The Association of U S West Retirees



Congress Nears a Pension Bill,
As Airlines Seem to Get Relief
By Deborah Solomon and David Rogers in Washington and Evan Perez in Atlanta
Wednesday, July 19, 2006

Members of Congress neared a deal on a long-awaited pension bill as airline executives appeared to make headway in winning more time to fully fund their employee pension plans.

While details aren't final and much could still change, House and Senate negotiators have largely resolved some major sticking points, including giving struggling airlines some form of relief and making it easier for investment firms to provide advice to their 401(k) clients.

Negotiators have been working for months to complete sweeping changes aimed at ensuring that companies are able to meet their financial obligations to the 44 million employees with defined-benefit pension plans.  U.S. companies have underfunded their pensions by an estimated $450 billion and some companies, including the airlines, have begun abandoning their pension plans as they hit rocky times.

After seeming to drift for months this spring and summer, the pension talks have picked up energy in recent days.  This past weekend, a bipartisan bloc of five House and Senate members began drafting a proposed settlement independent of Sen. Michael Enzi (R., Wyo.), the official leader of the talks and chairman of the Senate Health, Education, Labor & Pension Committee.

The unusual process is politically delicate for all involved, but it has had the active support of House Majority Leader John Boehner (R., Ohio).  "I think we are very close to an agreement," Mr. Boehner said yesterday.  Montana Sen. Max Baucus, the ranking Democrat on the Senate Finance Committee, said there's a "good chance of getting this all wrapped up before the August recess."

With the House due to go home for the summer July 28, time is a problem.  The Senate, which will remain until Aug. 4, has more time for debate, but getting the bill to the floor next week will require final decisions in the next day or two.

While details are still being ironed out, the agreement will mandate that companies fully fund their pension plans and that companies shore up their plans if they are deemed "at-risk" of abandoning them. It will also seek to shore up the Pension Benefit Guaranty Corp., which insures defined-benefit plans and faces a $22.8 billion deficit.

The agreement is also expected to include a break for Northwest Airlines and Delta Air Lines, giving them a period of 20 years to fully fund their pension plans, rather than the seven-year deadline all other companies would face.  The agreement would also require the airlines to freeze pension benefits and close pension plans to new employees.  Continental Airlines and AMR Corp.'s American would likely get a 10-year deadline to meet their current pension obligations and could increase benefits for current participants if they set aside enough money up front to pay for those benefits, but would also have to close the plan to new entrants.

Pressure to include some form of airline relief has been building and this week, the chief executives of Northwest Airlines and Delta Air Lines, along with scores of their employees, hit Capitol Hill to lobby for a break.  Yesterday, Northwest Airlines CEO Doug Steenland said that his company may have to terminate its retirement plans if Congress doesn't move quickly to give it a break on its funding requirements.

"If we don't get legislation promptly, we may have no choice but to commence the process of termination," Mr. Steenland told reporters.  Northwest already has frozen some of its pension plans but terminating them would dump them on the PBGC and result in substantial cuts in pension benefits for employees.

Northwest and its six unions brought more than two hundred employees to fan out across the Capitol with meetings with lawmakers, including Sens. Norm Coleman (R., Minn.) and Trent Lott (R., Miss.).  Delta and a group called the Delta Air Lines Retirement Committee, which represents the Atlanta airline's nonunion retirees, brought over 100 employees and retirees for visits to more than 60 congressional offices, including Sen. Johnny Isakson (R., Ga.), one of the chief backers of the legislation.

Atlanta-based Delta and Northwest, of Minneapolis, filed for bankruptcy last September, and their finance executives are working on business plans that would allow them to exit from Chapter 11 as soon as next spring.  Delta's pensions were underfunded by $6.4 billion and Northwest's by $3.7 billion at the end of 2005.

Delta, which has filed to terminate the pension plan for its pilots, says securing financing to exit from bankruptcy is dependent on knowing the fate of the pension plan covering its 91,000 other workers and retirees.

Aside from airline relief, legislators are still wrestling with whether to allow Wall Street firms to give financial advice to 401(k) participants, even if the firm's own financial products are among those that the employee can pick.  The measure is backed by Mr. Boehner but some other congressmen have expressed concern that firms would steer clients to their own products instead of to those that best suit a client's needs.  Negotiators are now considering a compromise that would allow firms to give advice, as long as they provide the client with an independent, computer-generated model.

Another sticking point that seems nearing a resolution is on employers' use of so-called cash-balance plans, or hybrid pension plans that combine aspects of a defined-benefit plan and a defined-contribution plan, such as a 401(k).  Negotiators are favoring a provision that would allow companies, going forward, to switch their employees from a defined-benefit plan to a cash-balance plan without violating age-discrimination rules.

Write to Deborah Solomon at, David Rogers at and Evan Perez at