what happened to northwest airlines pension

Required fields are marked *. A fund has been "unfrozen" only once, during steelmaker LTV Corp.'s bankruptcy in the late 1980s, he said. But it has no authority to enforce fiduciary duty. At that time, in late 2004, Delta had just averted a bankruptcy filing, and waves of pilots were retiring. "I get nothing, and I still owe them $907.". Former Northwest Airlines Workers Sue Delta Over Pensions. It is important to remember that under this type of plan, the Alternate Payee is typically not awarded a lump sum cash payment from the Plan. And yet, airline pilots feel like their companies jumped at the opportunity. She dismissed the plaintiffs ERISA claim for equitable relief. 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In its motion for a protective order against the Labor Department's subpoena, Northwest is arguing that the demand is "extremely broad" and that full cooperation could "threaten or undermine" its ability to reorganize in bankruptcy. But Delta moved to terminate the pilot plan anyway, and its pilots union had agreed not to object as part of a new contract deal. An offset is valid under ERISA if it is authorized by the plan. ending in 2008, 2009, and 2010. The PBGC hasn't yet taken over Delta's pilot plan, but the airline was required to recalibrate payouts as if it had. This information was received from an honorable and we thought we would The reason is more complex than the company's simple need to cut retiree costs. are $1,665,979,000. I never received a reply Despite this assertion, a payment made to settle a legal claim is not the same relief as the payment Delta would have owed had the plaintiffs ultimately succeeded in their workers compensation actions. Coleman says he thinks Congress could realistically act on pension reform legislation by the end of November. The company said it planned to forgo . on enforcing the pension law's minimum funding requirements. Once a company declares bankruptcy, an automatic stay prevents creditors from placing liens on corporate assets and forcing the company to pay its debts, including debts to its pension funds. An official website of the United States government. You can find everything printed here in Deltanet Employee Connection (found on All of this 2015 2019 KN Aviation / Privacy Policy, No, I am not going to tell you how to fly in first class and sip Dom Perignon for free. With annual pay above $600,000 per year (in today's numbers), a 60 percent FAE pension. "And three, there is some legislation and ways to do that by simply amortizing payments over a longer period of time.". In its filing for Chapter 11 bankruptcy protection, Northwest Airlines highlighted a pension deficit that's now reached $3.8 billion. While Northwest Airlines evolved to become much more than a domestic and transpacific airline, it remained a pioneer in the Asian aviation market throughout its history as an independent airline. You can also subscribe without commenting. Administration expenses were $17,035,079. Issues were further compounded by the tragic 9/11 terrorist attacks, which caused customer demand for air travel to plummet. "They are making half a million dollars an hour, every hour of the day, every day of the year, every month, all year long," Mr. Carey said. It turns out that our 4 percent rule is more of a conservative rule of thumb. Net investment loss from the Northwest Airline Pension Plan for Contract Employees portion of the Master Trust was $31,409,821. St. Paul, Minn. Northwest Airlines' move to bankruptcy court came as unsettling news for Linda Harris of Niceville, Florida, a former Northwest flight attendant. Airlines. Services asking him why the very basic Plan information was not included in the Northwest Airlines route network in Asia quickly expanded, with destinations such as Okinawa, Seoul, Manila, Shanghai, and Taipei added to its offerings. To meet debt obligations, Northwest offloaded assetsincluding aircraftand forced employee groups to accept lowered salaries to stay afloat amid the Gulf War, which added further strain to Northwests business. If I was shopping for jobs and a potential employer offered a pension plan, Id personally rank that as a big minus! More than 2,300 pilots had retired since 2003, draining plan assets. Reported by Rebecca Moore Northwest's filing with the Securities and Exchange Commission says that participants' benefits accruals were frozen as of August 31. The nine named plaintiffs in this action were mechanics for Defendant Northwest Airlines ("NWA"). (I say this is a bad idea because most prognosticators get it wrong. Ideally, youd think that a responsible company would want to ensure theyre always on or above final glide for their pension obligations. In this report all of the necessary If our laws were able to look