Northwest to Freeze Pensions in August, Switch to 401(k)s

EAGAN, Minn. (AP) -- Northwest airlines announced that it will freeze the pension plan that covers about 3,300 salaried employees and make contributions to the employee's 401(k) investment accounts instead.

The move could make it easier for the airline to go to the bargaining table and persaude unionized workers to accept a similar move. The airline has said controlling pension costs is vital for its financial health.

Altogether, NWA's pension funds are underfunded by about $3.8 billion. The pension plans require the airline to pay a defined benefit, while the 401(k) program gives employees money to invest for their retirements.

''This ... is a critical step in our strategy to restore profitability and avoid bankruptcy,'' said Timothy Meginnes, vice president for compensation and benefits, in an e-mail sent Thursday to salaried workers. ''But equally as important, it preserves and safeguards the pension benefit that you have already accumulated.''

The St. Paul Pioneer Press reported the freeze will be effective Aug. 31, and the employees will be entitled to the pension benefits they have earned as of that day.

However, benefits under the plan will stop increasing as they normally would with pay raises and years of service.

About 70,000 current and retired employees - including about 22,000 Minnesotans - are covered by Northwest's pension plans.

Northwest has been lobbying Congress to give airlines more time to make payments to underfunded pension plans, perhaps over as many as 25 years.

In a Securities and Exchange Commission filing on July 1, the airline said current pension law would require it to pay $800 million in 2006 and $1.7 billion in 2007 to its pension.

''Failure to obtain pension funding relief will also cause the company to consider Chapter 11,'' it wrote in the filing.