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Pilot Pensions in Peril

Old 09-30-2005, 07:58 PM
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Default Pilot Pensions in Peril

Airline problems put pilot pensions in peril
By Steve Karnowski
THE ASSOCIATED PRESS
Sunday, Oct. 02 2005

MINNEAPOLIS

Murray Specktor, a first officer who flew Boeing 747-400s on Northwest
Airlines' routes across Asia, took early retirement this year at the age of 52,
knowing he wouldn't get a huge pension.

Now that the carrier has filed for bankruptcy protection, he fears his monthly
payments will be cut as much as 70 percent.

"I just wanted to move on and do some other things," he said from his home in
Palm Springs, Calif. "I retired with a reasonable expectation that the pension
I retired on would be available to me."

Northwest Airlines Corp. of Eagan, Minn., and Delta Air Lines Inc. of Atlanta
filed for Chapter 11 bankruptcy on Sept. 14. Northwest officials have said they
hope to preserve the pension benefits employees have accrued so far. Delta
officials haven't said they plan to terminate their plans, but that their
future will depend on the airline's ability to fund them.

If Specktor's fears come true and the carriers turn the plans over to the
government, tens of thousands of highly paid employees and retirees at the
carriers could face sharp cutbacks in their retirement checks.

The Pension Benefit Guaranty Corp., the federal agency set up to guarantee
retiree pensions, already has raised red flags about its own solvency after
having thousands of pension plans dumped on it by hundreds of steelmakers,
other airlines and companies across a spectrum of industries.

Adding to the PBGC's strain, say some insiders, is a category of corporate
turnaround specialists sometimes known as vulture investors, for whom
jettisoning the underfunded pension plans of troubled companies is a common
strategy.

Wilbur Ross, who turned a handsome profit when he used the strategy in buying
up five failing steel companies including Bethlehem Steel and Weirton Steel,
told The New York Times he's looking at investing in struggling auto parts
makers such as Delphi Corp.

When the government takes over a pension plan, the pay-outs usually don't
change. But airline pilots, and sometimes other employees, can take enormous
hits when a plan is turned over to the PBGC. Federal law limits annual pension
payments for plans canceled in 2005 to $45,613 for people who retire at age 65.

Pilots must retire by age 60, but because the rules that govern the PBGC
penalize retirements before 65, their maximum annual payment in a plan canceled
this year would be $29,649, according to the PBGC.

That would be a big hit for Les McNamee, who retired from Northwest in 2001 and
draws an annual pension of $94,000. But McNamee, who still works full time
flying corporate jets, said he's saved diligently and is more concerned for
other pilots than for himself.

"Some of the people who didn't plan ahead are going to get hurt, and that's the
sad part," he said. "It's a shame ... that large corporations can just walk
away from their obligations."

Some people may have trouble sympathizing with well-paid pilots, said Norman
Stein, a pension expert at the University of Alabama School of Law. But he
pointed out that for many pilots, it's almost too late to make up the
difference.

"I think there's something wrong with a system that can change, with the stroke
of a pen, a $150,000 pension to a $35,000 pension overnight," Stein said.

Both Northwest and Delta say that to preserve those pensions, Congress will
have to change the law to stretch out the time they have to properly fund the
plans. If Congress doesn't, experts agree, the airlines' chances of sparing
their pension plans are small.

Douglas Elliott, president of the Center on Federal Financial Institutions,
which monitors the PBGC, predicted that Northwest and Delta will come under
heavy pressure from investors to turn their pensions over to the government.

"It's the only obligation of any size where they can hand over a substantial
part of it to a third party," Elliott said.

PBGC spokesman Randy Clerihue said it's not as easy as some people think.

"You have to meet the legal test, and Congress set a pretty high bar. It's turn
over your pension plan or go out of business," Clerihue said.

But UAL Corp.'s United Airlines, US Airways, Trans World Airlines, Eastern, Pan
Am and Braniff all canceled their pension plans in bankruptcy, Elliott noted.
Pension plans also were casualties in the shakeout of the metals and mining
industries at companies such as Bethlehem Steel, LTV, National Steel and Kaiser
Aluminum.

"It's largely been two industries" so far, Elliott said. "Virtually every steel
company has gone through this already, with the exception of U.S. Steel. A lot
of the airlines have gone through it, and probably some more will before we are
done. And after that, some of the auto parts suppliers are on the edge. And the
real nightmare scenario would be if GM or Ford went."

The PBGC is already facing serious problems of its own - a deficit estimated at
$23.3 billion as of Sept. 30, 2004, which will swell if Delta or Northwest
defaults. The PBGC puts Delta's underfunding at $10.6 billion and Northwest's
at $5.7 billion.

Clerihue acknowledged that if the PBGC were a private insurer it would
technically be deemed insolvent.

"The findings are generally consistent - there's a deep hole, it's going to get
deeper and at some point we will run out of cash unless Congress changes the
law," he said.

To Specktor, it would be unconscionable if Congress fails to act. "It makes
absolutely no sense that the government would not grant that relief rather than
putting this burden on the PBGC," he said.
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