Pension Panacea

Even though its research staff says it won't help, Congress tosses a bone to airlines

Pension obligations are something Northwest has been kvetching about for months. Over the next four years, the airline is legally obligated to come up with either $4 billion or $5.7 billion to make up shortfalls in its pensions. The former amount assumes the airline keeps operating its plans; the latter, that Northwest washes its hands of its promises and dumps its pensions on the federal bailout agency. In any case, it's more money than the airline has or will have unless oil is discovered in Eagan. And as Blotter has harangued in the past, it's cash Northwest's clever, highly paid executives, would rather someone else came up with. And by someone, we mean its middle class workforce and, more circuitously, you, the taxpayer.

The backstory to all of this could choke an auditor. U.S. pension laws contain countless pages of assumptions and formulas employers and regulators are supposed to use to decide whether a given company's pensions are healthy enough to pay promised benefits to the employees and retirees who are counting on them. Whole office parks of pencil-pushers are employed to test assumptions about interest rates, lifespans, employees who will quit before becoming eligible to participate, health care costs, terrorism, hurricanes, and the financial prospects of virtually every industry on earth. The only thing in the world of finance that's as complicated is the voodoo that's used to set the price of an individual plane ticket.

But we don't elect our lawmakers based on their calculus grades, and so it should come as no surprise that the U.S. Senate has once again bowed to the new math of industry lobbyists: earlier this week it hammered out a compromise bill Northwest Airlines has lobbied long and hard for: The ability to make up a shortfall in its contributions to employee pensions over the course of 14 years, rather than the seven years allowed for employers in other industries.

Senators are good at grandstanding, though, and our own Norm Coleman was quick to dash off a commentary (or order his P.R. staff to do so) lauding the deal as a victory for the Minnesota workingman. Obligingly, he sent it to City Pages.

Recently, Northwest Airlines declared bankruptcy, and so our attention must turn toward helping one of Minnesota's most reliable and important employers get back on its feet. Northwest Airlines has been wrestling with a number of challenges since 9/11 and stated that going into bankruptcy is not their preferred choice, but circumstances have made it necessary. I have long been concerned about the employees, families, and communities who depend on this major Minnesota employer for their jobs and livelihoods. Employee pensions must be protected, and I am doing everything I can to help lead this issue toward a resolution.

I have coauthored pension language contained in the Finance and HELP Committees' legislation to protect the pensions of more than 21,000 Minnesotans. This is smart reform that will protect and grow jobs while it significantly decreases the likelihood airlines such as Northwest will have to pass along the costs onto taxpayers. A long-term vision for Minnesota must include a plan to help protect the lifetime work and savings of our work force, and I will work hard to make sure that plan is put into place as soon as possible.

Too bad Norm's hard work--and let's not forget that a Senate bill can have 50 co-authors--doesn't do much more than free up a little short term cash for the airline. The vote took place 24 hours after the release of a report by Congress's investigative arm, the General Accounting Office, which concluded that the quick cash boost the move would provide would scarcely touch what ails the nation's several bankrupt airlines. (Don't relish reading the GAO'S prose? Here's a link to a literate, if incomplete, summary.) In a nutshell, the GAO concluded that U.S. legacy carriers have such profound structural problems that the pension bailout really doesn't matter.

My take on that: Norm's brilliant policymaking has only kicked the can down the road--perhaps to a day when when we've all accepted the notion of the pension as a historical abberation--and Northwest will inevitably dump its obligations onto the federal pension guarantee agency. The agency is already overextended, which means taxpayers may in turn have to come to its rescue. Everyone loses, except the Northwest executives who were, ah, foresighted enough to dump their stock earlier this year. And Norm.

There are plenty of other interesting tidbits in the report, but we'll stop at the one that would be front and center if ours was an economy that valued family livelihood as much as the almighty stock ticker: Airline pensions were overfunded in 1999, and while the fall of the stock market did mean an increase in the funds' liabilities, it's also true that the airlines weren't planning for a rainy day.

Legacy airlines have funded their pension plans far less than they could have, even during the airlines' profitable years. [The bailout agency] examined 101 cases of airline pension contributions from 1997 through 2002 and found that while airlines made the maximum deductible contribution in 10 cases, they made no contributions in 49 cases when they could have contributed. Whe airlines did make tax-deductible contributions, the contributions were often far less than permitted. For example, in 2000, the airlines PCBG examined could have made a total of $4.2 billion in tax-deductible contributions, but they contributed only about $136 million despite recording record profits of $4.1 billion.

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