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.