Petition - HL 202 (2)

Delta’s final word on Delta Retired Pilots lost benefits:

Finally, a company response and it is their “FINAL” response:

(So much for our attempted HIGH road!)

I know, I know……. you are saying, “I told you so.”  The response is just what most expected (frankly, though hoping for better, including us).  However, when we joined Rob Moser in the “effort” to fight for a better solution for our terminated non-qualified annuity we all decided to take a high road and were encouraged to do so from former senior managers.  We worked hard creating the petition and then delivering it to all Delta principles including the BOD at their private addresses.  We think that activity did indeed win us a meeting.  However, we wanted to speak with Richard Anderson but to our repeated efforts to get that scheduled we got Rob Kight instead.  So we after a lot of prep, a scant eye and a prayer, we met on November 12th, 2013.  As the meeting started, our approach was simply to convey, in the best way we could, that “real” harm and pain has and is being experienced out here and in this very room we have empirical examples.  Our meeting’s 3 main goals:

Meeting TOP 3 Goals

1. Far Exceeded Losses -  by anyone's analysis the harm brought upon the Delta retired pilots far exceeded anyone's rosier estimates.  Instead of 10-20% losses, this group experienced 30-40% overall losses.  Unlike any other group there has been no recover or remedy and the level of harm was and remains entirely disproportionate and inequitable.

2. Positive PR - like the Spirit of Delta that brought the company millions of $$ of free positive PR, (Whit Hawkins estimated $250 million in 1988 dollars) a corporation that cares for a slighted group (like the Delta retired pilots) can do the same.  Action could have a major positive PR outcome.

3. Exec Advisory Committee -  We are asking for a small handpicked committee to research, analyze and make recommendations to the leadership concerning this black eye on the corporation concerning the Delta retired pilots pensions losses.

Our group of four spent over an hour sitting with Mr Kight, a company HR advisor and a company attorney. Our focus was the non-qualified termination of the “formula account.” With all we had, we tried to convey that the harm experienced was real, it was and is significant, and what is happening is not in the Delta tradition of caring for its own.  The meeting was cordial and by all appearances our approach was welcomed and well received.  In fact, as we closed, we were promised by Mr. Kight that he would further review our claims and get back with us.  Well, below is his (and the company’s) final word on this issue. 

In his letter, we are misquoted, our issues are distorted and on every salient point Mr. Kight is inaccurate.

Mark Sztanyo

Scott Murray, Alan Price, Mark Sztanyo, Rob Moser

NOTE: In Mr. Kight’s letter below, my comments are inserted in blue and all emphasis or underlines are mine.

 

                               

Rob Kight Delta Air Lines, Inc.

Senior Vice President, Global      P.O. Box 20706
HR Services & Labor Relations    Atlanta, GA 30320- 6001       

February 26, 2014

Mark Sztanyo

Dear Mark Sztanyo: 

As I indicated I would do at the conclusion of our November meeting, I have again reviewed your request regarding retired pilot non qualified retirement benefits with senior leadership at Delta. I must advise you however, that following that review, our position remains unchanged with respect to this matter. 

Although our meeting gave us a chance to hear your concerns first hand, it did not result in any new information that we have not considered in the past. 

It isn’t just new information that is important, how about facts that have been ignored, denied or not acknowledged?  In that sense, items that we were detailing were indeed new because we have never seen the company focus on our significant non-qualified losses.   The company has refused to acknowledge that real, deep and unrecoverable and disproportionate harm befell our Delta retired pilots even though we have 8 years of experience to verify it. In addition, if you want something new how about our approach? We didn’t ask for any immediate decisions or millions of dollars.  Instead we attempted to be fresh and new by simply asking for an Executive Advisory Committee to study our situation and claims.  To our knowledge this approach is entirely new, and we also believe it to be a very reasonable request. 

 We have always been aware that for pilots who retired in the years directly preceding the bankruptcy filing, the non qualified monthly annuity was eliminated, and the qualified annuity reduced, in some cases significantly, following termination of the Pilots Retirement Plan. We also are aware that in many of those cases, the non qualified portion of the monthly benefit constituted the largest portion of the monthly benefit being received prior to bankruptcy.

