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KLM seeks to terminate 'unaffordable' contract with pilots scheme

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KLM, the Dutch airline, is seeking to terminate its obligation to plug any funding shortfalls at its €8.2bn pension fund for pilots (Pensioenfonds Vliegend Personeel KLM).

The airline cites the stricter buffer requirements within the new financial assessment framework (nFTK), which, in the KLM scheme’s case, requires a funding ratio of more than 122% to award full inflation compensation. 

Falling interest rates, however, lowered the pension fund’s coverage ratio from 122% at the end of 2015 to just 112.5% in June.

The company said it feared it would have to pay an additional contribution worth hundreds of millions of euros to be able to grant indexation next year.

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To avoid this, KLM said it would terminate the pension-provision contract with the pension fund on 1 December, with financial news daily Het Financieele Dagblad (FD) quoting a KLM spokesman as saying: “The mandatory supplementary payment poses too much risk to the company, so we therefore want to conclude a new contract.”

The pilots union VNV, in a letter to members, described KLM’s plan as an “attack” on pensions provision.

The airline, however, said it had proposed an alternative whereby changes would have been made solely to the indexation guarantee.

The Pensioenfonds Vliegend Personeel KLM is one of the few pension funds in the Netherlands were indexation is not in arrears.

Last year, the airline announced that it wanted its three largest pension funds to switch to collective defined contribution arrangements.

In its 2015 annual report, it described the current defined benefit plans – with more than €19bn in combined assets under management – as “untenable” and a burden on the company’s balance sheet.

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