FAQs about Pension Plan Termination and Payment of Benefits
Pension Plan for Flight Attendants in the Service of US Airways
by Mary Lou Savage, Senior Benefits Attorney
Association of Flight Attendants

1. I received the letter from the Company, dated November 12, 2004, stating that the Pension Plan was going to be terminated. Does this mean I won't get my pension?

No. Everyone with a vested pension benefit will receive all or a large part of their expected pension. There is a large amount of money in the pension trust and this money can be used only to pay pension benefits and reasonable and appropriate administrative expenses of the plan. To the extent that there is not enough money in the plan to pay all vested benefits under the plan, your pension is guaranteed by the Pension Benefit Guaranty Corporation ("PBGC").

The PBGC is the federal government agency that insures and protects defined benefit pension plans sponsored by private employers. The Pension Plan for Flight Attendant in the Service of US Airways (the "Pension Plan" or the "Plan") is a defined benefit plan because it promises to pay a specified amount each month at retirement according to a formula based on three factors - final average earnings, years of service, and a multiplier.

2. Why would PBGC assume responsibility for the pensions of US Airways' Flight Attendants?

US Airways is under bankruptcy protection and has filed an application to end the Pension Plan under the "distress termination" provisions of a federal statute - the Employee Retirement Income Security Act of 1974 ("ERISA"). PBGC is expected to determine that the Pension Plan meets the legal criteria for such a termination. Assuming bankruptcy court approval, the Pension Plan would be terminated and the PBGC would take over responsibility for and administration of the Pension Plan. The method of plan termination, the transfer of plan assets and records to the PBGC, and the payment of plan benefits are governed by ERISA and federal regulations. The termination notice states that the Plan will terminate on January 10, 2005 or such later date as stated in an additional notice to you.

3. Does the Pension Plan have enough money to pay all benefits?

No. The Pension Plan does not have enough assets to cover all the projected benefit liabilities under the Plan. The PBGC will be liable for the shortfall. Even though there is a shortfall in Plan assets, the PBGC's insurance program will protect the basic pension benefits of all US Airways' Flight Attendants who have a vested benefit under the Plan. PBGC will use the assets of the Plan as well as PBGC's own funds to pay pension benefits to current and future retirees, up to certain legal limits. PBGC pays benefits according to the Plan provisions, subject to ERISA requirements and PBGC regulations and policies. US Airways' Flight Attendants will receive the benefits they earned up to the date the plan ended, subject to those limitations.

4. Does the PBGC use taxpayers funds to pay pension benefits?

No. The PBGC charges premiums for each participant covered by a defined benefit pension plan. In addition, the PBGC gets all the pension funds in the trust accounts of the pension plans that it takes over. PBGC invests all these funds and uses these monies to cover the shortfall between pension plan liabilities and pension plan assets for the plans it administers. Even so, the PBGC is running at a deficit now. It has sufficient assets to pay plan benefits for years to come but some changes to pension statutes is needed. The PBGC will be asking the next session of Congress for legislation to allow it to charge higher premiums and to make changes in the funding rules and other parts of pension law to strengthen the PBGC and pension plans in the future. 

5. When will the Pension Plan end?

The Company has served the formal notice to the PBGC required by ERISA that it intends to terminate the Plan. The date of plan termination is stated as January 10,2005 in the notice. Assuming the PBGC and the bankruptcy court give their approvals, the Pension Plan will terminate on that date. If the date of plan termination is later than January 10, 2005, you will get another notice stating the new date.

6. What benefits does PBGC guarantee?

PBGC guarantees (i) monthly pension benefits beginning at normal retirement age, which is considered to be age 65, (ii) certain early retirement benefits, and (iii) annuity benefits for survivors of plan participants. Federal pension law limits the type and amount of benefits that PBGC guarantees. For example, PBGC's guarantee of monthly pension amounts is limited to a maximum dollar amount that is determined each year based on a formula set out in ERISA. PBGC's guarantee of any benefit improvement created in a plan amendment made within five years of the termination date is limited and phased in and temporary supplements to a pension benefit generally are not guaranteed.

The PBGC guarantees only those benefits provided for in the pension plan. It does not guarantee health and welfare benefits, severance and vacation pay, life insurance, and other nonqualified benefits.

The monthly guaranteed maximum amounts by age for plans terminating in 2005 is set out at the end of these FAQs. This chart will apply to benefits under the Pension Plan regardless of when the payments began or will begin.

7. Are the higher pension payments in the level income option prior to the social security offset an early retirement payment or a "supplement" that would not be guaranteed by the PBGC?

No, the higher pension payments of the level income option, in the years before the social security offset starts, is not a "supplement" according to ERISA regulations.

