Northwest Air Pension Fund Is Being Investigated

The United States Labor Department is investigating if Northwest Airlines shortchanged its employee pension fund on a routine basis over the last three years, and then avoided having to make a $65 million payment to the fund by filing for bankruptcy protection just one day before the payment was due. The investigation suggests that the Labor Department is looking for a way to break a pattern where distressed companies deplete their pension funds then declare bankruptcy and transfer huge obligations to the federal government.

The Labor Department is investigating whether Northwest Airlines systematically shortchanged its pension funds set up for its employee throughout the last three years. Northwest is also being investigated for filing bankruptcy just one day before a $65 million payment was due, avoiding the payment in its entirety.

The investigators appear to be tracing the steps that led to the pension fund’s recent shortfall of $5.8 billion, and whether Northwest violated any laws.

To do so, the government has subpoenaed information from Northwest going back to January 2002, when both the airline and its pension fund faced severe financial pressures after the terrorist attacks of 2001 and after the bursting of the technology bubble in the stock market.

The investigation has implications for businesses besides Northwest, who have similar problems with pension plans. The investigation suggests that the United States Labor Department is looking for a way to break a pattern where companies in financial distress deplete their pension funds over the course of a number of years, then declare bankruptcy and transfer huge obligations to the federal government. An alarming number of large plans have collapsed in the last few years, leaving the government to cover huge debts to retirees.

Officials of the Labor Department confirmed the investigation but declined to elaborate, other than to say it was a civil matter concerning the parts of the pension law that deal with funding and the disclosure of information to participants and regulators. The officials also said that the inquiry was looking at whether corporate pension officials had administered the plans “solely in the interest of the participants” in the pension plans, which would fulfill their fiduciary duty. The subpoena was served in January.

A Northwest spokesman indicates the company is fighting to keep some of the requested documents confidential. As a result the parties are scheduled to appear in court to argue for a protective order. Separately, the airline has been lobbying Congress for special relief from the pension law.

Fiduciary duties to the employees that participate in the pension program sometimes collide with corporate officials’ fiduciary duties to their shareholders, especially when a company is struggling financially and trying to conserve money. Employees effected by the recent pension fund collapses have said they were not adequately warned of the impending failure.

Enforcement of the pension law has been piecemeal, with no one agency responsible for making sure the plans remain solvent. The United States Labor Department, responsible for enforcing the fiduciary duty requirements, has lately emphasized voluntary compliance, operating a successful amnesty program to help pension officials bring their plans back into line. The Pension Benefit Guaranty Corporation, which takes over the failed plans, has gone to court to try to hold some of those companies responsible, but it has little power to act until after a pension fund has failed, and by then it is usually too late to recover much of the missing money. The Internal Revenue Service shares enforcement of the pension law and it sometimes imposes excise taxes on companies that skip their pension payments. But it has no authority to enforce fiduciary duty.