Airline Pension

Pensions in the Airline Industry
   Flying has always been a turbulent business

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“My largest concern is that the focus on short-term market results for funding and accounting will lead more and more companies to discontinue their Defined Benefit plans. Secondly, with increased reliance on Defined Contribution plans, I worry that people won't voluntarily save enough, will not make appropriate long-term investments and may outlive their savings by taking out too much early in their retirement years”

-- American Airline’s Pension Fund Manager

Pensions & Investments Online, Sept. 18, 2006

“The bill contains several provisions designed to protect the Pension Benefit Guaranty Corp. at the expense of the Delta pilots.”

-- The Atlanta Journal-Constitution, August 9, 2006

“The special treatment provision would allow airline pension plans to fully fund their pension promises over either 17 years or 10 years instead of the 7-year period that would be required for pension plans in other industries.”

-- The Hawaii Reporter, August 10, 2006

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What’s New . . .

This week, Northwest Airlines flight attendants took the legal step of requesting a release from federal mediation after a federal judge said they couldn’t walk off the job. Release from mediation would allow the attendants to strike after a 30-day countdown if the National Mediation Board declares an “impasse” in contract negotiations between the Association of Flight Attendants-CWA and the airline. If both sides reject arbitration, a failure to reach an agreement after 30 days would mean workers could strike or the company could start a lockout. Pension issues are at the heart of the dispute.

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In the wake of devastating pension freezes and new pension rules, companies are rethinking their strategies for investing pension assets.

Until recently, most pension managers invested in a broad mix of stocks and shorter-term bonds. But pension projections remain extraordinarily sensitive to changes in interest rates, resulting in huge swings in projected pension liability. At G.M., for example, a mere quarter-point rate decline increased pension obligations by $2.3 billion!

When companies are forced to factor these huge overhanging liabilities into their financial statements -- and reveal them to investors -- it becomes much more difficult, and much more expensive, to raise the capital they need to stay in business.  

Way back in 1987, American Airlines was one of the few companies whose pension managers didn’t respond to the siren song of the rising stock market. Instead it protected assets against changes in interest rates by hedging with long-term bonds timed to future pension obligations. It was inexpensive then.

Today, American is virtually the only airline whose traditional pension structure in reasonably intact. Other airlines with failed pensions are now contemplating using bond hedge strategies. The only problem is that today ’s interest rates make the transition much more expensive. But there may be few alternatives if traditional pension plans are to be stabilized.

On Thursday, Aug. 17, President Bush signed into law the Pension Protection Act of 2006, which he called the "most sweeping reform" of US pension law since the enactment of the Employee Retirement Income Security Act (ERISA) in 1974. The compromise measure will have broad impact on the way future pension plans are structured and funded. It will affect pension outcomes, not only for tens of thousands of employees whose plans are currently hanging on the contents of the bill, but for millions of Americans who do not follow pension issues closely.

Affected groups everywhere are weighing in with commentary. With some 44 million Americans covered by private pension plans, bipartisan support for private sector reform was made possible by not stirring up a hornet’s nest of debate about stricter funding guidelines for public employee defined-benefit plans, which remain generous and are woefully underfunded. In any case, the bill may well signal the end of the era private defined-benefit pension plans. As recently as 25 years ago, more than 80 percent of large and medium-sized companies offered such plans. Today, fewer than a third do.

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Late in the day on August 3, the Senate approved a compromise Pension Reform Bill and sent it on to the White House. The bill tightens rules for employers with defined-benefit pension plans – 21% of all workers-- and clamps down on companies that have fallen in arrears in meeting their funding obligations. Most companies will have seven years in which to bring their plans to 100% funding, with the exception of four airlines.
Delta and Northwest, which have filed for bankruptcy and have frozen their defined benefit pension plans, are given an extra ten years to reach full funding under the bill. Congress was concerned that the two would dump their plans, underfunded by a total of more than $10 billion, on the government without special treatment. American and Continental, the only major airlines with active defined-benefit plans, will get three years on top of the seven-year basic payback time unless they freeze their plans, an act which would entitle them to the full 10-year extension. President Bush, who has taken a tough stance on forcing full funding of company promises, is expected to sign the legislation shortly.