long-term, and airlines had been more confident in their ability to survive through to better times, they might have been able to just skimp through those tough years. He didn't believe the carrier's pension plan could long continue to pay out lump sums. He said he's worried about insurance in the future, because his 57-year-old wife, Susan, has diabetes. NORTHWEST AIRLINES INC. 2700 Lone Oak Pkwy. Contribution from Delta Airlines was $77,621,712. This mismatch between the payment calculation and the underlying claim suggests that the calculation was made for some purpose other than to create a periodic workers compensation entitlement, she wrote in her order. Its first international flight was from the Twin Cities to Winnipeg in 1928, according to the Minnesota Historical Society (MHS). Oct.1, 2009, and the amount at the end of the year, Sep.30, 2010. Kight said that while about 1,300 ex-pilots' monthly pension checks were wiped out, a slightly larger number of the carrier's oldest pilot retirees saw no reduction. Thats a Good Thing, A Better Way to Fund Electric Aircraft R&D. 's systems for evaluating such applications and following up to make sure the companies eventually made good. If airlines conclude that it is no longer efficient to run an aircraft, then it goes through the retirement process. $194,155,000. Therefore, the committees decision to deduct the represented monthly payment did not support the plans goal of preventing duplicative retirement income. The Internal Revenue Service shares enforcement of the pension law, and it sometimes imposes excise taxes on companies that skip their pension payments. The Labor Department is investigating whether Northwest Airlines systematically shortchanged its employee pension fund over three years, then avoided having to make a $65 million payment to the fund by filing for bankruptcy protection just one day before the payment was due. It suggests that the Labor Department is looking for a way to break an entrenched pattern, in which distressed companies quietly deplete their pension funds over a number of years, then declare bankruptcy and transfer huge obligations to the federal government. Copyright 2023 Flying Media. administration expenses 3,405,000. benefits paid "The only ones that are getting their pensions dumped are the retired pilots.". $194,155,483 (benefits paid). "Due to the complexity of the calculations, the Employee Service Center will not be staffed to answer questions regarding these calculations," Delta's letter stated. The investigators appear to be tracing the steps that led to the pension fund's recent shortfall of $5.8 billion, and whether Northwest violated any laws. Breach of fiduciary duty and wrongful denial of benefits are distinct causes of action so a plaintiff may pursue both under ERISA, she said.The plaintiffs allege that the committee denied their claims because it consulted with the Workers Compensation Department, a party alleged to have an interest adverse to participants. The merger propelled it to become the worlds largest airline in practically every metric until the American Airlines-US Airways merger half a decade later. Your response will be removed from the review this cannot be undone. Very interesting read you have given us about Northwest Airlines. Reproduction in whole or in part without permission is prohibited. These plans allow individual employees to control their own investments, and theyre completely protected from the company or its creditors. Service Provider information is on Pages 25 to 32, compensation for those Now, over a decade after the merger, Delta Air Lines is still alive and well, ranking as the most profitable airline in the Fortune 500. Instead, they were able to convince U.S. bankruptcy courts that their pension funds were insolvent, without any hope of recovery. Plans 5500 for PYE 9.30.09. What he found inside was worse. Also, Delta notified each plaintiff that it was reducing his monthly pension benefit to account for workers compensation benefits paid to [him] due to loss of wages with respect to a period of time after age 65.. "That, in conjunction with freezing our pension plan that we've been in discussions to do, should provide the type of relief necessary to maintain the benefits we have." Delta, which had emerged from bankruptcy protection just a few weeks prior, was in a similar position. Invest as much as you can for your own future. Weirton Steel (2004) [See Jobs With the Best Retirement Benefits .] Home When Northwest Airlines and Delta Air Lines merged in 2008, they created the worlds largest airline, and one that to this date still ranks as the largest in several metrics including assets owned and market capitalization. United's problems became front-page news last month when it failed to make a $72.4 million payment that was