Angered by a report of a federal investigation of its pension funding practices, Northwest Airlines vowed Wednesday that it has consistently made full and timely payments to the plans. And it dismissed the investigation as nothing out of the ordinary.
"Northwest has not 'systematically shortchanged' its employees' pension fund," the airline said in a statement.
On Wednesday, the New York Times reported that the U.S. Labor Department is investigating whether Northwest Airlines systematically shortchanged its employee pension funds over three years, then avoided having to make a $65 million payment to the fund by filing for bankruptcy protection last September -- just one day before the payment was due.
The investigators also appear to be looking for legal violations as they trace the steps that led to the pension funds' shortfall. Some peg it at about $4 billion. Others place it north of $5 billion. It depends on who does the figuring and the assumptions that are made about interest rates and other factors.
Bankruptcy law precluded Eagan, Minn.-based Northwest from making the $65 million payment, said Andrea Fischer Newman, Northwest's senior vice president of government affairs.
But since its bankruptcy filing, she said, Northwest has made other contributions due to its pension plans, which cover some 72,000 current and retired Northwest employees.
"The investigation is normal and not something anyone should be concerned about," Fischer Newman said. "The company has cooperated since it began. What we need to focus on is maintaining the pensions and getting pension reform legislation."
But even if the federal government soon enacts a law giving airlines and other companies more time to make payments to underfunded plans, "we will not terminate our pension plans," Northwest said. It was perhaps its most direct statement ever on the issue.
Northwest reiterated its determination to eventually fully fund its pension plans. Leaders of the unions representing pilots, ground workers and flight attendants could not be reached for comment Wednesday.
A bill under consideration in Congress could give Northwest up to 20 years to make payments to the underfunded plans. If it doesn't get a break on payments, though, the airline will be on the hook to make about $800 million in contributions this year and $1.7 billion next year.
Northwest doesn't have the money. It had said it would have to terminate the plans, dumping them on the government agency that insures pensions.
If that were to happen, it appears most employees would not see a reduction in benefits. But some would -- especially veteran pilots. They could each lose tens of thousands of dollars annually.
The problem is that pilot pension benefits can far exceed the coverage provided by the government's Pension Benefit Guarantee Corp.
The airline's pension plans were fully funded as of 2000, and the airline has contributed over $1.1 billion to its pension plans since 2001.
Northwest said its pension plan shortfall arose in large part because of the stock market collapse that begin in 1999 and a drop in interest rates.
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