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Airlines

Airlines' Bankruptcy Filings Raise Concerns for Thousands of Employees' Pension Benefits

Strategic Insights

— 2 min read

The simultaneous bankruptcy filings of Delta Air Lines and Northwest Airlines on September 14 have cast a shadow over the pension benefits of thousands of their employees. While Northwest officials have expressed hope to preserve the accrued pension benefits, Delta officials have remained tight-lipped about their plans, stating that the airline's ability to fund the plans will largely determine their future. If the carriers decide to turn over their pension plans to the federal government, tens of thousands of highly paid employees and retirees could face sharp cutbacks in their monthly retirement checks.

Key Takeaways:

  • Delta and Northwest Airlines' bankruptcy filings on September 14 have raised concerns about the pension benefits of thousands of employees.
  • Northwest officials aim to preserve the accrued pension benefits, while Delta officials have not explicitly stated their plans, citing funding as a determining factor.
  • If the airlines turn over their pension plans to the federal government, highly paid employees and retirees could face significant reductions in their monthly retirement checks.
  • The Pension Benefit Guaranty Corp. (PBGC), which guarantees retiree pensions, is already under strain with a deficit of $23.3 billion as of last September 30.
  • The PBGC has raised concerns about its own solvency after taking over thousands of pension plans from companies across various industries, including steelmakers and other airlines.
  • Corporate turnaround specialists, known as vulture investors, often jettison underfunded pension plans of troubled companies as a common strategy, further exacerbating the PBGC's problems.
  • Norman Stein, a pension expert at the University of Alabama School of Law, has criticized the system that can change a well-paid pilot's pension from $150,000 to $35,000 overnight.
  • Both Northwest and Delta have urged Congress to change the law to extend the time for properly funding the plans to preserve pension benefits.

Statistics:

  • Other airlines that have canceled their pension plans in bankruptcy: UAL Corp. (United Airlines), US Airways Group Inc., TWA, Eastern, Pan Am, and Braniff.
  • Estimated deficit of the PBGC: $23.3 billion as of last September 30.
  • Underfunding of Delta's pension plan: $10.6 billion.
  • Underfunding of Northwest's pension plan: $5.7 billion.
  • Maximum annual pension payment for a plan canceled in 2005: $45,613 for people who retire at 65.
  • Maximum annual pension payment for pilots with a plan canceled this year: $29,649.

Sources:

  • Steve Karnowski, Associated Press, "Northwest and Delta File for Bankruptcy Protection"
  • The New York Times, Wilbur Ross interview
  • Pension Benefit Guaranty Corp. (PBGC) data
  • Douglas Elliott, president of the Center on Federal Financial Institutions
  • Norman Stein, pension expert at the University of Alabama School of Law
  • Post file photo, "Checks shrink as pension plans default"

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