owed to three of its employee pension plans. If you follow it, you should be safe. declined yesterday to say whether it was working with the Labor Department on the Northwest investigation. The Pension Benefit Guaranty Corporation, which has taken over the failed plans, has gone to court to try to hold some of those companies responsible, but it has little power to act until after a pension fund has failed, and by then it is usually too late to recover much of the missing money. The PBGC caps payouts at $31,000 or less per year for people who retired at 60, the mandatory retirement age for airline pilots. Trust. You can send Jason questions at [email protected]. Total cost is only $ 299.00. Page 49 of 61. Northwest Airlines employees were among approximately 200 people in attendance at a White House ceremony where President Bush signed the Pension Protection Act into law."On behalf of all . A Northwest spokesman said yesterday that the company had provided some of the documents sought, but was fighting to keep others confidential, and was scheduled to appear in court later this month to argue for a protective order. You started working for a company in your 20s, stayed there for 40 years, and then that company paid you a pension for the rest of your life. Attorneys Say Guaranteed Income Safe Harbor Clearer Than Previous Guidance, 702 King Farm Boulevard, Suite 400, Rockville, MD 20850 / +1 212-944-4455 /. Citing a provision of the plan that requires Delta to offset pensions by the amount of other income-replacement benefits, Delta has reduced each plaintiffs monthly pension by an amount calculated in his workers compensation settlement agreement. Retirees would eventually get a payout based on whatever money happened to be in the fund. Contract Employees) including benefits paid to retirees, Plan expenses, Plan I figure one reason for DAL absorbing NWA was the presence of NWA in Asia, and in AMS. So, for the past three years the company has met the minimum contribution to the Norm Coleman, R-Minn., is one of the airline's allies on the issue, and co-author of a pension reform bill. Glassdoor is your resource for information about the Pension Plan benefits at Northwest Airlines. Contact Us Or, in other words, it was quite an ordinary major airline. For suggestions and comments, please click the Contact link at the bottom of this page. Northwest's pension fund consists of three individual plans, for about 8,000 pilots, 9,000 salaried employees and 52,000 unionized workers, including mechanics and agents. She did find that nothing in the committees interpretation appears to conflict with the substantive or procedural requirements of ERISA. Unlike most employees, retiring Delta pilots until 2005 could cash out half their pension benefits in lump sums that sometimes topped $1 million. The statute allows employers to determine what, if any, pension benefits they offer and to offset pension amounts by other income streams. $164,978,671 (amount of money in the plan at the start of the year and amount at "Delta's making enough money to keep the plan," said Lewis. information was included, amount of money in the fund at the beginning of the 2010 in the funding status report of the Northwest Airline Pension Plan for Lets say an airline could predict a few lean years ahead and it wanted to put extra money into its pension fund to protect its employees. In the motion, Northwest said it was "willing to cooperate fully" with the Labor Department but not unless the government gave it more forceful guarantees that confidential financial information would be kept private and not used "as leverage to pressure" it. The I.R.S. Northwest's CEO Doug Steenland said the carrier has strong and committed supporters in Congress trying to make the needed changes in pension law. Delta is the third major airline to dump all or part of its pension obligations as part of a recent Chapter 11 reorganization, after US Airways and United. One was a letter from Delta telling him that, as of Oct. 1, his benefit was zero. But Ericksen found that this allegation fails to state a claim for breach of fiduciary duty because the plan and federal regulations require the committee to apply the plan provisions consistently to similarly situated claimants. maintaining the fund, fees and commissions. Millions of miles of flight later, in 1985, Northwest moved its . However, if the balance gets too high above the actuarially calculated glideslope, he starts to think the company is trying to get away without paying taxes. year, amount of money at the end of the year, plan expenses, plan earnings, plan This prompted Northwest Airlines to expand its domestic feeder network and intensify expansion across the Atlantic, where it was far from as dominant as in the Pacific market. Cochran said he flew extra trips before