Northwest to cooperate with pension probe
By Joshua Freed, AP Business Writer
Rocky Mountain News
Thurday, March 16, 2306
MINNEAPOLIS (AP) -- Northwest Airlines Corp. said on
Wednesday that it will cooperate with Labor Department
investigators investigating its underfunded pension plan.
The agency is investigating "whether any person has violated
or is about to violate" pension law, according to a letter
sent with the subpoena issued in January.
Northwest fought the broad subpoena, saying it requested
documents such as its business plan that would harm it if
the department disclosed them to competitors. Northwest
demanded that Labor sign a confidentiality agreement, which
the department signed on Monday, Northwest said.
Northwest said it paid its pension obligations in full and
on time until it filed for Chapter 11 bankruptcy
protection. However, by filing for protection on Sept. 14,
it did avoid a $65 million payment to its pension plan that
would have been due the next day.
When a company files for protection all creditors are stayed
or prevented from enforcing their claims.
The subpoena also seeks any documents related to Northwest's
decision to seek bankruptcy protection, and asks for "all
documents and communications" related to stock sales by
officers or directors.
Northwest Chairman Gary Wilson sold off nearly all of his
stake in the airline during the summer of 2005, including a
series of sales made a few weeks before Northwest filed for
Chapter 11 protection, but not disclosed until afterward.
The airline blamed the delay on an administrative error.
Northwest said the Pension Benefit Guaranty Corp. signed a
similar confidentiality agreement before receiving Northwest
documents last year.
Before it filed for bankruptcy protection, Northwest said it
owed catch-up pension payments of $800 million this year and
$1.7 billion next year to a plan that's underfunded by $3.8
billion. The PBGC calculates the shortfall at $5.7 billion.
But it won't be paying that since it is now in bankruptcy.
The airline said it has contributed enough to its pension
plans to cover the benefits earned by employees since the
date of its Chapter 11 filing.
"This is all that Northwest is legally allowed to do and
more than some other bankrupt airlines have done," the
"Northwest is seeking to preserve the pension plans and to
pay off the unfunded amounts," it said. "Every other
airline that recently has filed Chapter 11 has terminated
its pension plans. Northwest is seeking another result."
In 2003, the Internal Revenue Service granted Northwest a
five-year extension to make its catch-up pension payments.
But it has been seeking a change in pension law that would
allow it to spread those payments out.
If the law doesn't change, Northwest workers fear the
company will dump the pensions on the Pension Benefit
Guaranty Corp., which takes over failed pensions. UAL
Corp.'s United Airlines and US Airways Group Inc. each did
that with some of their pensions during their own
reorganization cases. If that happens, some workers -
particularly pilots - would get less.
That's exactly why the government is taking a close look at
Northwest's pensions, said Gary Chaison, an industrial
relations expert at Clark University in Worcester, Mass.
"They're very much worried that there's going to be a
wholesale abandonment of pension plans," he said of the
Department of Labor. "They want to make it as difficult as
A pension overhaul bill is being negotiated in a
House-Senate conference committee.
But only the Senate bill includes relief aimed specifically
at the airline industry.
Joshua Freed can be
reached at jfreed(at)ap.org