ATLANTA – Delta Air Lines Inc.'s termination of its pilots' pension plan will sting — no more lump sum payments — but won't be a total loss for the 6,000 pilots at the nation's third-largest carrier.
The Pension Benefit Guaranty Corp., which would take over the plan once it is terminated, would pay the pilots a reduced benefit up to a certain limit.
The airline was to notify the PBGC on Monday that it intends to terminate the plan effective Sept. 2, a request that would have to be approved by a bankruptcy court judge. The notice was being sent via overnight mail, Delta spokeswoman Betsy Talton said.
Together with compensation the company has promised the pilots upon cancellation of the pension plan and distribution of existing funds in the plan, Delta pilots who retire at the mandatory age 60 could get about $61,000 a year, a 13 percent reduction from current benefits, court papers filed by the PBGC say. Those who retire before 53 could get about $53,000, a 24 percent reduction, the court papers say.
Those figures are subject to change, and a spokeswoman for the pilots union, Kelly Collins, said the union has not done its own post-termination analysis because it doesn't know how the compensation the company has promised will be distributed. The figures cited by the PBGC were provided by a Delta representative, according to the agency's May 24 court filing. The PBGC said in the same filing that it disagrees with Delta's analysis, though the agency did not provide its own.
PBGC spokesman Jeffrey Speicher agreed there are a lot of unknowns.
"The final benefit won't be known until after the PBGC assumes the plan and the bankruptcy process is over and the PBGC receives its recovery," Speicher said, noting the agency is an unsecured creditor in the case.
Perhaps the biggest setback for the Atlanta-based company's pilots will be that they won't be entitled to the hefty lump sum payments under the existing pension plan, which allows pilots to retire at 50 and receive half their benefits in a one-time payout and the rest in an annuity later.
The lure of that lump sum prompted many pilots to put in for retirement before Delta filed for bankruptcy protection last September. But a shortfall in the pension fund has prevented pilots from cashing in their lump sums since Oct. 1, Collins said.
As for pilots currently receiving pension benefits, they could see a reduction if they are currently receiving above the government limit, according to the PBGC's Speicher.
All of Delta's employee pension plans, including the pilot plan, were underfunded by $10.6 billion as of the date the company filed for bankruptcy protection, Speicher said.
Speicher said the existing assets in the pilot plan would be distributed first to pilots who were eligible to retire three years before the plan is terminated.
The airline has said it hopes to save its other employees' pensions, but has warned that pension reform in Congress would need to happen soon for that to be preserved.
The pilots have agreed not to object to Delta's proposed termination of the pilots' pension plan, but there likely will be other objections, including possibly from the PBGC.
The agency released a statement Monday saying that Delta must demonstrate that it meets the legal criteria to shift its pension costs to the federal government.
"But let's be clear: If companies fully funded the promises they make to their workers, we wouldn't be in these situations," the agency said. "As it is, the pilots and the pension insurance fund may suffer a multibillion-dollar loss."