retiring, boosting his income to $240,000 a year. send us a brief summary of the Plan (Northwest Airlines Pension Plan for A federal judge has denied dismissal of a lawsuit in which five former employees of Delta Air Lines allege Delta and its administrative committee improperly reduced their pension benefits from the Northwest Airlines Pension Plan for Contract Employees. American is seeking its own meeting. Therefore, she said this factor weighs in favor of the defendants. Delta pilots have met with counterparts at FedEx Corp., where union leaders are evaluating possible remedies to a shortfall in retirement benefits for the company's senior aviators. United pilots' pension fund was terminated in its 2002 bankruptcy and taken over by the PBGC. Delta recently estimated that retired pilots' average benefit will still be $75,200 on an annualized basis after the termination --- a figure that assumes self-disciplined drawdowns from their lump sums. beginning of the Plan year and Plan assets at the end of the plan year. At the end of 2004, the plans owed a total of $9.2 billion to their participants but had assets of just $5.4 billion. Circuit Court of Appeals assesses five factors when deciding whether an Employee Retirement Income Security Act (ERISA) administrator interpreted a plan reasonably: (1) whether the interpretation was consistent with the goals of the plan, (2) whether the interpretation renders any language of the plan meaningless or internally inconsistent, (3) whether the interpretation conflicts with the substantive and procedural requirements of ERISA, (4) whether the words at issue were interpreted consistently, and (5) whether the interpretation is contrary to the clear language of the plan. It followed by a few weeks the Chapter 11 filings of Delta Air Lines and Northwest Airlines, whose pension promises to workers exceeded the assets in their pension funds by an estimated $16. Agreement Language A recent memo issued by the Delta union's Atlanta chapter talks about considering a "defined benefit-like" plan. In its filing for Chapter 11 bankruptcy protection, Northwest Airlines highlighted a pension deficit that's now reached $3.8 billion. Types of QDROs Unfortunately, our countrys laws make every traditional pension plan this vulnerable. Many products featured on this site were editorially chosen. The union is exploring whether they should seek to replace it with a variable plan, while also keeping an existing retirement savings plan to help balance risk. With annual pay above $600,000 per year (in todays numbers), a 60 percent FAE pension meant retirees would collect the equivalent of $360,000every yearfor the rest of their lives. What was NWA cargo business like e.g., profitable, steady, etc.? "The management didn't take any hits on their pensions. Letter from President Since then, it has been seeking additional ways to reduce or postpone its contributions for 2004, 2005 and beyond. With KLMs transatlantic and European routes now part of its network, Northwest Airlines was essentially covered on all fronts through its long-running transpacific network, its domestic network boosted by the acquisition of Republic Airlines, and now also across the Atlantic thanks to KLM. The Labor Department, responsible for enforcing the fiduciary duty requirements, has lately emphasized voluntary compliance, operating a successful amnesty program to help errant pension officials bring their plans back into line. Separately, the airline has been lobbying Congress for special relief from the pension law. That means Northwest hopes to bypass the Pension Benefit Guaranty Corp., a federal agency that takes over when employers default on their pension obligations. Retirees sued for denial of benefits, claiming Delta was wrong to offset their pension payments by a workers' compensation settlement they received. Just two years after its founding, Northwest Airlines started its first international service, to Canada, which would prove the humble beginnings of Northwests soon internationally-oriented business. As he suspected, several months later, the pension plan halted paying out lump sums. It is posted here for informational purposes only. This factor weighs in favor of plaintiffs, Ericksen wrote in her order. Under this reading, any settlement for a workers compensation claim would be periodic, making the phrase periodic benefits payable identical to benefits payable and rendering the word periodic meaningless. Plan year 10/01/2008 to 09/30/2009. Investment gains (losses) and expenses are allocated to the Plan upon its The retired Boeing 767 captain said he expected his $2,460-a-month pension to shrink by about 70 percent after Delta last summer won bankruptcy court approval to terminate its pilot pension plan. For instance, Northwest Airlines refused to follow