Associated Press
Update 2: Bankrupt Carriers Must Fund Pensions
09.15.2005, 06:28 PM
As long as newly bankrupt Delta and Northwest airlines continue to fly planes, they must contribute to their employees' pension funds, the director of the federal agency that protects private-sector pensions said Thursday.
"These companies will continue to pay for fuel, wages, health care, utilities and aircraft leases. As long as companies remain in operation with ongoing pension plans, they have a legal obligation to meet their funding requirements," said Pension Benefit Guaranty Corp. Executive Director Bradley Belt.
Delta Air Lines Inc. and Northwest Airlines Corp. filed for Chapter 11 bankruptcy protection on Wednesday, and Delta said it would miss its next pension fund payment to the PBGC.
The pension funds of both carriers are underfunded by billions of dollars.
Northwest said Wednesday it would continue to seek changes in pension laws to give it more time to make payments.
"We are determined to continue to push for that legislation so that we'll be in a position to preserve pension benefits that our employees have earned to date," said Doug Steenland, Northwest's president and CEO.
U.S. Sen. Norm Coleman, a Republican who represents Northwest's home state of Minnesota, said Thursday he'll push hard to get the legislation moving through Congress again.
The proposal would give the airlines 14 years to catch up on their pension payments, but it's part of a broader pension overhaul bill that has stalled.
Gerald Grinstein, Delta's CEO, said Wednesday his company couldn't guarantee its defined benefit plans, even with pension reform.
"Ultimately, what we can afford in the future airline business environment, as well as the nature of any legislation, will determine what is possible," he said.
In a conference call with reporters, Coleman said Hurricane Katrina relief has pushed back progress with the pension bill, but he's hopeful the Senate will pass the measure before it breaks in late November.
Northwest's pension plans are underfunded by $3.8 billion, by its figures, and the airline is obligated to make $2.5 billion in payments into those plans this year and next, and a total of $4.3 billion by 2008. The PBGC estimated Northwest's pensions were underfunded by $5.7 billion.
Delta faces more than $3.1 billion in pension payments over the next three years. Pension plans at Delta are underfunded by $10.6 billion, according to the PBGC.
"Delta's been doing everything it can within the bounds that it can afford to provide active and retired Delta people with already-earned retirement benefits," spokeswoman Chris Kelly said Thursday. "Delta will continue to pursue meaningful pension reform legislation that might make the pension plan more affordable."
Steenland said Northwest wants to avoid terminating its pension plans the way UAL Corp.'s United Airlines and US Airways Group Inc. did. Those airlines used bankruptcy to dump their pension liabilities onto the PBGC.
"Our employees are going to go through a difficult enough process ... that if we can avoid the termination of the plans, it's one harmful effect that we can avoid occurring," Steenland told reporters in a conference call late Wednesday.
Coleman said he's frustrated that the PBGC has not pushed harder for changes such as the legislation he's co-sponsoring. The PBGC is facing a deficit of over $20 billion, caused partly by bankrupt airlines.
"They're pushing airlines to make payments under a system that is going to push them over the edge, and in the end result in the entire pension being dumped in the PBGC's lap," Coleman said.
If the PBGC has to take over Northwest's pension plans, pilots would take the biggest hit. They could lose half or more of their pensions. The PBGC caps payments at $45,613 a year for plans canceled in 2005, and pilots are required by law to retire at age 60, but PBGC rules cut payments to workers who retire before turning 65. Other work groups would see smaller reductions, if any.
In the longer term, Northwest wants to freeze its current defined benefit pension plans and switch to defined contribution plans, such as 401(k)s, which are cheaper for employers but don't provide workers the guaranteed benefits of traditional pensions.
Update 2: Bankrupt Carriers Must Fund Pensions
09.15.2005, 06:28 PM
As long as newly bankrupt Delta and Northwest airlines continue to fly planes, they must contribute to their employees' pension funds, the director of the federal agency that protects private-sector pensions said Thursday.
"These companies will continue to pay for fuel, wages, health care, utilities and aircraft leases. As long as companies remain in operation with ongoing pension plans, they have a legal obligation to meet their funding requirements," said Pension Benefit Guaranty Corp. Executive Director Bradley Belt.
Delta Air Lines Inc. and Northwest Airlines Corp. filed for Chapter 11 bankruptcy protection on Wednesday, and Delta said it would miss its next pension fund payment to the PBGC.
The pension funds of both carriers are underfunded by billions of dollars.
Northwest said Wednesday it would continue to seek changes in pension laws to give it more time to make payments.
"We are determined to continue to push for that legislation so that we'll be in a position to preserve pension benefits that our employees have earned to date," said Doug Steenland, Northwest's president and CEO.
U.S. Sen. Norm Coleman, a Republican who represents Northwest's home state of Minnesota, said Thursday he'll push hard to get the legislation moving through Congress again.
The proposal would give the airlines 14 years to catch up on their pension payments, but it's part of a broader pension overhaul bill that has stalled.
Gerald Grinstein, Delta's CEO, said Wednesday his company couldn't guarantee its defined benefit plans, even with pension reform.
"Ultimately, what we can afford in the future airline business environment, as well as the nature of any legislation, will determine what is possible," he said.
In a conference call with reporters, Coleman said Hurricane Katrina relief has pushed back progress with the pension bill, but he's hopeful the Senate will pass the measure before it breaks in late November.
Northwest's pension plans are underfunded by $3.8 billion, by its figures, and the airline is obligated to make $2.5 billion in payments into those plans this year and next, and a total of $4.3 billion by 2008. The PBGC estimated Northwest's pensions were underfunded by $5.7 billion.
Delta faces more than $3.1 billion in pension payments over the next three years. Pension plans at Delta are underfunded by $10.6 billion, according to the PBGC.
"Delta's been doing everything it can within the bounds that it can afford to provide active and retired Delta people with already-earned retirement benefits," spokeswoman Chris Kelly said Thursday. "Delta will continue to pursue meaningful pension reform legislation that might make the pension plan more affordable."
Steenland said Northwest wants to avoid terminating its pension plans the way UAL Corp.'s United Airlines and US Airways Group Inc. did. Those airlines used bankruptcy to dump their pension liabilities onto the PBGC.
"Our employees are going to go through a difficult enough process ... that if we can avoid the termination of the plans, it's one harmful effect that we can avoid occurring," Steenland told reporters in a conference call late Wednesday.
Coleman said he's frustrated that the PBGC has not pushed harder for changes such as the legislation he's co-sponsoring. The PBGC is facing a deficit of over $20 billion, caused partly by bankrupt airlines.
"They're pushing airlines to make payments under a system that is going to push them over the edge, and in the end result in the entire pension being dumped in the PBGC's lap," Coleman said.
If the PBGC has to take over Northwest's pension plans, pilots would take the biggest hit. They could lose half or more of their pensions. The PBGC caps payments at $45,613 a year for plans canceled in 2005, and pilots are required by law to retire at age 60, but PBGC rules cut payments to workers who retire before turning 65. Other work groups would see smaller reductions, if any.
In the longer term, Northwest wants to freeze its current defined benefit pension plans and switch to defined contribution plans, such as 401(k)s, which are cheaper for employers but don't provide workers the guaranteed benefits of traditional pensions.
AL - News) warned it may miss 3,500 retirees' pension payments, while Northwest Airlines Corp. (NasdaqNM:NWAC - News) hired a battery of lawyers and advisors as the carriers began a long march through bankruptcy.
