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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