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BACKGROUND: In order to address the questions about the longevity of the D&S Trust and the security of D&S Plan benefits, we need to start with a little background about the Trust and its function. The D&S Plan specifies a Benefit Fund from which Plan benefits will be paid. The Benefit Fund may be comprised of a combination of trust funds and insurance contracts, but essentially the D&S Trust has been the Benefit Fund. The assets of the D&S Trust cannot revert to Delta or its shareholders, but must be used exclusively to pay benefits to D&S Plan Participants and their Beneficiaries as well as defray reasonable costs of administering the D&S Plan. From 1972 until the Delta bankruptcy, the D&S Trust served as the sole source of payment of D&S Plan benefits. During the bankruptcy, the D&S Plan was amended to designate Delta as an additional direct source to pay Plan benefits.
WHAT HAPPENS IF THE D&S TRUST RUNS OUT OF ASSETS? Because Delta is now designated as a secondary direct source of benefit payment, theoretically Delta will continue to pay D&S Plan benefits if and when the D&S Trust assets are depleted. The caveat is that the D&S Plan specifies that Delta reserves the right to amend or terminate the D&S Plan. One may find comfort in Delta's repeatedly stated intentions of maintaining the D&S Plan indefinitely such as articulated in a March 3, 2008 letter from Rob Kight, Delta's Vice President of Compensation, Benefits and Services (click here to read). However, the wording in Delta's Summary Plan Description of D&S Plan benefits raises a question about Delta's good intentions (click here to read). Many retired pilots who have battle scars from the Delta bankruptcy may be skeptical about the security of D&S Plan benefits if the D&S Trust is not adequately funded to pay those benefits.
RESTRICTIONS ON DELTA'S RIGHT TO AMEND THE D&S PLAN: Delta's right to amend the D&S Plan is restricted under the Pilot Working Agreement with ALPA; therefore, Delta must obtain ALPA's approval before amending the D&S Plan. As long as ALPA remains as the collective bargaining agent and remains steadfast in protecting the benefits of retired pilots, D&S Plan benefits should be paid. However, events from the past Delta bankruptcy are a cruel reminder that an adequately funded D&S Trust provides the ultimate security of D&S Plan benefits.
LATEST AVAILABLE FINANCIAL INFORMATION ABOUT THE D&S TRUST: Under the provisions of the Employee Retirement Income Security Act (ERISA) employers must provide participants of a plan with an annual report that summarizes the financial status of the Plan. Unfortunately, the information relating to the Plan Year that ends on June 30th is almost a year old by the time that we receive it. Delta typically mails the Summary Annual Report in mid-June that covers the Plan Year that ended on the previous June 30th. Additional details are available in the IRS Form 5500 that is filed annually. The IRS Form 5500 is due on February 15th, but Delta usually files for an extension which allows the filing to be completed no later than April 15th. The information normally is at least 10 months old by the time that we first see it. A brief summary of information from the latest Form 5500 can be viewed by clicking here.
DECLINE IN FINANCIAL STATUS OF THE D&S TRUST: At the time that Delta emerged from bankruptcy, the assets of the D&S Trust appeared adequate to pay all future benefit obligations. The ensuing decline in Plan Assets to approximately 40% of Plan Benefit Obligations is addressed in an attached article (click here to read).
CONTRIBUTIONS TO THE D&S TRUST: The D&S Plan contains some interesting wording about contributions to the Plan. Basically it indicates that contributions are required at periodic intervals taking into consideration the funding recommendations contained in the annual actuarial valuation of the Plan.
From the date of establishment of the D&S Plan in 1972 until about 1990, the annual actuarial valuation contained funding recommendations and Delta funded the Plan accordingly. However, those funding recommendations ceased when the D&S Plan assets significantly exceeded liabilities. Now that the D&S Plan assets no longer exceed the benefit obligations of the Plan, it appears appropriate that funding recommendations be resumed and the Plan funded accordingly.
Even though Welfare Benefit Plans do not have any statutory funding requirements under ERISA regulations, it is reasonable to infer from the Plan language that funding recommendations should be included in the annual actuarial valuation and that those recommendations should be considered when determining appropriate funding for the Plan. Failure to do so may raise an issue relating to fulfillment of fiduciary responsibilities.
Hopefully, Delta in good faith will fund the D&S Trust in a manner similar to the voluntary additional contributions that are being made to the Delta non-pilot and the former Northwest employee pension plans. During the Delta bankruptcy, the authorization of additional expenditures of $60 million annually from the D&s Trust to pay for pilot sick leave can be viewed as being essential to Delta's reorganization. Now that Delta has successfully reorganized and is prosperous, it appears fitting for those funds to be returned to the D&S Trust.