Northwest Pilots Propose Freezing Pension
02.14.2005, 04:34 PM
Pilots and Northwest Airlines Corp. will discuss "freezing" their pension plan out of concern that the plan may not provide the benefits promised.
In an e-mail to pilots Friday, the Air Line Pilots Association said union bosses will discuss with the airline freezing the current defined benefit plan and starting a new company-funded defined contribution plan, as well as a company-funded disability plan.
Freezing a plan generally means it will accept no new members and the company will not make additional contributions to the fund.
Such an offer, if airline managers agree, could help the Eagan, Minn., airline reach its goal of cutting annual labor costs by $950 million. Northwest executives in the past have advocated freezing underfunded defined benefit plans and replacing them with defined contribution plans.
"Recent events at many airlines have demonstrated that pilot defined benefit plans may not actually provide promised benefits," the union e-mail said. "The current and projected future financial pressure on Northwest Airlines, including the future funding obligations of the Northwest pilot defined benefit pension plan, is creating a concern about the future viability of the plan."
By giving workers a defined benefit pension plan, Northwest promises certain levels of payments to employees once they retire. But when the stock market went south, Northwest's pension assets lost their value, and the plan dipped in to the red, just like the defined benefit plans of other airlines. At the end of 2003, Northwest's pension plans were underfunded by $3.75 billion. That left Northwest with millions in annual pension payments when the airline is unprofitable. The airline hasn't filed its 2004 annual report yet.
US Airways Group Inc., also facing an underfunded pension, terminated its defined benefit plans in bankruptcy, and UAL Corp. has attempted to do the same.
The Northwest pilots' idea is to freeze the defined benefit plan and start a new, defined contribution plan, under which the airline would contribute a specific amount to each employee's pension account during his or her employment. Delta Air Lines Inc. made a similar move last year, allowing retired pilots to receive payments from the old, frozen plan. Current Delta pilots will receive payouts from both the new and old plans.
In November, Northwest pilots signed a new contract that cut $265 million in costs, partly through wage cuts. Once managers reach new contract deals with other unions, they will return to pilots for a second round of concessions. Union spokesman Will Holman said the pension discussions are separate from any contract negotiations.
Shares of Northwest fell 7 cents to close Monday at $7.11 on the Nasdaq Stock Market.
02.14.2005, 04:34 PM
Pilots and Northwest Airlines Corp. will discuss "freezing" their pension plan out of concern that the plan may not provide the benefits promised.
In an e-mail to pilots Friday, the Air Line Pilots Association said union bosses will discuss with the airline freezing the current defined benefit plan and starting a new company-funded defined contribution plan, as well as a company-funded disability plan.
Freezing a plan generally means it will accept no new members and the company will not make additional contributions to the fund.
Such an offer, if airline managers agree, could help the Eagan, Minn., airline reach its goal of cutting annual labor costs by $950 million. Northwest executives in the past have advocated freezing underfunded defined benefit plans and replacing them with defined contribution plans.
"Recent events at many airlines have demonstrated that pilot defined benefit plans may not actually provide promised benefits," the union e-mail said. "The current and projected future financial pressure on Northwest Airlines, including the future funding obligations of the Northwest pilot defined benefit pension plan, is creating a concern about the future viability of the plan."
By giving workers a defined benefit pension plan, Northwest promises certain levels of payments to employees once they retire. But when the stock market went south, Northwest's pension assets lost their value, and the plan dipped in to the red, just like the defined benefit plans of other airlines. At the end of 2003, Northwest's pension plans were underfunded by $3.75 billion. That left Northwest with millions in annual pension payments when the airline is unprofitable. The airline hasn't filed its 2004 annual report yet.
US Airways Group Inc., also facing an underfunded pension, terminated its defined benefit plans in bankruptcy, and UAL Corp. has attempted to do the same.
The Northwest pilots' idea is to freeze the defined benefit plan and start a new, defined contribution plan, under which the airline would contribute a specific amount to each employee's pension account during his or her employment. Delta Air Lines Inc. made a similar move last year, allowing retired pilots to receive payments from the old, frozen plan. Current Delta pilots will receive payouts from both the new and old plans.
In November, Northwest pilots signed a new contract that cut $265 million in costs, partly through wage cuts. Once managers reach new contract deals with other unions, they will return to pilots for a second round of concessions. Union spokesman Will Holman said the pension discussions are separate from any contract negotiations.
Shares of Northwest fell 7 cents to close Monday at $7.11 on the Nasdaq Stock Market.