With defined-benefit
pensions collapsing at a steady pace, one ailing industry is
partially bucking the trend. In negotiations with unions,
airlines are putting many employees into multiemployer plans,
a form of the defined-benefit arrangement.
Bankrupt Northwest Airlines is the latest example. Two
unions have agreed with the carrier’s proposal to replace the
company’s faltering pension plan with the International
Association of Machinists National Pension Fund.
The International Association of Machinists fund is
supported by 1,700 contributing employers and has $6 billion
in net assets. It serves more than 68,000 retirees and
beneficiaries. Proponents say it has remained strong because
companies are compelled to make contributions each month and
the fund is managed by an independent board.
Northwest’s agreement, covering 7,695 clerical, office,
fleet and passenger service employees, was accepted on March
7. Two other unions represented by the machinists rejected the
company offer, which also included wage and job cuts and
health care benefit reductions.
Other airlines that have put employees into the machinists’
plan include United, Aloha and US Airways. At Continental,
union employees have the option of going into the machinists’
plan now or later if the airline freezes its pension.
Northwest wouldn’t comment on union negotiations, and
United didn’t respond to an interview request. The practical
effect of airlines taking the multiemployer option is the same
as making a consistent and predictable payment into a
direct-contribution pension plan, except that the money is
going into the International Association of Machinists fund.
The union boasts that its plan is holding down the fort for
defined benefits. Northwest, like most airlines, is putting
pensions behind it. It is pursuing a long-term strategy of
establishing a 401(k) retirement program for its employees.
"The only defined-benefit plans left in the airline
industry will be our multiemployer plan," says Joe Tiberi,
spokesman for the International Association of Machinists
and Aerospace Workers. "Company-sponsored pension plans
are going to become extinct."
But before defined-benefit plans fade away, airlines are
seeking a provision in pension reform legislation that would
give them 20 years to pay off unfunded pension liabilities.
Other companies would get seven years under pension bills that
are being melded by House and Senate negotiators on Capitol
Hill. Only the Senate measure offers airline relief.
The issue is both propelling and complicating the talks.
"The urgency is coming from the airlines," says Janice
Gregory, senior vice president of the ERISA Industry
Committee. "They need something and they need it now."
Northwest wants more time to pay off its $3.7 billion
pension liability. "We continue to aggressively pursue passage
of this legislation," says Kurt Ebenhoch, director of media
relations for the airline.
Pension bill negotiators also are grappling with proposed
changes for underfunded multiemployer plans. Although the
machinists stress that their plan is sound, some multiemployer
plans have run into the same problem as their single-employer
counterparts—promising more than they can deliver.
When that happens, the House would allow remedies that
opponents say would deprive many laborers of early retirement
benefits they already have earned.
"Unless Congress addresses these issues in the right way,
they’ll be cutting the promised benefits of millions of
employees and retirees," says Karen Friedman, policy director
for the Pension Rights Center.
—Mark Schoeff Jr.