what happened to northwest airlines pension

When Northwest Airlines and Delta Air Lines merged in 2008, they created the worlds largest airline, and one that to this date still ranks as the largest in several metrics including assets owned and market capitalization. Officials with the PBGC said Northwest can't dump its obligations on the agency unless it cannot exit from bankruptcy without terminating its pension plan. You can find everything printed here in Deltanet Employee Connection (found on Shedding the plan and letting the PBGC take over limited payouts enables Delta to avoid about $2.5 billion in payments needed to bring that plan to full funding. Enforcement of the pension law, therefore, has been piecemeal, with no one agency responsible for making sure the plans remain solvent. The plaintiffs have since retired and begun to receive their pensions. "These pension checks are only the remaining portion of their benefit after they took the lump sum," said Rob Kight, Delta's vice president in charge of employee benefits and related matters. Retirement benefits are especially critical for pilots because the law requires them to retire at 65. Now, over a decade after the merger, Delta Air Lines is still alive and well, ranking as the most profitable airline in the Fortune 500. Fortunately, Northwest Airlines successfully emerged from bankruptcy protection in 2007 after aggressively cutting costs and selling off assets. If the annualized value of the lump sum exceeds the federal Pension Benefit Guaranty Corp.'s caps on how much a retiree can still collect from the federal insurance agency after a plan is terminated, a retiree gets no more monthly checks. "The only ones that are getting their pensions dumped are the retired pilots.". At the end of 2004,. Citing a provision of the plan that requires Delta to offset pensions by the amount of other income-replacement benefits, Delta has reduced each plaintiffs monthly pension by an amount calculated in his workers compensation settlement agreement. But Delta moved to terminate the pilot plan anyway, and its pilots union had agreed not to object as part of a new contract deal. Delta, which had emerged from bankruptcy protection just a few weeks prior, was in a similar position. After trialing transpacific flights during the 1930s, Northwest Airlines eventually started serving Japan with direct services after the end of the Second World War. Retirement benefits at United Continental Holdings Inc., which is already in contract talks, have been and remain an issue for labor discussions, said Greg Everhard, a spokesman for the pilots union. I hope that understanding why will convince you that you would never want a pension in the first place. Suite 3200 Types of QDROs The reason is more complex than the company's simple need to cut retiree costs. "They will look at people like us who retired with a good salary, who have medical insurance, who earned all these things," says Harris. His writing is focused on personal finance for pilots with the goal to help all types of aviators enjoy great careers, sometimes in spite of themselves. maintaining the fund, fees and commissions. Northwest's pension fund consists of three individual plans, for about 8,000 pilots, 9,000 salaried employees and 52,000 unionized workers, including mechanics and agents. the 5500 for PYE 9.30.09, all 61 pages. Sign up and get the best of News delivered straight to your email inbox, free of charge. Uncle Sam allows over-funding to some degree. For suggestions and comments, please click the Contact link at the bottom of this page. $194,155,000. . Cutting that timeline from 30 years to just 15 means our rule of thumb doesnt hold anymore. It was cancelled in the last year before the merger. Why did NWA always have two hubs in close proximity to each other MSP, DTW and did not dehub one of the two? While Northwest Airlines evolved to become much more than a domestic and transpacific airline, it remained a pioneer in the Asian aviation market throughout its history as an independent airline. Required fields are marked *. ", He added, "This is particularly the case when pension plans are significantly underfunded.". Northwest Airlines' bankruptcy filing has raised serious questions among workers and retirees about the pension benefits they've been promised. Plan year 10/01/2008 to 09/30/2009. Ideally, this would make it simple for an airline to calculate the funds it needs saved up for each pilots pension. "We'll survive somehow. 3.0. A hearing has been scheduled for later this month in United States Bankruptcy Court for the Southern District of New York, in Manhattan. Eventually, the plan will run out of money and be unable to pay its obligations. on enforcing the pension law's minimum funding requirements. But that also gives DAL a lot of hubs here in the U.S. and two international hubs (KIX and AMS). The company was also heavily involved in the foundation of Japan Airlines (JAL) and handled JAL flight operations in the early years of that airline. Retirees expected bad news, but many will get no more checks --- and have to pay for health coverage. Under this reading, any settlement for a workers compensation claim would be periodic, making the phrase periodic benefits payable identical to benefits payable and rendering the word periodic meaningless. It can cost businesses between $75,000 to $150,000 to dismantle a plane like the 747. A federal judge has denied dismissal of a lawsuit in which five former employees of Delta Air Lines allege Delta and its administrative committee improperly reduced their pension benefits from the Northwest Airlines Pension Plan for Contract Employees. Northwest's pension fund consists of three individual plans, for about 8,000 pilots, 9,000 salaried employees and 52,000 unionized workers, including mechanics and agents. 