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Pilots Might Alter Their Pension Plans -Northwest Weighs Retirement Benefits
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By Lynne Marek, Bloomberg
August 27, 2004
Continental Airlines Inc. and Northwest Airlines Corp. pilots might offer to revamp their pensions after a United Airlines threat to terminate its pension plans to save money sparked worker fears that a trend might be starting.
The Air Line Pilots Association at Continental planned to initiate pension discussions with the airline Thursday during talks on ways to reduce costs, said Jay Panarello, chairman of the union. Northwest's pilots union discussed pension issues with the company last month and is considering options such as freezing the plan and switching to a version similar to a 401(k), said union spokesman Hal Myers.
Northwest is the dominant air carrier at Detroit Metropolitan Airport and the region is home to many Northwest pilots.
"Future pension fund contributions not only for the pilots but for other workers represents a significant economic burden for the company," Myers said in an interview. "We want to look at ways to increase the security of our plan."
With United halting contributions to its pensions and Delta Air Lines Inc. seeking pension changes to cut costs, unions at seven of the biggest U.S. airlines are gearing up to protect plans, which are underfunded by about $21 billion. The carriers, which have posted losses of $20.5 billion since 2000, are demanding further cost reductions amid higher jet fuel expense and heightened competition from discount airlines.
"When the industry is losing as much money as it is, pension obligations are a drain on their cash resources, and this is a time when they can ill afford that," said David Swierenga, an industry consultant at AeroEcon in Vienna, Va.
The carriers have defined benefit plans that accrue savings in a company account and promise workers a fixed payment after retirement, based on wages and years of service. By contrast, defined contribution plans, such as a 401(k), provide benefits to employee accounts regularly before retirement.
Continental's union wants changes that would give pilots more control of the investments and reduce their reliance on Continental, Panarello said. Blending the current pensions with a defined contribution plan is "not only safer, but gives a lot more upside potential," he said. Continental declined comment.
Northwest's Air Line Pilots Association is discussing "a broad range of options" and leaning toward defined contribution plans, Myers said.
Northwest spokesman Thomas Becher declined to comment.
United parent UAL Corp. has been in bankruptcy since December 2002, and US Airways Group Inc. and Delta have said they will file if costs, especially for labor, can't be reduced.
UAL's pension funding gap is the worst among U.S. carriers with assets $6.16 billion less than the projected obligations, according to airline information collected by Fitch Ratings. Delta's underfunding is $5.66 billion, Northwest's is $3.75 billion and American Airlines parent AMR Corp.'s is $2.66 billion. Continental, US Airways and Alaska Air Group Inc. also are underfunded.
The International Association of Machinists, representing 100,000 airline workers and 27,000 at United, met with White House, Labor Department and Treasury Department officials Wednesday to discuss United's situation and "larger problems facing defined benefit plans," the union said in a statement.
"This is bigger than United Airlines," said Machinists' President Robert Roach.
The Pension Benefit Guaranty Corp., a federal agency that provides pension insurance and takes over failed plans, said last month that UAL default would be the biggest ever and would put all plans it insures at risk.
The agency had an $11.2-billion deficit last year after taking over plans for 152 companies such as US Airways in 2002 and Bethlehem Steel Corp. U.S. airlines are struggling to make plan contributions.
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© 2002 Global Action on Aging
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