan get transferred to the PBGC?
What kind of senior/junior standing do the PBGC claims have in the United bankruptcy arrangements?
Obviously (to me) these claims should be senior to those of the stockholders. How do they line up against other creditors?

Mark,

The pension plan functions almost as a separate company; its assets (a mixture of stocks, bonds, and claims againstUnited) go to the PBCG. The pension plan's claims against United are discharged by (United's) bankruptcy--they are fairly senior unsecured debt, but United has more SECURED debt than assets at this point--so it's unlikely that the PBCG will get any money from United.

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