The PBGC "levelizes" the higher initial payments and the lower pension payments after social security starts to determine the "level" amount of pension dollars paid over your expected life time. The monthly "level payment amount" is then compared to the monthly maximum guarantee amount for your age (the later of your age at retirement or your age at the date of plan termination).

If the monthly "level payment amount" is less than the monthly guaranteed maximum amount for your age, your level income payments will not be changed. If the "level payment amount" is greater than the maximum guarantee amount, the PBGC will adjust the level payment amount downward to the maximum guarantee amount. Then the level income payments will be restructured proportionally, based on the reduction.

The level income option is not available as a payment choice from the PBGC. Only those participants who have elected that payment option prior to the date that the plan is trusteed by the PBGC will be eligible for it. You can see the options available from the PBGC on its website, www.pbgc.gov.

8. Are there any circumstances under which a Flight Attendant might receive his or her Plan benefit even when that is more than the PBGC maximum for his or her age as shown on the chart?

Yes, some Flight Attendants whose Plan benefit is greater than the PBGC maximum amount will receive more, possibly even the amount they would have received under the Plan had it not been terminated. Under ERISA section 4044(a), plan benefit liabilities are allocated among six categories. These priority categories reflect a priority of employee contributions over employer contributions and of "older" benefits over "newer" benefits.

Once the benefit liabilities are allocated among the six priority categories, plan assets are matched against these categories, beginning with category one until the assets are exhausted. The Pension Plan does not have categories one and two, these categories are for voluntary participant contributions and mandatory participant contributions.

The third priority category ("PC3") is the most significant for this Plan. PC3 is for those participants who are retired or who could have been retired more than three years prior to plan termination. Assuming that the Plan does terminate on January 10, 2005, participants who were retired or who could have been retired on or before January 10, 2002 will be in PC3. Plan assets will be used to pay these participants the greater of their PC3 pension benefit or the PC4 benefit, the maximum guarantee amount.

These are the steps the PBGC takes to figure the greater benefit:

 
1. Determine the participant's Plan benefit. This is the Plan benefit determined as of three years before Plan termination using age, years of service, and earnings data from three years before, based on Plan terms from five years ago.

2. Determine the extent to which Plan assets cover the PC3 benefit. This is the PC3 benefit and the first amount in the comparison described below.

3. Determine the Plan benefit to which the participant is entitled now. This determination uses current age, service, and earnings data. This plan benefit is then reduced for any PBGC limitation that applies in PC4. These limitations include, among others, the maximum guarantee amount for the participant's age at the later of Plan termination date or date of retirement and the phase-in of benefit enhancements that have been made in the five years preceding the date of plan termination. This benefit is the PC4 benefit. Remember, you will never get more from the PBGC than you would get from the Company.

4. Compare the amount of the PC3 benefit described in paragraph 2 above to the PC4 benefit described in paragraph 3. PC3 participants will receive the greater amount.

9. When will I know what the PBGC will pay me?

Once the PBGC takes over Plan administration it will review all Plan records and assets. When that initial survey and review is done, PBGC will inform Flight Attendants of their expected benefit amount. This usually takes several months after the date of plan termination. Those participants in pay status will continue to be paid the amount they had been receiving subject to adjustment based on the results of the PBGC audit and review. If it is determined that you were underpaid your benefit, the PBGC will pay you the amount underpaid in a lump sum with interest. If it is determined that you were overpaid the amount to which you were entitled, PBGC will reduce your future payments until the overpayment has been repaid. This reduction generally is no more than ten percent of each pension payment. No interest is assessed on the overpayment.

10. How does the limit on benefit improvements affect PBGC's guarantee?

If a benefit has been increased by a plan amendment within five years before the plan's termination date, the guaranteed amount depends on when the benefit improvement was put in place. Under this limit, the greater of $20 per month or 20 percent of the benefit improvement is guaranteed for each full year the improvement was in effect.

11. I am retired and currently receiving a pension from the Pension Plan. What happens now?

You should continue to receive your monthly pension check without interruption, subject to the legal limits on PBGC guarantees. Flight Attendants will be informed of the initial PBGC benefit determination after PBGC completes its initial benefit calculations, expected within a few months after plan termination. PBGC issues final benefit determinations as soon as it can. Currently, the process takes two to three years from the time PBGC takes over as trustee of a plan. However, for those retirees who were receiving benefits for at least five years before PBGC took over as trustee of the plan, final benefit determinations might be issued more quickly - sometimes closer to one year from the time PBGC takes over the plan.

12. Will PBGC know where to send my pension checks when it becomes trustee?

Yes. The Company will transfer to the PBGC all information necessary to administer the Pension Plan, including information from the Plan administrator and its bank, about retirees currently in pay status under the Pension Plan.