2023 Minnesota Public Radio | All rights reserved, Mark McClain of the Air Line Pilots Association talks with MPR's Bill Catlin about the pension situation. "This is absurd," said Cochran, 59, who worked for Delta almost 27 years. In August 2005 the mechanics and cleaners at Northwest Airlines (NWA), the world's fourth largest passenger airline went out on strike. In order to fulfill that obligation, the committee had to communicate with the department that offsets employee pensions to learn about its past practices. Lewis initially got a $6,500-a-month pension to support himself, his wife and daughter while he launched a boat appraisal business. PBGC Those plans failed. Frozen pension plans can be re-activated if they are in compliance with. The plan defines workers compensation benefits as any periodic benefit payable. The committee argues that because the one-time lump-sum payment settles a claim for a periodic benefit, that one-time payment is also periodic. Benefit levels for various groups Page 18 of 61. The subpoena was served in January. Ideally, the company could over-fund the pension plan ahead of time as a buffer against an expected downturn. Your email address will not be published. Cochran said he flew extra trips before retiring, boosting his income to $240,000 a year. The U.S. government relies on our tax dollars to exist, and hes very picky about what exemptions and deductions he allows. Leading up to Northwests bankruptcy filing were numerous challenges that severely hampered the airlines profitability. It lies in the arcane rules of pension termination --- and in a lucrative feature of Delta's pre-bankruptcy pilot contracts. They did not unfairly supplement the plaintiffs monthly pensions. Northwest's CEO Doug Steenland said the carrier has strong and committed supporters in Congress trying to make the needed changes in pension law. expressed concern about a flood of requests from companies, and some union-run plans, to waive or postpone their mandatory annual contributions. Retirees sued for denial of benefits, claiming Delta was wrong to offset their pension payments by a workers' compensation settlement they received. Even though the Northwest Airlines brand has completely disappeared from aircraft and airports around the world, it would be wrong to put Northwest in the same category as failed airlines that suffered catastrophic bankruptcies or declines into irrelevancy. Northwest Airlines Freezes Pension Plans September 9, 2005 (PLANSPONSOR.com) - Northwest Airlines has frozen two pension plans that cover salaried employees, Business Insurance reports. Northwest CEO Doug Steenland said the airline will continue seeking changes in pension law that would spread out those payments over a longer period of time. 685 Third Avenue "Delta's making enough money to keep the plan," said Lewis. For example, in plaintiff Leightons settlement agreement, his lump sum of $52,000 represents an amount of $225.81 per month for the rest of his life. Northwest Airlines: Good health insurance, there Was a pension but that was terminated in the last year before the merger with Delta Airlines, Great travel benefit. Invest as much as you can for your own future. This mutual silence suggests that nothing in the clear language of either document supported the committees conclusion. To meet debt obligations, Northwest offloaded assetsincluding aircraftand forced employee groups to accept lowered salaries to stay afloat amid the Gulf War, which added further strain to Northwests business. If I was shopping for jobs and a potential employer offered a pension plan, Id personally rank that as a big minus! Despite this assertion, a payment made to settle a legal claim is not the same relief as the payment Delta would have owed had the plaintiffs ultimately succeeded in their workers compensation actions. Rebecca Moore. The only pertinent Delta pilots' pension was terminated in a 2005 bankruptcy. pension plan. A fund has been "unfrozen" only once, during steelmaker LTV Corp.'s bankruptcy in the late 1980s, he said. He is also an Air Force reservist and has flown more than 300 combat missions over Afghanistan and other garden spots. The market dropped so far that pension plans started depleting. Jason Depew flies as a captain for a major U.S. airline. News stories provided by third parties are not edited by "Site Publication" staff. However, companies allow this practice because it allows them to get away with saving less). Save my name, email, and website in this browser for the next time I comment. PBGC paid nearly $4.5 billion worth of ongoing payments to . The I.R.S. Now that income is gone, too, as a result of the pension plan termination. Delta Airlines warned May 11 that it could soon be forced to file for bankruptcy. A federal judge has denied dismissal of a lawsuit in which five former employees of Delta Air Lines allege Delta and its administrative committee improperly reduced their pension benefits from the Northwest Airlines Pension Plan for Contract Employees. 