U.S. airline peers in raising ticket prices in 2004winning it customers but costing it some much-needed potential profits. By 1989, as ill effects from the problematic integration of Republic Airlines had mostly subsided, Northwest was bought out by a consortium of investors that included KLM in a leveraged buyout that turned out extremely costly for the company. Relevant points in the case include that although the agreements calculated the settlement amount from each plaintiffs potential entitlement to permanent total disability benefits, not all the plaintiffs claimed they qualified for permanent total disability. If a company tried to save extra anyway (because its the right thing to do by their people) theyd just be hit with IRS fines and penalties. While the merger meant the complete disappearance of the Northwest Airlines brand, it did mean that both airlines would enjoy greater economies of scale and a chance to regain trust among consumers after a turbulent period for both airlines. He said Delta has broken its promises to him while maintaining the pension plans of most other employees and retirees. Two, it doesn't help for them to be dropped into the lap of the Pension Benefit Guaranty board. U.S. Investigates Pension Fund at Northwest Air, https://www.nytimes.com/2006/03/15/business/us-investigates-pension-fund-at-northwest-air.html. Ms. DuVaney is a participant in the Contract Plan, a defined benefit plan for union members established by Northwest Airlines Corp. in 1970, covering all Northwest employees before Oct. 1, 2006 . "We kind of expected that the benefit would go to zero, but it's a shock when that letter shows up," said Lewis. Airline officials say they want to avoid handing off their pension obligation on the federal government. Glassdoor is your resource for information about the Pension Plan benefits at Northwest Airlines. 53 of 61. Good move from the consumers aspect. The Senate has passed a measure that would give Northwest and the other major airlines 20 years to catch up on their pension contributions -- nearly three times as long as most companies would get under a major revision of the pension law that has been passed by both houses of Congress. According to the court order, while employed by Delta, the plaintiffs suffered workplace injuries and filed claims for workers compensation benefits under Minnesota law. Employees caught up in recent pension fund collapses have said they were not adequately warned of the impending failure and have questioned how it could have happened if the people in charge had kept their interests foremost. Pension plans frozen during airline bankruptcies that rocked the industry over the last decade and a half are a major hurdle to change. document.getElementById( "ak_js_1" ).setAttribute( "value", ( new Date() ).getTime() ); Hi! 3.0. pass it on to interested parties. losses, employer contributions and benefits paid to retirees. The investigation has implications for many businesses besides Northwest that have shaky pension plans. Notify me of followup comments via e-mail. Still, he is philosophical about Delta's pension-cutting moves. The Need for Speed in Trend-Following Strategies, Global Fixed Income: Volatility and Uncertainty Here to Stay, Morningstar Indexes' Annual ESG Risk/Return Analysis, 2023 Outlook: The Top Five Trends to Monitor in the Year Ahead, Show Me the Income: Discovering plan sponsor and participant preferences for cr, The Future of Infrastructure: Building a Better Tomorrow, For institutional investors, ETFs can make meeting liquidity needs easier, Gold: the most effective commodity investment, 2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios, Ten ways retirement plan professionals add value to plan sponsors. It's just not going to be as much fun as I thought it would be," he said. But Delta moved quickly to cut pension expenses, winning court approval to stop paying the portion of retired pilots' and executives' pensions that exceeded federal income limits on traditional pensions. The maximum payout from the PBGC is $45K per annum. However, not even a year after that, the merger of the two airlines was announced. To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market. No Reproduction Without Prior Authorizations. Administration expenses were $17,035,079. In the meantime, take charge of your own finances. 685 Third Avenue By filing for bankruptcy when it did, Northwest made the federal government an unsecured creditor for the $65 million that was coming due the next day. You have the choice to enroll in Medical/Prescription Drug coverage, Dental coverage and Vision coverage. In fact, about 15,200 active United employees live in California. Dated 2009. Fortunately for Northwest, a solution emerged in one of its owners, KLM, with which it entered a strategic alliance.