 

This is a minor victory because it is one of the few times we have heard a company representative acknowledge this non-qualified termination and even refer to its significance. In the past they have repeatedly and steadfastly bobbed and weaved on this issue and placed all their emphasis on the qualified pension and the lump sum.  For a number of factors, it is understandable that they will hardly ever talk about the other 50% of our earned pension including the non-qualified deferred compensation annuity that came monthly income  stream. 

However, as we have explained before, in those cases in which the non qualified payment was the highest and the remaining PBGC payment the lowest, the lump sum received at retirement was also the highest. It appears to us that your group continually ignores that fact, and in fact ignores altogether the receipt of the lump sum at retirement when making claims that retired pilots lost 80 to 100% of their retirement benefit as the result of bankruptcy and termination of the Retirement Plan. 

These 2 sentences  are a complete mis-representation and distortion.  First, we started from the onset by acknowledging nearly everyone took the lump sum, but we were here to focus on the other 50% of our earned pension.  Further, we NEVER used “100%” loss language as we were extremely careful to focus on and talk about our 1/2 earned pension that was to come monthly.  The numbers we used were that many saw the monthly annuity portion of our pension (from both qualified and non-qualified sources) reduced from 60-90% even after the claim payouts are factored in. It is here in the monthly annuity that retired pilots experienced their most painful reductions.  See the appendix included at bottom below to verify this fact.  It was the only document that we left with Kight and company.

The lump sum was always intended to be at least (precisely) half of your total retirement, and was never intended to simply be a “rainy day” fund, as one of your group referred to it in our meeting.  

 

Distortion of context. We still maintain that though some received a larger lump sum than the average, due to higher total pension earnings, it only represents one half (1/2) of earned pension.  Every time Mr. Kight refers to someone getting a higher lump, he infers that they should be ok with losing the other half of their retirement.  Balderdash. 

As we have also explained, a basic tenet of bankruptcy reorganization like that Delta underwent is that unsecured pre bankruptcy debt is converted into bankruptcy claims. Prior to bankruptcy, the non qualified retirement benefit was an ongoing unsecured general debt obligation of Delta. While you may not agree that you should have been treated as unsecured creditors, as a matter of law, Delta was not and is not in a position to make a choice in this matter. There is no provision under bankruptcy law that treats payment of non qualified retirement benefits any different from any other unsecured debt obligation during the reorganization process. In fact, during bankruptcy, an argument was made by some that non qualified retirement benefits should be treated less favorably than other debt; however Delta rejected that argument, and, with the help of DP3, Delta was able to maximize the value of the claim for the non qualified retirement benefits, thus providing more value for the retired pilots than some creditors would have preferred. In addition, Delta gave the PBGC a note and a claim in bankruptcy, and retired pilots were a primary beneficiary of the value of the note and claim. 

There is so much to take issue with here I hardly know where to begin but allow me to take on a couple of points.  First, Delta should not even have considered same-day termination of the earned non-qualified plan and therefore “keeping” the millions that wasn’t theirs’ to begin with. Our non-qualified plan was a deferred compensation plan which simply means compensation “earned” but paid out at a later date.  The company terminated the plan and kept that earned compensation. Some people refer to this type of action as corporate raiding or even worse. Having said that, Mr Kight infers that, we as former loyal and trustworthy employees, should be “thankful” that we were not treated as such, but instead lumped in with the other unsecured creditors and paid out a claim worth pennies on the dollar.  Further, now that the bankruptcy proceedings are over and this inequitable harm has been done, exposed and experienced by  our retired pilot group, we take umbrage with the idea that in regard to our earned deferred compensation we are still considered simple unsecured creditors worth about $.10 on the dollar.  This whole paragraph is insulting and would cause CE Woolman and David Garrett roll over in their graves.

If the lump sum was turned into an annuity monthly income stream, some of our retired pilots have seen close to a 40-45% reduction.  I looked Mr. Kight and his colleagues in the eye, while drawing a simple diagram, and asked how would he appreciate a 20……30……40% or more loss of monthly income?  There was no response.

 

We also disagree with your view that retired pilots suffered disproportionally to other groups. As I explained in our meeting, all active employees suffered pay cuts and significant reductions in their benefits. Almost all Delta retirees saw their retiree medical benefits reduced, some more than others (and some more than you). Retired and active non-pilot employees lost their non qualified retirement benefits as well. To be clear, we acknowledge the sacrifice made by retired pilots and that the loss of the non qualified benefit was painful to them. Nevertheless, the bankruptcy process and the resulting changes was painful to all, and we remain unconvinced that the retired pilots were treated unfairly vis a vis other employee groups.

