Delta to dump pension plans
Letter from Delta CEO says that bankrupt airline will terminate pilots' pension plan Monday, effective Sept. 2; federal pension agency could take biggest hit ever if other Delta plans follow suit.
NEW YORK (CNNMoney.com) - Delta Air Lines will move to terminate its pilot pension plans Monday, attempting to shift responsibility for the future benefits to the federal agency that guarantees such payments.
The decision, which was not unexpected, was announced in a letter from Delta CEO Gerald Grinstein to Sen. Johnny Isakson, R-Ga., Friday. Delta intends the termination of the plan to take effect Sept. 2.
Isakson has been backing legislation supported by Delta that would have helped it keep its pension plans operating. CNNMoney.com obtained a copy of the letter.
"I want to be sure you are aware of a necessary but difficult step Delta must take, why that step is essential to the long-term survival of our company," said Grinstein's letter.
The government agency that could be stuck with plan, the Pension Benefit Guaranty Corp., did not have an immediate comment on Friday, nor did the Air Line Pilots Association, the union that represents 6,000 pilots at Delta.
Delta's latest 10K filing with the Securities and Exchange Commission estimates that the pilots' plan has an underfunding of $6.3 billion by itself. It covers about 13,000 pilots, retirees and surviving spouses.
The PBGC said in September, after Delta filed for bankruptcy court protection, that assets in all Delta pension plans fell an estimated $10.6 billion short of the promised benefits. This shortfall could make Delta the largest hit the agency has ever had to take, if all Delta's pension plans end up with the agency. But the $10.6 billion estimate includes plans covering 91,000 active and retired flight attendants and ground workers at Delta who will not be immediately affected by Monday's termination.
United Airlines' pension plans, which were an estimated $10.2 billion underfunded when the PBGC took them over, is the largest underfunding to date. Because the PBGC did not have to pay the same level of benefits as promised by United, it took an $8.4 billion charge when it assumed the United plans.
The pilots at Delta in the past had a provision in their pension plans that allowed them to take half their pension benefits as a lump sum when they left the company, receiving the other accrued benefits in monthly payments.
The Delta pilots had been blocked from getting those lump sum payments since before the bankruptcy filing, but the lump sums were again about to be open, a fact that both the pilots union and the airline agreed the fund could not afford.
"Given both Delta's and the Air Line Pilots Association's public statements that the defined benefit pension plan for pilots likely could not be saved, the decision is not unexpected," said Grinstein's letter. "Delta and ALPA recognized in recent negotiations the potential impact on pilots."
One way that was recognized was that Delta gave the pilots union a $650 million interest bearing note as part of a recent concession contract. That note can be used to pay retirees at least part of the difference between promised benefits and the cap on payments allowed by the PBGC.
The PBGC has fought against that provision of the contract, and has appealed a decision by the bankruptcy court judge approving that note. But the note was seen as crucial for winning rank and file approval from pilots for the latest concession agreement, one that pays pilots 14 percent less than they received before the bankruptcy filing and saves the airline $280 million a year. That agreement was ratified May 31, with 61 percent of pilots voting in favor of it.