2. The The officials also said that the inquiry was looking at whether corporate pension officials had administered the plans "solely in the interest of the participants" in the pension plans, which would fulfill their fiduciary duty. Northwest experienced the first of several setbacks in 1998 when a pilots' strike halted service for nearly three weeks. The aviation industry Northwest Airlines was faced with as it emerged from bankruptcy was one of high fuel costs and many competitorsnot unlike the environment which had contributed to its bankruptcy filing in the first place. Breach of fiduciary duty and wrongful denial of benefits are distinct causes of action so a plaintiff may pursue both under ERISA, she said.The plaintiffs allege that the committee denied their claims because it consulted with the Workers Compensation Department, a party alleged to have an interest adverse to participants. Contribution from Delta Airlines was $77,621,712. This is a governmental insurance policy for pension plans. Twelve years later, Northwest also launched the first nonstop flight between China and the United States, strengthening its position as the leading carrier for China-bound travelers in North America. In this report all of the necessary This is an immediate problem.". Main Office Contribution from Delta Airlines was $77,621,712. Delta, the second-biggest U.S. carrier, said it already has industry-leading retirement benefits, but wouldn't comment specifically on pensions. Will ETFs Ever Break Into the Retirement Plan Space. The statute allows employers to determine what, if any, pension benefits they offer and to offset pension amounts by other income streams. The Labor Department, responsible for enforcing the fiduciary duty requirements, has lately emphasized voluntary compliance, operating a successful amnesty program to help errant pension officials bring their plans back into line. "They are making half a million dollars an hour, every hour of the day, every day of the year, every month, all year long," Mr. Carey said. Technically, everything they did was legal. Regarding the second factor in the 8th Circuits assessment, Ericksen said the committees interpretation of the plan renders the term periodic meaningless. Through the course of its over eight decades as Northwest Airlines, it made plenty of misplaced bets, was involved in numerous fatal incidents, and filed for bankruptcy once. But Northwest Airlines, which filed for Chapter 11 protection on the same day as Delta, has not moved to shed its employees' pensions. Issues were further compounded by the tragic 9/11 terrorist attacks, which caused customer demand for air travel to plummet. Most airlines now have defined contribution retirement plans like a 401(k). send us a brief summary of the Plan (Northwest Airlines Pension Plan for Coleman says he thinks Congress could realistically act on pension reform legislation by the end of November. The standard for the U.S. airline industry is for the company to contribute an amount equal to 16 percent of a pilots pay to their 401(k) plan each month. Airline pilots used to get a sweet deal. In the meantime, he and his wife are considering going back to work or selling their house. That move caused Lewis' pension checks to drop to $1,700 a month, he said. If you follow it, you should be safe. Harris said she's worried about the possibility of losing income and insurance as Northwest reorganizes in bankruptcy. A company would get in trouble with the government if it funded a pension plan too well, but if the plan is under-funded, it causes trouble for retirees. Subscribe and follow. So, for the past three years the company has met the minimum contribution to the Relevant points in the case include that although the agreements calculated the settlement amount from each plaintiffs potential entitlement to permanent total disability benefits, not all the plaintiffs claimed they qualified for permanent total disability. There is a lot of interesting information in Youre probably as surprised as I was to learn how easy it was for the airlines to escape the burden of funding their pension plans. The Northwest Airlines The PBGC hasn't yet taken over Delta's pilot plan, but the airline was required to recalibrate payouts as if it had. U.S. Sen. The US Airways pilot pension plan had about 7,000 participants when it was terminated in 2003, according to the PBGC, while plan assets were valued at $1.2 billion. But that goal hinges on passage of federal legislation that would allow Northwest to stretch out billions of dollars in required pension fund payments. Copyright 2023 Flying Media. Northwest Airlines was founded in 1926 as Northwest Airways and initially served as an airline focused on mail service before expanding into passenger service in 1927. the end of the year). Hope this helps. When a plan is frozen, it generally closes to new participants and benefits won't