pensions

[mrlupin]

Airlines pressure Congress over pension bill

By John CrawleySun Jul 9, 10:55 AM ET

Bankrupt U.S. carriers Northwest Airlines and Delta Air Lines have stepped up pressure on Congress to finish pension legislation that would give them more time to fund plans that are billions of dollars in the red and in danger of termination.

Top executives have lobbied lawmakers and written letters in recent weeks to push House-Senate negotiators trying to craft a final bill.

The companies are using the financial and time pressures of Chapter 11 reorganization as leverage to speed congressional negotiations that seasoned participants on Capitol Hill have characterized as agonizingly slow.

"I urge you to make every effort to move this important legislation out of conference and on to final passage," Northwest Chief Executive Douglas Steenland recently wrote to Sen. Mike Enzi, a Wyoming Republican and chairman of the pension negotiating panel.

"Time is of the essence," Delta Chief Executive Gerald Grinstein wrote in another correspondence.

Both chambers of Congress have approved bills aiming to shore up employer-provided pensions affecting some 44 million Americans with traditional defined benefit plans that pay a fixed annual amount after retirement.

Northwest and Delta have 177,000 current and retired workers covered by traditional pensions.

But negotiators have, among other things, disagreed on the definition of at-risk plans, which would require more contributions to make them healthy. There is only mixed optimism among lawmakers and aides that a deal will come together soon.

Negotiations will resume this week when Congress returns from its July 4 holiday recess.

Delta has already notified the government agency that insures corporate pensions, the Pension Benefit Guaranty Corporation (PBGC), that it intends to end its plan covering more than 13,200 active and retired pilots on September 2.

Northwest also has warned it would try to end its three plans covering 73,000 workers and retirees if the pension legislation is not approved soon.

It is still unclear if a final bill would help Northwest or prompt Delta to save its other large pension plan, which covers 91,000 non-union workers and retirees.

A Delta spokeswoman, Betsy Talton, said only meaningful congressional action by the August recess would give it the best chance to save its non-pilot plan.

Delta and Northwest hope to emerge from bankruptcy next year, but they face pressure to cut costs. They want to stretch the time for meeting pension obligations over 20 years.

Rivals United Airlines and US Airways shed billions in expenses, partly by terminating pensions during their bankruptcies.

The PBGC faces a $22.8 billion deficit and key parts of the legislation aim to reduce that burden. Nationwide, defined benefit pensions insured by the PBGC are underfunded by $450 billion.

Underfunding is the gap between the assets of a plan and promised benefits.

The agency would not comment on future liabilities but pension experts say underfunding at Northwest and Delta have likely been factored into the PBGC shortfall.

Delta and Northwest pension balances will be updated this summer. The most recent figures submitted by the airlines to the Securities and Exchange Commission show Northwest's pensions were underfunded by nearly $3.7 billion and Delta's by $6.3 billion at the end of 2005.

The amount of new PBGC debt if all five plans at Northwest and Delta were terminated would depend the agency's liability estimates and other factors.

PBGC figures run higher than company calculations because the agency uses more conservative assumptions. The PBGC does not insure the full liability, which means participants lose benefits. But the agency would try to recover some of what it does not cover through bankruptcy claims.

[Don Hudson]

While this response may quite possibly simplistic, the wholesale dumping of employee pension plans under the corporate freedoms granted by Ch.11 onto the US taxpayer-funded PBGC is unconsciounable. The notion of "contribution holidays" taken during the good market years has proven shortsighted as this DB pension crisis unfolds. As is now shown, RRSP and 401K plans cannot begin to create a viable retirement plan yet are being forced onto employees as "the" solution to the corporations' pension crisis. Taxpayer bailout of private enterprise funds no-risk bad corporate planning. If failed policies can just be handed over to the taxpayer through an act of Congress, where is investor risk?

At least in Canada, under the OSFI, private corporations must adhere to the laws which protect employee pension plans from US-style bankruptcies. Given the Harper government's march into the shadow cast by business however, can the loss of legal protections for ordinary people from the worst aspects of an unbridled market economy be far behind?

[Guest rattler]

Given the Harper government's march into the shadow cast by business however, can the loss of legal protections for ordinary people from the worst aspects of an unbridled market economy be far behind?

Don: enough of the "Conservative Hidden Agenda" already.

[handyman]

Given the Harper government's march into the shadow cast by business however, can the loss of legal protections for ordinary people from the worst aspects of an unbridled market economy be far behind?

What do you expect Governments to do? The large DB pension deficits in the USA have seriously strangled the life out of many large corporations like GM. When you look at fierce competition in every market and simple demographics you don't have to be a rocket scientist to see the days are numbered for ALL DB plans regardless of laws/borders. Learn to invest and have a back-up plan ASAP IMO.

[Guest rattler]

What do you expect Governments to do? The large DB pension deficits in the USA have seriously strangled the life out of many large corporations like GM. When you look at fierce competition in every market and simple demographics you don't have to be a rocket scientist to see the days are numbered for ALL DB plans regardless of laws/borders. Learn to invest and have a back-up plan ASAP IMO.

Handyman: depending on your age, that is easy to say but impossible for someone who is in their last 10 earning years and has counted on his DB pension for his retirement. If the game is to change then there must be appropriate grandfather ( ) clauses to protect those who no longer have enough earning years to be able to make the switch.