Recent Airline Industry Pension News

Airline pension woes tied to 9/11


Status Report for Northwest Airlines


Former TWA Workers Picket Own Union


Judge: Delta can end pilot pensions


Getting NWA pensions on track


Unions prepping for possible UAL deal


Retired Delta pilots oppose PBGC takeover of plan


Running the numbers when pensions are frozen


Major provisions of the pension protection bill

Bush signs pension reform bill into law

Airline restructuring, pensions, fuel prices and terror threats

Pension bill: Many changes, mostly positive

Pension Protection Act a joy — just, sadly, not for Delta pilots

Congress Reforms Corporate Pensions

Pension Protection Act's Special Treatment for Airlines

Varied Response to Passage of Pension Bill

Plan may hasten shift away from pensions

Airlines remain sticking point in pension talks

Airlines want to honor duty to pensioners

U.S. Congress reaches tentative pension deal

Northwest CEO: Pension Bill Must Pass

US Lawmakers Target Pension Loophole

Push to Raise Pilots’ Retirement Age to 65

Towards a Broad Front to Protect Pensions

Pension conferees still deadlocked

Airline Lobbyists Aim to Gut Pension Reform

Stock sale by Continental to benefit pension plans

Special Treatment for Airlines Flaws a Strong Senate Pension Bill

Northwest truce on pay deal expires

PBGC Gets Delta Pilots Pension Notice

Pension Crash Landing

Pensions are going, going, gone: Here's why you should be worried

 PBGC Gets Delta Pilots Pension Notice

United course followed; end sought to pilots' pension plan

Testimony before the House Education & the Workforce Committee

Even healthy companies are killing pension plans

U.S. lawmakers mull stricter pension reforms



 

Airline Pension Questions & Answers

So you work for an airline...





How are airline pensions structured?





Will your retirement be a smooth landing?





Pension under-funding means rough weather ahead





Where do I go to find out about my pension?





Contact info for airline companies

So you work for an airline...
As someone who works in the airline industry, no one needs to tell you about bankruptcies, takeovers, mergers, strikes and cutthroat competition. Airline pensions are at particular risk because they’re often exposed to the legal complications resulting from these common upheavals.

In fact, over the past 30 years, the airline and steel sectors have accounted for more than 70% of claims at the government’s Pension Benefit Guaranty Corporation. This indicates a very high default rate, especially considering that airlines and steel account for just 5% of pension plan participants.

For up-to-date information about events affecting your pension right now, take a look at our Recent Articles section.

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How are airline pension plans structured?
Airline companies generally have single-employer plans. However, there are often several different plans. For example, flight attendants might have one plan, while pilots might have another. Also, these plans typically are Defined Benefit Plans.

If you work for one of the old-line companies, chances are you’re a member of a union which negotiates and plays a large role in administering your pension plan. Company and union officials usually form a combined board which administers and controls the investment of pension funds.

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Will your retirement be a smooth landing?
The industry continues to struggle to recover from its historic downturn. Embattled airline companies have still not recovered from lingering fears of 9/11, threats of further terror, the Iraq war, rising jet fuel costs, overcapacity, and the steady arrival of new low-fare competitors.

Airline executives would probably add “pensions” to their list of problems these days. Of the 10 major U.S. airlines, only Southwest had a positive net income in 2001 and 2002. The six largest companies combined have lost over $23 billion since 2001, and management knows pension funding is a drain on desperately needed cash.

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Pension under-funding means rough weather ahead
Consistent with the weakened condition of the industry, airline industry pensions are currently underfunded by over $25 billion. Moreover, the strength of the industry’s many single-employer plans rests directly on the ability of sponsoring employers to fulfill their obligations.

By law, companies that fall below legal funding levels – currently 80 percent – are required to make “deficit reduction contributions.” However, some of these companies have been lobbying Congress to have these contributions deferred.

With all the problems in the airline industry, you should check the status of your pension plans regularly. If you aren’t up-to-date on how your pension is doing, our easy-to-understand FAQs section can help you understand your pension plan and get more information so you can keep up.

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Where do I go to find out about my pension?
Good intentions and complex legal mandates are not enough to protect your retirement income. Individuals should take steps to inform themselves about their company pension plans – through your company’s Human Resources organization and, if unionized, through your local union representatives.

This website has been designed to help you. Click to our easy-to-follow “Understanding Your Pension” section for more detailed information.

You can also click here to see contact information for the major airline companies.

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Contact Information for the Major Airline Companies
Here is a list of office contact information for the major airline companies. Where possible, we have included direct numbers or web addresses to the relevant pension, benefits, or human resources departments:

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Visit our Pension Legal Help section were you will find a listing of the six regional pension counseling and information projects sponsored by the Administration on Aging (AoA). 

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