grow. Copyright 2005 LexisNexis, a division of Reed Elsevier Inc. All rights reserved. The investigation has implications for many businesses besides Northwest that have shaky pension plans. Further, Northwests ambitious expansion into the burgeoning Chinese market quickly came to a halt with the outbreak of severe acute respiratory syndrome (SARS) in 2002, crippling the companys expansion efforts in its historically significant Asia aviation market. Ericksen found the fourth factor also weighed in favor of the defendants. The committee argued that because the lump sums represent a monthly payment for the rest of each plaintiffs life, they are equivalent to retirement income. But Joseph H. Grant, an agency official, said it was "working in close cooperation with the other federal agencies that oversee pension plan operations. "First and foremost, we have to make sure that the pension obligations are met. "Due to the complexity of the calculations, the Employee Service Center will not be staffed to answer questions regarding these calculations," Delta's letter stated. In a press release detailing the merger seen by Simple . "I felt like I had to do it for my family, even though I wanted to stay and fly.". In the motion, Northwest said it was "willing to cooperate fully" with the Labor Department but not unless the government gave it more forceful guarantees that confidential financial information would be kept private and not used "as leverage to pressure" it. They all retired from NWA after April 30, 1992, after having completed 10 years of vesting service. least the amounts necessary to meet minimum funding requirements of ERISA. By that time, three other major U.S. airlines Delta Air Lines, United Airlines, and US Airways had already filed for bankruptcy protection. ending in 2008, 2009, and 2010. Two, it doesn't help for them to be dropped into the lap of the Pension Benefit Guaranty board. Would that Asian influx of NWA given AA more of a foothold in Asia at KIX and also Europe at AMS? United pilots' pension fund was terminated in its 2002 bankruptcy and taken over by the PBGC. Copyright 20082023, Glassdoor, Inc. "Glassdoor" and logo are registered trademarks of Glassdoor, Inc. Former Reservation Sales Agent in Minneapolis, MN, Minnesota. "Several hurdles remain in constructing retirement plan options," Bill Bartels, chairman of the Air Line Pilots Association unit at Delta, said in a separate note to members. But Ericksen found that this allegation fails to state a claim for breach of fiduciary duty because the plan and federal regulations require the committee to apply the plan provisions consistently to similarly situated claimants. Northwest Airlines eventually successful integration of Republic Airlines and its strategic partnership with KLM allowed the airline to return to profitability and some degree of stability. At that time, in late 2004, Delta had just averted a bankruptcy filing, and waves of pilots were retiring. However, by the turn of the millennium, Northwest faced new challenges that forced it to file for bankruptcy protection in 2005. A bankruptcy judge on Tuesday approved United Airlines' landmark plan to dump its underfunded pension plans on a federal agency, a move United said it needed to survive but could trigger a damaging strike against the airline company. You can send Jason questions at editorial@flying.media. Glassdoor is your resource for information about the Pension Plan benefits at Northwest Airlines. Ericksen said one problem with this reasoning is that the plaintiffs agreed to a single payment, not an income stream that would supplement their pension. Millions of miles of flight later, in 1985, Northwest moved its . Northwest Airlines Pension Plan for Salaried Employees (Salaried Plan), the Northwest Airlines Pension Plan for Pilot Employees (Pilot Plan), and the Northwest Airlines Pension Plan for Contract Employees (Contract Plan) (Collectively, the Plans), Located in Eagan, MN A Notice by the Employee Benefits Security Administration on 08/19/2003 funding status report for the Contract Employees Plan. net investment loss $31,410,000. 2015 2019 KN Aviation / Privacy Policy, No, I am not going to tell you how to fly in first class and sip Dom Perignon for free. You're spreading the payments out over time," says McClain. Good move from the consumers aspect. I figure one reason for DAL absorbing NWA was the presence of NWA in Asia, and in AMS. As a subscriber, you have 10 gift articles to give each month. administration expenses 3,405,000. benefits paid beginning of the Plan year and Plan assets at the end of the plan year. The efforts suggest that pilots are ready to play hardball over the issue in the next round of labor talks, starting early next year at American. The company's funding policy is to contribute at If youre like me, you have a flying habit that youll need support. year, amount of money at the end of the year, plan expenses, plan earnings, plan It is posted here for informational purposes only. The PBGC caps payouts at $31,000 or less per year for people who retired at 60, the mandatory retirement age for airline pilots. An S&P index of the five biggest U.S. airlines was little changed at 2:38 p.m. Tuesday, leaving it down 6.1% this year. You have