NWA pension plans in doubt
Carrier says payouts will continue; analysts say termination likely
By Tom Webb

St Paul Pioneer Press

Northwest Airlines said it didn't want a strike, but one came. It didn't want to file for bankruptcy, then it did.

Now airline officials say they would like to continue their pension plans, but some analysts doubt they will be able to.

"I personally believe no matter how hard they try, they're going to end up terminating the plans," said Douglas Elliott, president of the Center on Federal Financial Institutions in Washington.

"Every other major airline that has gone through bankruptcy has terminated their plans eventually," Elliott said. "And it's also the only significant liability that they can hand to a third party."

If Northwest scraps its pension plans, the airline could potentially erase a $5.7 billion shortfall shifting the costs to the federal government's already-struggling pension agency, and to Northwest's present and future retirees.

Scrapping the pension plans would be explosive among Northwest retirees, but the day may be coming. Hundreds of corporations have already abolished their old-line pension plans, even those without financial troubles.

"These plans are going away," said Ross Azevedo, a human resources professor at the University of Minnesota's Carlson School of Management. "My guess is that as part of the bankruptcy, the company will decide we can't afford this, or can't afford that."

For now, Northwest officials say they'll keep their pension plan, if Congress will pass legislation to let it stretch out its payments for as long as 25 years. "We are determined to continue to push for that legislation so that we'll be in a position to preserve pension benefits that our employees have earned to date," Doug Steenland, Northwest's president and CEO, said in a conference call to reporters Wednesday.

Minnesota lawmakers generally support the idea of an extension.

"There are close to 22,000 people in Minnesota that have a Northwest pension," said U.S. Sen. Norm Coleman, R-Minn. "We're going to be very, very aggressive on making sure that the pension obligation continues to be met by these airlines."

Yet Congress' attention is riveted on Hurricane Katrina, and prospects for other action are cloudy. "Things are looking kind of grim on the pension-relief front," said one House aide.

Some analysts wonder if Northwest's public stance has another target. If its pension plans were terminated, the feds would limit benefits to a maximum of $47,000 a year, hammering some pilots anticipating pensions of up to $100,000 a year.

"The problem Northwest has right now is the upcoming negotiations with the pilots," said the Carlson School's Azevedo. "My guess is that Northwest doesn't want to tick off the pilots."

According to the government's Pension Benefit Guarantee Corporation (PBGC), Northwest's pension plans have $5.8 billion in assets, and $11.5 billion in liabilities. If the pension plans were terminated, the PBGC said it would absorb $2.8 billion. Employees would lose the rest of the shortfall, $2.9 billion.

The pension agency has troubles of its own. It is charged with safeguarding pension benefits for 44 million American workers, yet waves of bankruptcies in the steel and mining industries and now in airlines have left it with $23 billion more in obligations than it has in assets.

Steenland said Northwest wants to avoid terminating its pension plans. United Airlines and US Airways used bankruptcy to dump their pension liabilities onto the PBGC, provoking outrage from some in Congress.

Rep. George Miller, D-Ca., tried and failed to force companies to exhaust every other option before taking such a step. He vows to try again.

"I am very concerned that the hard-earned pensions of hundreds of thousands of Delta and Northwest employees are now at risk," Miller said.

Bloomberg News contributed to this story.