KLM and pilots’ union VNV have agreed that the airline’s €8.6bn pilot pension fund will replace its defined benefit (DB) arrangements with a collective defined contribution (CDC) plan.

As part of the adjustment, the employer will make a one-off payment of €194m into a reserve fund to support inflation-linked benefits, KLM said.

Up to now, KLM had to fill in any funding gap to enable the DB pension fund to grant full inflation compensation, which proved to be a sticking point in funding negotiations.

Under the new CDC arrangements, the company is exempt from any mandatory additional contribution – even when cuts to benefits are imminent.

KLM said it expected that its future contribution would only vary “limitedly”. The union indicated that it wasn’t entirely clear yet what the agreement would mean for next year’s premiums.

As a consequence of the accord, KLM’s pension liabilities and assets will be removed from the company’s balance sheet.

Although the current balance is a €1.34bn surplus, the employer said it would be happy to see the budget item go as it can vary significantly from quarter to quarter.

In addition, KLM will no longer run the risk of having to make additional contributions.

In 2016, the sponsor and unions had a serious conflict about the pilots’ pension plan and the employer’s obligation to plug funding gaps.

Last summer, KLM unilaterally cancelled its contracts for pensions provision, arguing that an additional payment of €600m could bring down the company.

However, the parties came to an agreement in December when it became clear that the required additional contribution was no more than €94m, an amount that has been incorporated into the €194m agreed for indexation purposes.

At September-end, the coverage ratio of the Pensioenfonds Vliegend Personeel KLM stood at 124.5%.

The accord between KLM and the VNV is subject to the approval of the union’s members.

Also in December, KLM reached an agreement with its €3bn pension fund for cabin staff, which also included the abolishment of the sponsor’s obligation to fill in funding gaps.

The coverage ratio of the Pensioenfonds KLM Cabinepersoneel stands at 116.5%.

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