Details on the company’s Voluntary Separation Program (VSP2) for frontline employees were released on May 30, 2020. Eligible Flight Attendants should have received a custom-tailored email providing an overview of the program with associated links to FAQs, inquiry form, and application form in Help Hub, along with other resources. In addition, information on your unique VSP2 offer can also be found on the Fidelity™ website.
There are also a number of employees who are eligible for retirement benefits under the Continental Airlines Retirement Plan (CARP). As part of the VSP2, the company will provide any one eligible under the Plan with an additional year of benefit service. The practical impact of the additional year of benefit service is an increase in the benefit to which the employee is eligible. It should be note, under the Plan, the maximum Years of Benefit Service is 30 years and, with the additional year of benefit service under the VSP2, the maximum effectively becomes 31 years.
We have received many questions about the impact increasing the benefit service will have on the overall viability of the Plan. Not only that, some have questioned the company’s ability to make these changes that will impact the Plan. Others have asked, are these decisions potentially compromising the viability of the Plan for those who will remain beyond the VSP2.
First, the Company serves as Plan Administrator for the Plan and may delegate any of its powers and responsibilities as Plan Administrator, and it may contract with others to perform certain administrative functions of the Plan.
The Company reserves the right to amend, modify, suspend or terminate the Plan, in whole or in part, in accordance with the Plan provisions. Plan amendment, modification, suspension or termination may be made for any reason (including changes in applicable laws and changes in the Company’s circumstances or financial condition) and at any time, any of which may, in certain circumstances, result in the reduction or elimination of benefits or other features of the Plan to the extent allowed by law. Under the Plan, amending plans and trust agreements are settlor functions, which means they are made by the Company in its nonfiduciary, non-administrative capacity. All decisions, acts, and omissions with respect thereto are final, binding and conclusive on all persons and are not subject to review.
Having established that the company has the right to amend the Plan, it is critical that we all understand about these enhancements to the employee’s CARP benefit, management made it clear that benefits available under the Voluntary Separation program (along with the employee’s existing CARP benefit) will be paid from the assets of the trust that is maintained to fund CARP. The most recently distributed Annual Funding Notice for CARP reflected a Funding Target Attainment Percentage of over 137% reflecting the significant contributions the Company has made to the plan during the last several years. In fact, the Company has contributed over $3 billion into the CARP trust since the beginning of 2011, materially in excess of the contribution amount required to made under applicable plan funding regulations during such time.
Management has advised use they do anticipate that the funded status may decrease due to the additional benefit service provided under VSP2. However, there are multiple factors that impact funded status including the number of people that apply for VSP2, interest rates, etc, so it is impossible to project what the funded status will be after VSP2.
All of this said, management does not anticipate an impact to the availability of lump sum distributions in the near term. The cost of the additional benefit service is small – roughly a half percent of plan assets assuming a 10% participant election rate.
In addition, because CARP is closed to new entrants in substantially all other workgroups, any reduction in participant counts resulting from the enhancement will correspondingly reduce ongoing future benefit accruals and pension service costs.