By Rachel Beck
The Associated Press

NEW YORK - The corporate pension crisis seems to be going from bad to worse. First, companies struggled to come up with the money to cover their benefit obligations, and now they want to ditch their plans altogether.

The latest twist in this mess comes from UAL Corp.'s United Airlines. It wants to terminate its employee pension funds in order to secure the loans it needs to get out of bankruptcy - a drastic move that would represent the largest pension default ever by a U.S. company.

Should that happen, competing airlines may try to do the same, and it could easily extend to other industries, too. And who would be left with the cleanup? Taxpayers, of course.

"I'm deeply concerned that more and more employers may decide that the rational thing to do ... is to follow others to the exit and get out of sponsoring a pension plan before it becomes an impossible burden," said James A. Klein, president of the American Benefits Council, a Washington-based trade group representing the employee benefits system.

A pension plan is considered underfunded when its obligations - what it owes to retirees - exceed its assets by at least 10 percent. At that point, companies must cover the difference.

Pension plans of the 362 companies in the Standard & Poor's 500 index offering defined benefit plans went from being overfunded by $280 billion in 1999 to being underfunded by $165 billion last year, according to S&P. And that was an $54 billion improvement from 2002, largely thanks to a rebounding stock market.

The government has tried to help ease the pension burden. Last spring, new legislation allowed for a two-year interest-rate adjustment that would let businesses pay less into their workers' retirement plans. In addition, airlines and steel companies were given a two-year reprieve that let them only pay 20 percent of what they are currently required to contribute.

But for many companies, that still isn't enough.

At United, the nation's second-largest carrier announced last month that it would skip payments to its four pension funds while it restructures under bankruptcy protection, and then said in a regulatory filing made public last Thursday that it would "likely" have to terminate those plans.

That decision follows the government's rejection of United's bid for a $1.6 billion loan guarantee, which came as the cash-strapped company also faces rising jet fuel prices.

Should United Airlines successfully convince a bankruptcy court that it needs to terminate its massive plans, which would wipe a huge liability off of its books, there is no telling what kind of ripple effect it could set off in the airline business - and beyond.

US Airways could be next. Just last week, the troubled carrier said it would seek government permission to stretch out about $68 million in contributions it owes to the pensions of its mechanics and flight attendants over the next five years, rather than the next 18 months.

US Airways, which already terminated its pilots' pension plan in March 2003 as it moved to emerge from bankruptcy, is trying to avoid another trip into Chapter 11.

And Delta Air Lines Inc.'s financial mess is heating up as the carrier tries to restructure some of its $20 billion debt outside of bankruptcy.

If more companies move to dump their pension plans, it would put increasing pressure on the already-strapped Pension Benefit Guaranty Corp., the government agency that insures pensions earned by 44 million workers and retirees participating in 31,000 plans.

The agency, which is funded through premiums charged to employers and investment returns, saw its deficit balloon to a record $11.2 billion in 2003. And in just the last three years, the PBGC has accumulated $15.9 billion in claims, more than twice as much as the $6.1 billion it assumed between 1980 through 1999, according to a new report by the Washington-based Cato Institute.

United's default alone would dump a $6.4 billion liability in the agency's lap, the maximum amount it would be responsible to cover but still short of the $8.3 billion that the airline's plans are currently underfunded by. Employees would then lose the remaining $1.9 billion in pension benefits.

For some United workers, that will mean a big cut in pay. Its pilots, some of whom were to get as much as $100,000 in pensions based on such metrics as their length of service and size of plane they fly, could see their benefits cut by more than 50 percent.

That's certainly not good news for them - and they may not be the only ones taking a hit.

With the PBGC facing such huge burdens, the government may have no choice but to go forth with a multibillion dollar taxpayer bailout.

That would thrust the pension crisis out of corporate America and into everyone's wallet.