NWA freezes pensions of 3,300
Salaried workers to get 401(k) plan
BY Martin J. Moylan
St Paul Pioneer Press
Saturday, July 16, 2005
In a move aimed at helping it cope with its underfunded pension plans, Eagan-based Northwest Airlines is freezing the plan that covers some 3,300 salaried employees.
With the freeze, effective Aug. 31, the employees will be entitled to the pension benefits they have earned as of that day. But their benefits under that plan will not increase as they normally do with wage raises and lengths of service.
And Northwest will make no new payments to the pension plan after Aug. 31, contributing money instead to employee 401(k) accounts.
"This … is a critical step in our strategy to restore profitability and avoid bankruptcy," said Timothy Meginnes, vice president for compensation and benefits, in an e-mail sent Thursday to salaried workers. "But equally as important, it preserves and safeguards the pension benefit that you have already accumulated."
The airline wants to freeze all its pension plans, underfunded by $3.8 billion overall, and move all current employees to a 401(k) style retirement program.
Now that it's freezing the pensions of salaried workers, the airline hopes to have an easier time convincing unionized workers to go along with such a move. For those workers, it's a matter to be settled at the bargaining table.
With its pension plans, Northwest is committed to providing defined payments to employees when they retire. But with the 401(k) plans, it's not. Instead, the airline makes contributions to the plans, leaving employees to mange how the money is invested.
Northwest's pension plans cover some 70,000 current and retired employees, including some 22,000 Minnesotans.
While their pension benefits — and Northwest's funding obligations — will be frozen, the salaried employees could grow their retirement savings through their 401(k) accounts.
Northwest did not say, however, how much it will contribute to the salaried employees' 401(k) accounts.
The pension plan that's getting frozen generally provides retirees with 60 percent of what they earned at the airline. In 2004, the maximum annual benefit was $123,000.
Not affected by the freeze is the supplemental pension plan that covers Chief Executive Doug Steenland, among others. In its last annual report, Northwest indicated that Steenland was on track to receive an annual pension of $947,417 if he retires at age 65.
The airline has said that such generous pensions are needed to recruit and retain top executives.
Northwest has been lobbying Congress to give airlines more time to make payments to underfunded pension plans.
The airline has about $2.1 billion in cash. Those funds are getting eaten up by its continuing losses, now about $3 billion since the start of 2001.
As it now stands, Northwest is on the hook to make a payment of $800 million to its pension plans next year and $1.7 billion in 2007.
If Congress doesn't give it permission to stretch payments out, over as many as 25 years, Northwest has warned that it could file for bankruptcy. That could mean the airline's pension obligations get dumped on the federal agency that insures pensions.
"Both United Airlines and US Airways have already terminated their defined-benefit plans in bankruptcy," Steenland told Congress in June. "Absent immediate action by Congress, the defined-benefit plans at Northwest and at other carriers may very well suffer the same fate."
Martin J. Moylan covers airlines and can be reached at firstname.lastname@example.org or 651-228-5479.