Northwest Supports Pension Reform Legislation

21st Apr 2005

Northwest Airlines today
announced its support for legislation introduced by U.S. Sen. Johnny
Isakson and co-sponsored by U.S. Sen. Jay Rockefeller to reform how companies pay the unfunded liabilities of their frozen defined benefit pension plans. The “Employee Pension Preservation Act of 2005,” which was introduced in the U.S. Senate today, will allow companies to fully fund their frozen defined benefit pension plans over a 25-year
period versus the three-year “catch-up” requirement in place today. “Northwest is in strong support of the bill introduced by Sen. Isakson and
co-sponsored by Sen. Rockefeller and we thank them for their leadership on
this issue,” said Andrea Fischer Newman, senior vice president of
government affairs. “This legislation will help protect airline employees
from losing any of their hard-earned pension benefits and help protect
taxpayers from even more pension plans becoming the responsibility of the
Pension Benefit Guaranty Corporation (PBGC).”

Northwest’s low-cost carrier competitors, such as Southwest, JetBlue and
AirTran, provide their employees with less expensive defined contribution
plans such as 401(k)s. Northwest, a company that was providing air service
and pension benefits long before 401(k)-style plans ever existed, is one
of just five remaining U.S. airlines that provide its employees with
defined benefit plans.

Northwest’s pension plans were fully funded as recently as 2000. However,
as a result of four consecutive years of falling interest rates, major
stock market declines during 2000 through 2002, and increasing employee
pension benefits, the company’s pension plans are now underfunded. In
addition, the law governing pension funding requires highly accelerated
“catch-up” payments when a plan is underfunded. These catch-up payments
are particularly onerous in the current environment as nearly all U.S.
airlines struggle to return to profitability and cannot afford to make
such contributions.

Some of Northwest’s largest competitors have terminated their defined
benefit contribution plans through the Chapter 11 bankruptcy process,
turning responsibility for the plans over to the PBGC, a self-financed
governmental corporation that partially insures failed pension plans. The
PBGC recently reported a record deficit of $23 billion, which includes the
cost of taking over pension plans at United Airlines and US Airways. The
PBGC predicts a $40 billion deficit if other airline pension plans are

Northwest, the Air Line Pilots Association (ALPA) and several other
airlines are working together to develop a solution to this challenge. The
legislation will allow Northwest to achieve the second part of its
three-part, long-term solution to the pension challenge it faces:


—Receiving union concurrence to freeze defined benefit plans at current
levels rather than terminating the plans.—Making up the funding
shortfall of the frozen plans over a longer period than current law
allows.—Establishing a defined contribution 401(k) retirement plan, to
provide secure employee pension benefits going forward.

“The legislation introduced today will allow companies such as Northwest
to fully honor the pension commitments made to employees and spare
taxpayers, through the PBGC, from having to step in as guarantor of
terminated pension plans.” Newman continued. “This responsible solution,
embraced by management and labor, is a far superior alternative to the job
losses, substantial reductions in pension benefits and increase in airline
bankruptcies that will inevitably occur if action is not taken soon.”


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