Human Capital & Careers

Northwest May Terminate DB Plans

Defined benefits may give way to defined contributions, even at one of the better-financed carriers.
Stephen TaubFebruary 15, 2005

Northwest Airlines Corp. may become the next company to terminate one or more of its defined-benefit pension plans.

The Air Line Pilots Association sent an e-mail message to Northwest pilots that it will discuss freezing their pension plan, according to several published reports, since the union is concerned that the plan is running out of money.

Top union officials intend to discuss freezing the current plan — no new individuals would be able to join, and the company wouldn’t make additional contributions — and create a defined contribution plan and a company-funded disability plan, according to the Associated Press.

The news underscores the dire straits being faced by the airline industry, since Northwest is considered one of the better-financed carriers.

Even so, the airline reportedly needs to cut annual labor costs by $950 million. Further, the company’s pension plans were underfunded by $3.75 billion at the end of 2003, reported the AP. It has not yet filed its 2004 annual report.

“Recent events at many airlines have demonstrated that pilot defined benefit plans may not actually provide promised benefits,” stated the union e-mail, according to the AP. “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.”

Earlier this month, the Pension Benefit Guaranty Corp. took over the pension plans for more than 51,000 flight attendants, machinists, and other employees of bankrupt US Airways.

Bankrupt UAL Corp., the parent of United Airlines, is considering similar measures. In related news, United announced that it has received four offers of up to $2.5 billion in debt financing, reported the AP. Citing a United spokeswoman, however, the wire service noted that any such financing would be contingent on the airline’s ability to cut an extra $2 billion in costs.