ATLANTA — Delta Air Lines announced Monday a change in its employees' retirement plans as part of an effort to reduce rising pension costs.
Delta said the change, which will affect all new employees after June 30, will reduce expenses by about $500 million over the next five years.
If successful, the change would help the nation's third largest carrier at a time when its pensions are severely underfunded. In 2003, Delta will have to spend up to $250 million in cash and take charges of up to $300 million to deal with the problem, according to Salomon Smith Barney airline analyst Brian Harris.
The change, which will apply to all U.S. employees excluding pilots, will be from a traditional defined benefit plan to a cash-balance plan.
Delta spokeswoman Peggy Estes acknowledged that while the plan will save the company money, it will reduce the retirement benefits for some employees. She said employees under the new system will need to take more responsibility for retirement planning.
The new plan states an employee's retirement benefits as an account balance rather than as a monthly payment. The cash-balance plan may be taken as a lump sum or as an annuity when an employee leaves Delta.
Current employees will have a seven-year transition to the new plan. During this time, they can opt for either the traditional plan or the new cash-balance plan, whichever amount is greater.
Although traditional benefit plans were created to encourage employees to stay with a company for a long period of time, Estes said the new system offers "flexibility for people because the norm is not to stay with a company for the entire career."
Employees who retire within the next seven years will see no change to their retirement income benefits, company officials said.