PBGC to Airlines: Pension Contributions Still Required

September 15, 2005 (PLANSPONSOR.com) - A day after two major US airlines turned to US Bankruptcy Court for protection from their creditors, the head of the nation's private-sector pension insurer issued a stern warning that the companies still had to make their pension contributions.

In  a statement , Bradley Belt, executive director of the Pension Benefit Guaranty Corp. (PBGC), cautioned Northwest Airlines and Delta Airlines that their bankruptcy filings did not absolve them of their pension responsibilities.

“If those (pension) contributions are not made, workers and retirees will be placed at greater risk of losing promised benefits,” Belt asserted. “The financial challenges facing the airline industry are significant, but nothing in the bankruptcy code requires companies to skip their pension funding payments. Indeed, these companies will continue to pay for fuel, wages, health care, utilities and aircraft leases. As long as companies remain in operation with ongoing pension plans, they have a legal obligation to meet their funding requirements.”

Also Thursday, Belt’s agency released its preliminary estimates of the financial conditions of the two carriers’ plans.

Belt said Delta’s pension program is underfunded by $10.6 billion ($17.5 billion in liabilities with $6.9 billion in assets) while Northwest’s pension is $5.7 billion underfunded ($11.5 billion in liabilities with $5.8 billion in assets). He said the agency estimated it would be responsible for $8.4 billion from the Delta pension program and $2.8 billion from Northwest Airlines if  the companies turned over their plans to Belt’s department.

In  a statement on Delta’s Web site, CEO Gerald Grinstein warned that his company’s ability to continue to fund itspension program was far from a sure thing.

“The company is continuing to pursue pension reform legislation that might make the plans more affordable,” Grinstein claimed. “However, because of Delta’s growing financial pressures, there can be no guarantees – even with pension reform – about the future of Delta’s qualified defined benefit pension plans. Ultimately, what we can afford in the future airline business environment, as well as the nature of any legislation, will determine what is possible,” Grinstein asserted.

Northwest’s Web statement about its bankruptcy filing is  here .

The PBGC has been struggling under the weight of plans from the aviation sector in recent years with both United (See  Judge Affirms Ruling For United’s Pension Plan Termination  ) and US Airways (See  USAir, PBGC Unveil Deal for Pension Claims  ) turning plans over to Belt’s agency.