Airline to freeze some pensions, transferring workers to 401(k)s

Northwest says the shift for 3,300 salaried staff aims to avoid bankruptcy


ST. PAUL, Minn. - Northwest Airlines is freezing the pension plans of thousands of salaried employees and will shift them to 401(k) plans to which the carrier will make unspecified contributions.

Northwest hopes the move will help it cope with its pension plans, which are underfinanced by about $3.8 billion.

The plan the airline is freezing first covers about 3,300 salaried employees.

Effective Aug. 31, those employees will be entitled to the pension benefits they have earned as of that day, but their benefits under that plan will not increase as they normally do with wage raises and lengths of service.

Northwest will make no new payments to that pension plan after Aug. 31. Instead, it will contribute money to employee 401(k) accounts. The carrier did not say how much it will contribute to the 401(k) accounts.

"This ... is a critical step in our strategy to restore profitability and avoid bankruptcy," said Timothy Meginnes, vice president for compensation and benefits, in an e-mail sent late Thursday to salaried workers. "But equally as important, it preserves and safeguards the pension benefit that you have already accumulated."

Eventually, the airline wants to freeze all its pension plans, including those of workers represented by unions. Northwest has about 70,000 current and retired employees.

Now that it's freezing the pensions of salaried workers, the airline hopes to have an easier time convincing union workers to go along with such a move. For those workers, it's a matter to be settled at the bargaining table.

With its current pension plans, Northwest is committed to providing defined payments to employees when they retire. But with the 401(k) plans, it's not. Instead, the airline will make unspecified contributions to the plans.

While their pension benefits - and Northwest's funding obligations - will be frozen, the salaried employees could grow their retirement savings through their 401(k) accounts.

The pension plan that's being frozen generally provides retirees with 60 percent of what they earned at the airline. In 2004, the maximum annual benefit was $123,000.

Not affected by the freeze is the supplemental pension plan that covers chief executive Douglas M. Steenland, among others. In its last annual report, Northwest indicated that Steenland was on track to receive an annual pension of $947,417 if he retires at age 65.

The airline has said that such generous pensions are needed to recruit and retain top executives.

Northwest has been lobbying Congress to give airlines more time to make payments to underfinanced pension plans.

As it now stands, Northwest is on the hook to make a payment of $800 million to its pension plans next year and $1.7 billion in 2007.

If Congress doesn't give it permission to stretch payments out - over as many as 25 years - Northwest has warned that it could file for bankruptcy. That could mean the airline's pension obligations get dumped on the federal agency that insures pensions.

The airline has about $2.1 billion in cash. That money is being eaten up by its continuing losses, now about $3 billion since the start of 2001.

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