    

It is easy to disagree with our claim when corporate execs are so removed from what we have experienced for over eight years.  Disagree with undeniable fact?  The actions during bankruptcy set in place unrecoverable disproportionate harm that we have and are experiencing for life.  From bankruptcy up through today (including these 8 years of experience) no group has suffered the un-recoverable termination of TWO pension plans without adequate replacement plans.  Considering that same period, no other group suffered total dollar harm that our group has. When we were compared side by side, as Mr. Kight did, to either the active pilot group that has both recovered and then some, and also the NWA pilot retirees that are paid nearly full retirements from Delta sponsored trust, our word is “disproportionate” and we stand by it!  

We consider our position final and this matter closed. Therefore, we see no benefit in any further meetings or exchange of correspondence regarding these matters and consider this to be our final response. Thank you again for your time in coming in to see us.   

Sincerely,   

Rob Kight

Senior Vice President - Global HR Services

& Labor Relations

CC: Scott Murray, Alan Price & Rob Moser

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Editor: This letter is of course discouraging but as many suspected rather predictable.  We always viewed this meeting as important to get the company’s word and position on our issue along with their rejection of our good faith effort to simply get an Executive Advisory Committee to study the veracity of our claims.  Since that request has been denied, it allows us to re-group and attempt to keep the issue alive with other measures.  Rob Moser is still motivated and his circle of volunteers are still committed to continue the fight.  The bottom line is that the money Delta saved off the backs of the Delta retired pilots plan  terminations, was key and instrumental in funding the turn around that is in full swing today.  If Delta will not operate under long standing traditions of caring for their own, than at least one way or another the company should return retiree benefits “borrowed” to get them where they are at today. 

Mark Sztanyo

Note: See Appendix attached below as the ONLY prepared document left with Mr. Kight that he distorted and misquoted.  In the far right column of the table it shows the dollar amount of the MONTHLY annuity loss after the claim had been factored in for 5 real pilot examples with their actual numbers.  We claim that the 50% of our earned pension which was to come monthly was devastated by the non-qualified deferred compensation plan termination in most cases.  In these 5 examples it could not be clearer that we are talking (not about the lump) but the monthly income stream representing the 50% of earned pension so distributed.  When all is considered and factored with the received lump sum, most pilots lost overall between 30-40% of earned pension benefits.  Far and away a greater sacrifice than any other group and by definition became the principle employee group that helped financed the company’s turnaround.

Appendix Ib              Non-Qualified Termination’s Harm Examples

The Inadequate and Unfair Non-Qualified (CL4NQual) Solution!

Real life examples of losses incurred due to termination of the earned Non-Qualified formula account.

(Representative of the entire group of over 3500 Delta retired pilot families).

Overview notes:

1. This below table considers Non-Qualified benefits ONLY!!!! (no qualified or medical benefits included)
2. Comparison between Column D (paper award) vs. column F (value of shares on distribution), shows the devastating penalty of the formula and taxation of amount received.
3. Column H shows the immediate replacement annuity that could have been purchased by the pilot after distribution.
4. Column I shows the inadequate and unfair shortfall % of received vs. earned.

Detailed Column explanation below:            

A	B	C	D	E	F	G	H	I
Retired Delta Pilot1	Monthly Non-Qualified Check before termination.2	Monthly   Non-Qualified Check after termination.3	Claim awarded value (CL4NQual) 4	After tax number of shares received.5	Claim Shares value when issued @ $19.55.6	Avg Cash Value of claim Shares after sale @ $10.78.7a	Standard   immediate annuity potential.8	Shortfall % of lost NQ Formula  Check.9
P1 age 64*	6440.97	0	769,139	12,882	251,843	138,868	761/mo.	761/6441=88%
P2 age 59*	4615.93	0	603,130	13,566	265,215	146,241	717/mo.	717/4616=84%
P3 age 59*	4862.00	0	645,812	10,022	195,930	108,037	518/mo.	518/4862=89%
P4   age 65*	4975.53	0	549,805	9,275	181,326	99,985	567/mo.	567/4976=89%
P4 age 59*	4073.86	0	532,301	8,261	161,510	89,054	427/mo.	427/4074=90%

                                                                                                                                   <Assumed Private 
 Column I Repeated Below due to page width. 