[Rockyc]

Learn to invest and have a back-up plan ASAP IMO.

You speak as if there are investment options available to individuals that are different than those available to DB Pension investment boards. An individual may be able to select something with more risk - and it could just as easily become the worst mistake of their lives. A bad downturn in the markets negatively affects both entities.

Many individuals with DB plans are also contributing to RRSPs and other investments as fallback/self protection.

There are many costly elements of DB pensions that people may be prepared to give up or water down if the alternative is the loss of the plan altogether. Things such as early retirement provisions and some of the more elective type medical provisions. I was amazed at some of the GM provisions.

But at the end of the day, when I see Government staff, politicials, Police, Teachers, Firemen etc clamouring to trade in their defined benefit plans in order to take advantage of the great DC plan alternative then I might believe you are on to something.

But I won't be holding my breath.

[handyman]

Handyman: depending on your age, that is easy to say but impossible for someone who is in their last 10 earning years and has counted on his DB pension for his retirement. If the game is to change then there must be appropriate grandfather ( ) clauses to protect those who no longer have enough earning years to be able to make the switch.

Rattler, I never said it would be easy or even satisfactorily cover your retirement with only 10 earning years remaining, but starting now with a focus on being self reliant is better than not doing it and finding out 5-10 years from now you don't have a pension plan that pays what you expected. Nothing in business must be! If AC was to fold, which I don't think will happen, the Government isn't going to cover your pension. I think the ACPA should negotiate a full transfer over to a DC plan which may look less appealing now but fully guarantee your future!

[handyman]

You speak as if there are investment options available to individuals that are different than those available to DB Pension investment boards. An individual may be able to select something with more risk - and it could just as easily become the worst mistake of their lives. A bad downturn in the markets negatively affects both entities.

Many individuals with DB plans are also contributing to RRSPs and other investments as fallback/self protection.

There are many costly elements of DB pensions that people may be prepared to give up or water down if the alternative is the loss of the plan altogether. Things such as early retirement provisions and some of the more elective type medical provisions. I was amazed at some of the GM provisions.

But at the end of the day, when I see Government staff, politicials, Police, Teachers, Firemen etc clamouring to trade in their defined benefit plans in order to take advantage of the great DC plan alternative then I might believe you are on to something.

But I won't be holding my breath.

You are correct; the investment options are different in a sense! If you rely on a DB then essentially you are saying...”company, I trust you to deposit your money into an account so that I may have the security of a pension 5-10-20 years from now”. You have just cut yourself out of the loop and put total faith in a business. Their business is not your best interest but theirs! But, if you say “I want to stay in the loop” and negotiate a DC where they deposit 10-15% or more of your salary amount into a retirement fund controlled and held by you then you can invest money you didn't control before into investments you want.

One of the problems with retirement planning is people are too complacent and don't put enough effort into their own financial future. Many invest in mutual funds, stocks, bonds and some still do CSB's. Have you ever studied a fund or company other than just looking at the historical rate of returns? What about real estate? Home based business etc etc? Most people go to their banks and put money in their banks own mutual funds or worse, TD's or the infamous CSB’s. Some are lucky and earn 6-7% with a reported core inflation rate of 2.5%. The real rate of return then becomes 3.5-4.5% which means your investment will take 16-20.5 years to double. But wait, here is some more bad news...the real inflation rate in most large Canadian cities is ranging from 10-15%. That 7% investment is losing you money!

I see two options for most to make big investment gains.

1. Study hard and learn as much as you can about the stock market, stocks in general and the companies themselves.

2. Learn how to invest in real estate. There are many real estate investing clubs/organisations which will teach and guide you through the process.

Both options will take many hours of study if you want to succeed. Look at it like your taking a University credit course and begin now. Don't rely on your company to be there for you when and after you retire.

If you sit and do nothing but complain about a company pension plan which is under funded, then good luck…you’ll need it!

Real Estate Investing

This is one such group but there are many.

[Guest rattler]

Rattler, I never said it would be easy or even satisfactorily cover your retirement with only 10 earning years remaining, but starting now with a focus on being self reliant is better than not doing it and finding out 5-10 years from now you don't have a pension plan that pays what you expected. Nothing in business must be! If AC was to fold, which I don't think will happen, the Government isn't going to cover your pension. I think the ACPA should negotiate a full transfer over to a DC plan which may look less appealing now but fully guarantee your future!

As it happens I am retired but not from the pointy end, nor from Air Canada.....so I am ok.

[mrlupin]

DC versus DB

It seems very unlikely that the DC plan could be as good as the DB plan. But at least the DC plan seems untouchable and can easily be caried forward to the next company if the present company should fold.

As for learning to invest..... well not everyone can be or will be up to the task. If DC is the future then maybe some sort of common investment group (like the ontario teachers and the "regie des rentes du Quebec) who have been averaging better returns then most indexes could be the answer. Why not put the employee contribution as well as the employer's contribution in an account at some sort of investment firm and then reap the rewards? It would be somewhat like the DB plan but the company could not take the excesses or take contribution holidays.

While we are at it.....Can someone tell me, why are the employers allowed to take contribution holidays? Why arent the pension plan valuation more frequent? (I think they are at three year intervals)

Éric

[handyman]

It seems very unlikely that the DC plan could be as good as the DB plan. But at least the DC plan seems untouchable and can easily be caried forward to the next company if the present company should fold.

I totally agree but reality is it is the future.