13. Will the optional forms of benefits under the Pension Plan still be available after the plan terminates?

The PBGC only pays pension benefits in an annuity form. Participants who are already in pay status when the Plan terminates will continue to be paid according to the form of benefit they chose at the time of retirement. Those who are not yet retired when the Plan terminates will have to choose from the forms of benefit payment that the PBGC offers. These options may not be identical to the options under the Plan. This is one place where the PBGC does not administer the Plan exactly according to its terms. Further information about the annuity choices provided by PBGC is available on the PBGC website at www.pbgc.gov.

14. I am still working. What will happen when I do retire?

Subject to possible reduction as required by ERISA for maximum guaranteed amount, form of payment, etc., PBGC guarantees your vested benefit as of the date the plan terminated. You will receive information about how to contact the PBGC when you decide to retire. As would be the case with the Company or any pension plan administrator, you will receive forms to fill out and return to the PBGC. You will receive your pension payments after your request has been processed. You may choose to begin receiving pension benefits any time after you reach the Plan's early retirement age.

If you are in PC4 (meaning you were not eligible to retire on or before January 10, 2002, or the corresponding date three years prior to the date of plan termination), the age to check on the Maximum Guaranteed Amount chart for plans terminating in 2005 is the age at which you retire, not your age at the time of plan termination. So if you continue to work until 2010 and you are currently 48 years old, when you retire in 2010 at age 58, the maximum guaranteed amount that you could be paid would be $2,166.55 per month. You can see by looking at the 2005 chart set out at the end of these FAQs that the longer you work, the higher the maximum guaranteed amount will be.

15. Does the PBGC withhold taxes and take other deductions from my pension check?

PBGC deducts for federal income tax, IRS levies, and qualified domestic relation orders. PBGC does not withhold state and local taxes, medical or life insurance premiums and other non-federal deductions from your pension benefit. You will be responsible to plan for and make these payments yourself.

16. Does the PBGC insure the new pension plan that US Airways will sponsor for Flight Attendants?

No. The new retirement plan is likely to be a defined contribution plan like a 401(k) plan. This type of plan is not insured by the PBGC.

17. Where can I get more information about the PBGC and plan termination?

PBGC staff is available from 8 a.m. to 5 p.m. Eastern Time, Monday through Friday to answer general questions about PBGC and its insurance program. The PBGC toll-free number is 1-800-400-7242. There are helpful links and information at www.pbgc.gov. Look particularly at the first link on the homepage: What if my plan terminates? For TTY/TDD users, call the Federal relay service toll-free at 1-800-877-8339 and ask to be connected to 800-400-7242. You may also write to: Pension Benefit Guaranty Corporation, P.O. Box 151750, Alexandria, VA 22315-1750

Guaranteed Maximum Amounts for Pension Plans Terminating in 2005

The Pension Benefit Guaranty Corporation (PBGC) announced that the maximum insurance benefit for participants in underfunded pension plans terminating in 2005 is $45,614 per year for those who retire at age 65. The amount is higher for those who retire later and lower for those who retire earlier or elect survivor benefits (see chart). If a pension plan terminates in 2005 but a participant does not begin collecting benefits until a future year, the 2005 maximum insurance limits still apply.

The maximum insurance benefit is set by law. Two additional legal limits on PBGC's insurance coverage can also affect participants' benefits. The first prohibits the PBGC from guaranteeing benefits that exceed the amount payable at the plan's normal retirement age. The second limits PBGC's guarantee of benefit increases made within the five years prior to plan termination. For more information, see PBGC's fact sheet "Pension Guarantees" (http://www.pbgc.gov/publications/factshts/GUARFACT.HTM).

More than 90 percent of the participants in plans taken over by the PBGC face no reduction in benefits due to the legal limits on coverage, according to a 1999 PBGC analysis. The largest reductions occur in cases where participants earn pensions that 1) significantly exceed the maximum insurance benefit, or 2) provide generous early retirement subsidies.

Under the PBGC's single-employer insurance program, retirees sometimes can receive more than the maximum guaranteed benefit. In general, three conditions must apply: 1) The participant earned a benefit in excess of the maximum guaranteed amount; 2) the participant retired or was eligible to retire three years prior to plan termination, and; 3) the plan had sufficient assets to pay benefits above the guaranteed amount. See Question 8 above for further explanation and an example.

The following chart shows the 2005 annual and monthly maximum benefit guarantees for retirees from age 75 to 45. The reduction beginning at age 64 reflects the fact that younger retirees receive more monthly pension checks over a longer remaining lifespan.
 

*Both spouses the same age.

If you have questions about these FAQS or plan termination, please contact Mary Lou Savage at mlsavage@afanet.org or 1-800-424-2401, x171.