the choice to enroll in Medical/Prescription Drug coverage, Dental coverage and Vision coverage. Agreement Language Anyone can read what you share. I never received a reply Services asking him why the very basic Plan information was not included in the "The management didn't take any hits on their pensions. Ms. DuVaney is a participant in the Contract Plan, a defined benefit plan for union members established by Northwest Airlines Corp. in 1970, covering all Northwest employees before Oct. 1, 2006 . With its clear post-war focus on Asia, Northwest Airlines adopted the brand name Northwest Orient as it continued introducing new Asia routes and adding capacity with new aircraft. (The "That, in conjunction with freezing our pension plan that we've been in discussions to do, should provide the type of relief necessary to maintain the benefits we have." The Labor Department is investigating whether Northwest Airlines systematically shortchanged its employee pension fund over three years, then avoided having to make a $65 million payment to the fund by filing for bankruptcy protection just one day before the payment was due. information was included, amount of money in the fund at the beginning of the But Cochran saw two things when he opened the envelope. Pension plans frozen during airline bankruptcies that rocked the industry over the last decade and a half are a major hurdle to change. Thankfully, most U.S. employers have replaced pension plans with something far better: a 401(k) plan. Some of the delayed contributions are now starting to come due, and the airline has been lobbying Congress to give it still more time. According to the court order, while employed by Delta, the plaintiffs suffered workplace injuries and filed claims for workers compensation benefits under Minnesota law. Your Feedback. "And that hopefully we'll be able to avoid the kind of pension plan termination that the employees of United and US Airways encountered.". Net investment loss from the Northwest Airline Pension Plan for Contract Instead, airlines and other retirement planners hire special statisticians called actuaries to essentially do custom versions of the trinity study for each specific situation. Investment gains (losses) and expenses are allocated to the Plan upon its 8. Adding to the pain of the pension cuts, Delta last week reached agreements with court-appointed retiree creditor groups that will significantly boost almost all retirees' health insurance premiums, pilot and nonpilot alike. Joseph Schwieterman is a transportation expert and professor at DePaul University, who has closely followed the United Airlines bankruptcy. In fact, about 15,200 active United employees live in California. Northwest Airlines lived to fight another day. Has DAL jumped on the cargo aspect that was acquired when NWA was absorbed? Plans 5500 for PYE 9.30.09. With annual pay above $600,000 per year (in todays numbers), a 60 percent FAE pension meant retirees would collect the equivalent of $360,000every yearfor the rest of their lives. Cochran, for instance, hopes to soon begin tapping a $1.2 million lump sum that he got when he retired almost three years ago and put into an IRA account. All of this The carrier continues to pay into a frozen defined benefit plan for pilots at Northwest Airlines, which it acquired. The committee performed a similar reduction for all five plaintiffs. An S&P index of the five biggest U.S. airlines was little changed at 2:38 p.m. Tuesday, leaving it down 6.1% this year. The maximum payout from the PBGC is $45K per annum. Bidens FAA Nominee Faces Military Waiver Challenge, Denver Airport CEO Phil Washington Tangles With Sen. Ted Cruz During FAA Confirmation Hearing, Fraport Tests Autonomous Baggage and Cargo Tractor, Aurrigo International Agrees to Electric Autonomous Vehicle Development Partnership with Singapore's Changi Airport Group, Birmingham-Shutlesworth International Airport Partners with Kuehne+Nagel to Expand Air Cargo Business in the Region. Unfortunately, many companies choose to skimp now, relying on unknowable market performance or profits to save them later. Trust. Lewis also retired four years earlier than he had planned, in order to save his lump sum pension benefit, also $1.2 million. The union is exploring whether they should seek to replace it with a variable plan, while also keeping an existing retirement savings plan to help balance risk. Total cost is only $ 299.00. He said he long thought the pension plan termination was inevitable. The Plan had a net loss of Delta today announced that it has reached a comprehensive settlement agreement that will resolve all issues in connection with the termination of the Delta Pilots Retirement Plan (Pilot Plan) with the Pension Benefit Guaranty Corporation (PBGC), the federal agency charged with insuring the nation's pension plans under ERISA. Administration expenses were $17,035,079. No Reproduction Without Prior Authorizations. Although some may still be displeased with the Northwest Airlines brand no longer being around, the eventual fate of both Delta and Northwest turned out much better than many had ever envisioned with both companies in bankruptcy protection. the Plan under section 402 (a)(1) under the Pension Protection Act of 2006.