According to the Minneapolis Star Tribune, Senator Chuck Grassley (R-Iowa) has been working with Northwest management and labor leaders to push through a version of the bill that would allow the airline two decades to pay contributions into its three underfunded pension plans, which altogether have a $3.7 billion shortfall. The current law only allows Northwest a few years to fund the plans.
There was some uncertainty on whether a provision for the airline industry would be included, because it was left out of the House version of the bill (See November Elections could be Pension Bill Monkey Wrench ).
Unless Northwest buys more time to make the payments, its executives have said they will be forced to terminate the pension plans, as United Airlines and US Airways did in bankruptcy, Star Tribune reports. If Northwest is forced to terminate the plans, its liabilities will fall on an already overburdened Pension Benefit Guaranty Corporation (PBGC).
The PBGC has reported a $25.7 billion deficit, partly due to taking on several failed pension plans from airlines and steel companies. In April, the agency agreed to take over the a $117 million pension plans for Honolulu-based Aloha Airlines (See PBGC To Absorb $117M of Aloha Airlines Pension Shortfall ). Taking on more obligations from terminated pension plans could cause trigger a taxpayer bailout.
“The chances of getting [the airline measure] through just the way it is are very good,” Grassley told the Star Tribune a day after meeting with Doug Steenland, Northwest CEO, and Mark McClain, chairman of the Northwest pilots union.
Northwest’s pilots union agreeed in January to freeze its defined benefit plan and make the switch to a defined contribution plan (See Northwest Pilots OK DB Plan Freeze ). The agreement, which included a 29.9% pay cut, will help the airline save $358 million a year.