I

Shortfall % of lost NQ Formula  Check.9

761/6441=88%

717/4616=84%

518/4862=89%

567/4976=89%

427/4074=90%

Replacement Annuity Potential>

*Age at time of claim shares distribution in Sept 2007 for annuity calculation. 

1. Column A = Pilot name and age at time of NQ shares distribution, used for figuring potential replacement immediate annuity.
1. Column B represents the actual non-qualified “Formula Account” monthly annuity check received by these representative pilots.  These are non-qualified monies paid for by annuities bought by Delta.
2. Column C represents received monthly checks after the Sept 2, 2006 termination of non-qualified plan.

Note: a column could have been inserted as to the stated $$ valuation of the pilot’s claim, but for practical purposes it is rather useless. An unsecured creditor with a $10,000 claim received an initial distribution of 138 shares of Delta stock which was worth $2,698.68 as of the close of the market on June 1st when the stock price was $19.55. So pilots received approx 27% of their claim value in over-valued stock. For those who elected to receive cash, the net shares from Step 3 was multiplied by $19.4762, the average share price of the shares sold over the month of May so that the net cash received was $2688.49.

4. Column D: Value in dollars of claim (for terminated non-qualified benefits) when awarded. This amount was later reduced through formula (138 distributed for every 225) and further reduced by taxation and a lump of shares were distributed as represented in column E.
5. Column E: This column shows the number of shares (minus shares withheld for taxation) distributed for the future lost benefits. The tax rate (of withheld shares) on the overvalued distribution was punitive in at least two ways. 

1. It was taxed all at once at higher rates (87 shares for each 225 was withheld leaving 138 shares to distribute).  The monthly as an annuity would be at much lower rates.  
2. And secondly, the shares were taxed based on an over-valued share price of $19.55.

6. Column F: Shares x $19.55 = stated market value.  Overvalued, over taxed and under achieving, this column is the assumed market valuation of the distributed shares at time of its distribution.  Really pie in the sky. Two things to note:
1. The claim dollar amount awarded to each pilot, was reduced through formula to receive stock worth 27% of said claim.
2. Unless this stock was immediately liquidated, this account was further devastatingly reduced by falling market value.
7. Column G:  Average Cash Value after share sale – (Avg share price from period of 6-1-2007 to 5-31-2012 = $10.78):                                   You cannot eat stock!  Our aging retired pilots would be forced to liquidate the shares to cash, in order to receive a retirement benefit. Regardless of claim formulas, estimates, valuations and/or market potential, the vast majority of our retired pilots sold this asset within 5 years of distribution.  So the reality of its potential was determined by the time frame of its sale.   Instead of showing the exact sale share price for each of our example pilots (which would only highlight their specific luck or lack thereof), we think it fairer to show the assumption of sale on average within the 5 years after distribution.  This accurately demonstrates the plight of all within our group. To be clear, when one jumps ahead to Column I, the percentages of losses will be estimated but in a tight range.  This Column G represents the assumption that the pilot did indeed sell the stock for cash at the mean average stock price of $10.78^a within the 5 years after distribution.  That assumption of sale, within this period, is entirely realistic and verified by our informal poll that the vast majority of our group did indeed sell.   This column F further shows on average a 73% reduction formula of the pilot’s claim amount of stock for dollars and of course the further reduction in value due to the lower share price realized during sale.

^aAvg share price from period of 6-1-2007 to 5-31-2012 = $10.78.  (The overwhelming percentage within our group liquidated their shares within this period)

8. Column H.  Potential replacement immediate annuity.  Given the realized value of the pilot’s account, this column represents how much of an immediate monthly annuity that the pilot could purchase (with age as of Sept 2007) figured generically from the standard practices and formula from www.immediateannuities.com.   Note: There was also a loss of time value of money that was real.  This loss occurred because when our earned monthly non-qual annuity checks stopped our investment opportunity ceased. 

9.       Column I - Percentage of shortfall: Represents a real apples-to-apples comparison of the percentage difference from the lost non-qualified monthly annuity once being received vs. the potential replacement monthly annuity bought by the pilot from the shares distribution.  It should be easy to see that in case after case, and over 3500 times, this share distribution was and remains a wholly inadequate solution for our Delta retired pilots.

 


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