Northwest to Fund Pensions With Stock
45 minutes ago
By LEIGH STROPE, AP Labor Writer
WASHINGTON - Northwest Airlines won government permission Monday to fund its pension plans with a subsidiary's stock instead of cash, a strategy used only twice before by struggling companies.
The Labor Department granted the Eagan, Minn.-based airline an exemption from pension financing rules, which will allow it to contribute privately held stock of its regional affiliate, Pinnacle Airlines Corp., to three pension plans covering 73,000 employees and retirees.
Northwest sought approval for the change so it could hang on to cash to help weather turbulence in the industry.
Similar authority was granted in 1989 to Pan Am shortly before the airline collapsed, and in 1994 to General Motors Corp.
"An independent fiduciary has been retained by the pension plans to establish the fair market value of the Pinnacle stock and to determine that the stock is a prudent investment for the plans," the Labor Department said, announcing the exemption.
The decision came from a panel of department lawyers and pension specialists, which held a public hearing in May. Labor Secretary Elaine Chao, a former Northwest director, recused herself from the panel.
Some unions had objected to the proposal over concerns that the privately held stock is not market-tested and its price may be inflated.
Companies across all sectors are struggling with massive shortfalls in their defined benefit pension plans. Such plans promise a set, monthly retirement benefit to workers, who are not required to contribute.
Low interest rates, the sluggish economy, stock market losses and an increase in retirees all have hurt the private pension system. Employers increasingly do not offer such plans.
Northwest said in May it wants to use the stock to cover $223 million it owes the plans for 2002. The company has obtained a waiver from the Internal Revenue Service to pay about $450 million in 2003 obligations over five years.
Northwest considers Pinnacle one of its more valuable assets. The Memphis, Tenn.-based feeder airline flies routes connecting smaller cities in 26 states with Northwest's three hubs in Memphis, Detroit and Minneapolis-St. Paul.
Northwest lost $1.22 billion in 2001 and 2002 and expects even greater losses in 2003. The carrier expects its employment to fall to 40,000 by the end of the year, from a peak of 53,500 at the end of 2000.
45 minutes ago
By LEIGH STROPE, AP Labor Writer
WASHINGTON - Northwest Airlines won government permission Monday to fund its pension plans with a subsidiary's stock instead of cash, a strategy used only twice before by struggling companies.
The Labor Department granted the Eagan, Minn.-based airline an exemption from pension financing rules, which will allow it to contribute privately held stock of its regional affiliate, Pinnacle Airlines Corp., to three pension plans covering 73,000 employees and retirees.
Northwest sought approval for the change so it could hang on to cash to help weather turbulence in the industry.
Similar authority was granted in 1989 to Pan Am shortly before the airline collapsed, and in 1994 to General Motors Corp.
"An independent fiduciary has been retained by the pension plans to establish the fair market value of the Pinnacle stock and to determine that the stock is a prudent investment for the plans," the Labor Department said, announcing the exemption.
The decision came from a panel of department lawyers and pension specialists, which held a public hearing in May. Labor Secretary Elaine Chao, a former Northwest director, recused herself from the panel.
Some unions had objected to the proposal over concerns that the privately held stock is not market-tested and its price may be inflated.
Companies across all sectors are struggling with massive shortfalls in their defined benefit pension plans. Such plans promise a set, monthly retirement benefit to workers, who are not required to contribute.
Low interest rates, the sluggish economy, stock market losses and an increase in retirees all have hurt the private pension system. Employers increasingly do not offer such plans.
Northwest said in May it wants to use the stock to cover $223 million it owes the plans for 2002. The company has obtained a waiver from the Internal Revenue Service to pay about $450 million in 2003 obligations over five years.
Northwest considers Pinnacle one of its more valuable assets. The Memphis, Tenn.-based feeder airline flies routes connecting smaller cities in 26 states with Northwest's three hubs in Memphis, Detroit and Minneapolis-St. Paul.
Northwest lost $1.22 billion in 2001 and 2002 and expects even greater losses in 2003. The carrier expects its employment to fall to 40,000 by the end of the year, from a peak of 53,500 at the end of 2000.
