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DEFINED BENEFIT

Lufthansa to freeze pension plan for pilots, introduce new DC plan

Lufthansa

Lufthansa AG is introducing a new defined contribution plan for its German pilots in the middle of this year, following an agreement the airline reached Wednesday with the pilots' union, Vereinigung Cockpit, said a spokesman.

The Cologne-headquartered airline has decided “to switch the pension arrangements in order to safeguard money and reduce pension liabilities,” he added.

“The agreement provides a one-off balance-sheet reduction through the conversion of the pension schemes. In return for the cost-reducing elements of the agreement, 325 aircraft will be crewed in the current (collective bargaining agreement) flight operations in stages by 2022. This will make it possible for Lufthansa to hire trainee pilots again in the coming years and create career prospects for pilots with a large number of positions for prospective captains,” Lufthansa said in a statement Wednesday.

Lufthansa's defined benefit plan, which had €11.5 billion ($12.2 billion) in pension liabilities as of Dec 31, 2015, will be closed to future members and frozen. Spokesman could not provide the size of assets and the number of members affected by the change by press time.

Lufthansa reached an agreement with the union on the levels of contributions from each side but it hasn't yet communicated it to the employees, according to the spokesman.

“We will make announcements in the next few months, by mid-2017,” he added.

Germany is on the cusp of introducing a nationwide defined contribution system, which will require companies to automatically enroll employees in a DC plan.

But the Lufthansa spokesman said that the decision was not a result of the impending reform. The collective bargaining agreement with the union will last until 2022.