Jim Cochran expected bad news when he got the big white envelope from Delta Air Lines. What he found inside was worse.
The retired Boeing 767 captain said he expected his $2,460-a-month pension to shrink by about 70 percent after Delta last summer won bankruptcy court approval to terminate its pilot pension plan.
His benefit had already dropped by more than $3,000 when Delta cut part of the program after flying into Chapter 11 a little more than a year ago.
But Cochran saw two things when he opened the envelope. One was a letter from Delta telling him that, as of Oct. 1, his benefit was zero.
The other: coupons to begin paying Delta $907 a month for his family's health insurance, since he no longer had a pension check from which to deduct it.
"This is absurd," said Cochran, 59, who worked for Delta almost 27 years. "I get nothing, and I still owe them $907."
Delta says about 1,300 retired pilots had their monthly pension checks zeroed out by the pilot pension plan termination.
The reason is more complex than the company's simple need to cut retiree costs. It lies in the arcane rules of pension termination --- and in a lucrative feature of Delta's pre-bankruptcy pilot contracts.
Delta says pilots who got zeroed out already took a major portion of their pension benefits when they left the airline. Unlike most employees, retiring Delta pilots until 2005 could cash out half their pension benefits in lump sums that sometimes topped $1 million. Hundreds retired early to take advantage of the clause before it was stopped after Delta's Chapter 11 filing.
If the annualized value of the lump sum exceeds the federal Pension Benefit Guaranty Corp.'s caps on how much a retiree can still collect from the federal insurance agency after a plan is terminated, a retiree gets no more monthly checks.
"These pension checks are only the remaining portion of their benefit after they took the lump sum," said Rob Kight, Delta's vice president in charge of employee benefits and related matters.
Kight said that while about 1,300 ex-pilots' monthly pension checks were wiped out, a slightly larger number of the carrier's oldest pilot retirees saw no reduction. For an additional 3,000-plus in between, pension cuts range from a few percent to almost 100 percent.
Delta recently estimated that retired pilots' average benefit will still be $75,200 on an annualized basis after the termination --- a figure that assumes self-disciplined drawdowns from their lump sums. Cochran, for instance, hopes to soon begin tapping a $1.2 million lump sum that he got when he retired almost three years ago and put into an IRA account.
But the number of pilots who got zeroed out was larger than many expected, and the requirement to pay Delta for health benefits makes the pill even more bitter.
Wendell Lewis, another retired Delta pilot whose monthly pension checks stopped, is part of a group headed by a former pilots union chairman that is appealing U.S. Bankruptcy Judge Adlai Hardin's approval of the plan termination.
"Delta's making enough money to keep the plan," said Lewis. He said Delta has broken its promises to him while maintaining the pension plans of most other employees and retirees.
Indeed, Delta has said it intends to keep a larger pension plan for nonpilot employees. Congress last summer enacted a law giving the airline 17 years --- 10 years more than most companies --- to bring its plans to full funding. But Delta moved to terminate the pilot plan anyway, and its pilots union had agreed not to object as part of a new contract deal.
"The management didn't take any hits on their pensions. The other employees didn't either. The active pilots negotiated a new pension plan for themselves," said Lewis, 58, who lives in Duluth. "The only ones that are getting their pensions dumped are the retired pilots."
The airline will ask a bankruptcy judge today to let it drop the plan. But critics will weigh in.
Delta Air Lines Inc. is defending itself against objections filed by retired pilots to the company's bankruptcy court request to terminate its pilot pension plan.
The plan, for now, stayed in place, as the hearing was set to continue on Tuesday and Wednesday after Labor Day.
The pension plan for Delta Air Lines' pilots probably will be terminated before October to avoid more cash drains from pilot retirements, said an actuary for Delta Air Lines' pilots union.