Weathering the Perfect Storm: Defined-Benefit Pension Plans in the Airline Industry

Abstract

With defined-benefit pension plans experiencing record shortfalls, pension funding reform has moved from obscurity to the top of the legislative agenda in Washington. Much of the concern surrounding defined-benefit plan funding centers on recent developments in the airline industry. Because it is the troubling specter of a flood of airline pension liability swamping the pension insurer that is driving calls for legislative reform, it is important to understand the factors that have contributed to the current situation. This report traces the causes of the airline pension funding crisis, describes how firms in the industry have responded, and makes policy recommendations to contain the crisis now and prevent recurrences in the future.