Originally Posted by
300SMK
Pull up a 10k and see how much DL owes the PBGC, we owe more than AA. Delta never reports that debt when the say, "we want to get down to $7bn..." So while DL skipped town on retirement contributions and made record profits AA couldn't or didn't want to make it look like they could swing both either. Several years later and miraculously everyone can. It just stinks. Pillage the employees and return shareholder value. When there's no one left to keep the inflation train moving along you'll know where to look.
OK, 10-K.
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Table of Contents
Defined Benefit Pension Plans
We sponsor defined benefit pension plans for eligible employees and retirees. These plans are closed to new entrants and frozen for future benefit accruals. As of December 31, 2015, the unfunded benefit obligation for these plans recorded on our Consolidated Balance Sheet was $11.2 billion. During 2015, we contributed $1.2 billion to these plans and recorded $240 million of expense in salaries and related costs on our Consolidated Statement of Operations. In 2016, we estimate we will contribute at least $1.0 billion to these plans, including $500 million of contributions above the minimum funding requirements, and that our expense will be approximately $250 million. The most critical assumptions impacting our defined benefit pension plan obligations and expenses are the discount rate, the expected long-term rate of return on plan assets and life expectancy.
Weighted Average Discount Rate. We determine our weighted average discount rate on our measurement date primarily by reference to annualized rates earned on high-quality fixed income investments and yield-to-maturity analysis specific to our estimated future benefit payments. We used a weighted average discount rate to value the obligations of 4.57% and 4.14% at December 31, 2015 and 2014, respectively. Our weighted average discount rate for net periodic pension benefit cost in each of the past three years has varied from the rate selected on our measurement date, ranging from 4.10% to 4.99% between 2013 and 2015.
Expected Long-Term Rate of Return. Our expected long-term rate of return on plan assets is based primarily on plan-specific investment studies using historical market return and volatility data.Modest excess return expectations versus some public market indices are incorporated into the return projections based on the actively managed structure of the investment programs and their records of achieving such returns historically. We also expect to receive a premium for investing in less liquid private markets.We review our rate of return on plan assets assumptions annually.Our annual investment performance for one particular year does not, by itself, significantly influence our evaluation.The investment strategy for our defined benefit pension plan assets is to earn a long-term return that meets or exceeds our annualized return target while taking an acceptable level of risk and maintaining sufficient liquidity to pay current benefits and other cash obligations of the plan. This is achieved by investing in a globally diversified mix of public and private equity, fixed income, real assets, hedge funds and other assets and instruments.Our expected long-term rate of return on assets for net periodic pension benefit cost for the year endedDecember 31, 2015 was 9%.
The impact of a 0.50% change in these assumptions is shown in the table below:
Change in Assumption
Effect on 2016
Pension Expense
Effect on Accrued
Pension Liability at
December 31, 2015
0.50% decrease in weighted average discount rate
-$1 million
+$1.3 billion
0.50% increase in weighted average discount rate
-$2 million
-$1.2 billion
0.50% decrease in expected long-term rate of return on assets
+$50 million
—
0.50% increase in expected long-term rate of return on assets
-$50 million
—
Life Expectancy. We have historically utilized the Society of Actuaries' ("SOA") published mortality data in developing a best estimate of life expectancy. During 2014, the SOA published updated mortality tables for U.S. plans and an updated improvement scale, which both reflect improved longevity. Based on an evaluation of these new tables and our perspective of future longevity, we updated the mortality assumptions in 2014 for purposes of measuring pension and other postretirement and postemployment benefit obligations. The improvement in life expectancy increases our benefit obligations and future expense as benefit payments are paid over an extended period of time.In 2015, we reviewed the mortality assumptions and concluded that the assumptions used in 2014 continue to represent our best estimate of long-term life expectancy. We will continue to review our assumptions on an annual basis.
Funding. Our funding obligations for qualified defined benefit plans are governed by the Employee Retirement Income Security Act. The Pension Protection Act of 2006 allows commercial airlines to elect alternative funding rules (“Alternative Funding Rules”) for defined benefit plans that are frozen. Delta elected the Alternative Funding Rules under which the unfunded liability for a frozen defined benefit plan may be amortized over a fixed 17-year period and is calculated using an8.85%discount rate. In addition, because of statutory pension funding relief that applies to us, we have until 2031 to fully fund our pension plans.
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While the Pension Protection Act makes our funding obligations for these plans more predictable, factors outside our control continue to have an impact on the funding requirements. Estimates of future funding requirements are based on various assumptions and can vary materially from actual funding requirements. Assumptions include, among other things, the actual and projected market performance of assets, statutory requirements and demographic data for participants. For additional information, see Note 9 of the Notes to the Consolidated Financial Statements.