The nation’s third largest air carrier had asked to end its pension plan for pilots effective on Saturday, saying that keeping it in place would mean a “crippling” operational and financial crisis that would prevent it from emerging from Chapter 11 protection as it hopes to do by mid-2007.
Delta’s pension plan had allowed pilots to retire at the age of 50 and take out half their entitlements in a lump sum, receiving the rest in annuity, but they have not been able to do so since October 1, 2005, due to a liquidity shortfall in the pension fund. The plan’s termination would mean the end of the lump sum payouts.
While Delta’s active pilots have said they would not object to the termination as part of a broader concessions deal (see Judge Gives Nod to Delta’s Settlement with Pilots Union ), a number of individual retired pilots as well as a group known as DP2 representing more than 100 of them have filed objections to Delta’s request over the past few weeks, according to the Associated Press. Additionally, a larger group, known as DP3, which represents 2,850 retired pilots (more than half Delta’s retired pilots) has asked to delay the hearing but has not come out against the Delta’s request to terminate its pilots’ pension plan.
Lump Sum Limbo
Delta’s pension plan had allowed pilots to retire at the age of 50 and take half their accumulated benefit in a lump sum, with the rest to be drawn in the form of an annuity. Delta estimated that 800 to 1,000 pilots would retire early if they were able to take the lump sum payment (they have not been able to take advantage of that lump sum option since October 1, 2005 due to a liquidity shortfall in the pension fund). The plan’s termination would mean the end of the lump sum payouts.
At present, more than 1,800 pilots are eligible for early retirement, according to the AP report, citing comments at the hearing by Marshall Huebner, a lawyer for Delta. By July 2010, that number would nearly double, according to the report.
However, the AP reported that Sherwin Kaplan, a lawyer for DP2, said pilots would not retire early and take the lump sum payments at the levels Delta estimates. Nonetheless, the troubled carrier says it does not have enough money to cover the pilot pensions. As of July 1, the pilot pension plan was projected to have assets of 39% of its current $4.1 billion liability, according to a Delta court filing last month.
If the court approved the termination request, the Pension Benefit Guaranty Corporation (PBGC) would take over the plan and pay benefits that will, in the case of the pilots, likely be lower than that promised under their current pension plan. The retirees who don’t want the plan eliminated oppose it for this reason. PBGC, Kaplan said, acts “like every other insurance company,” and will try to lower its payouts.
Delta says currently retired pilots will receive, on average, about $75,000 a year even if the plan is terminated.
The hearing was set to continue today and tomorrow.