NWA Pilots to Propose DB-DC Switch

February 15, 2005 (PLANSPONSOR.com) - With rampant pension problems throughout the beleaguered airline industry, the Northwest Airlines pilots union has kicked off talks with the carrier to freeze its pilot pension plan and start a company funded defined contribution plan.

A report posted on the Web site of the Northwest Airlines unit of the Air Line Pilots Association said the group’s Master Executive Council (MEC) also approved a proposal to negotiate for company-funded disability and survivor benefits outside the pension plan. The negotiating team promised to brief the MEC about its progress at its March 2005 meeting in Memphis, Tennessee, according to the Web statement.

The group also voted to initiate a stepped-up communications plan to better inform its members about the company’s pension situation and how carrying out a defined benefit plan freeze and a defined contribution “follow-on” plan kickoff might work, according to the ALPA statement.

According to an MEC-approved resolution, the group is taking the pension-related actions because “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.” That’s why, according to the group, “there is a significant risk that the plan will not be maintained in its current form or be able to provide promised benefits.”

Such an offer, if airline managers agree, could help Northwest 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.

Delta Air Lines 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. US Airways Group Inc. terminated its defined-benefit plans while under bankruptcy-court protection (See Bankruptcy Judge Allows US Airways to Drop Pensions ), and UAL Corp. has attempted to do the same.

Northwest pilots signed in November a new contract that cut $265 million in costs, partly through wage cuts. Once managers reach new contract deals with other unions, the plan to return to pilots for a second round of concessions. A spokesman for the union said the pension discussions are separate from any contract negotiations.