Feds pressure American Airlines to save pensions

[DieselDragRacer]

If American Airlines parent AMR intends to shed its workers' pensions in bankruptcy court, it will likely get a fight from the government.That's after the federal Pension Benefit Guaranty Corp. (PBGC) on Tuesday filed $91 million in liens against American Airlines property, a move The Associated Press calls "a bid to pressure the company to save its retirement plans instead of dumping the obligations on the agency."

IN-DEPTH: Official urges AMR not to dump pensions on federal agency (The Dallas Morning News)

IN-DEPTH: U.S. pension agency pressures American Airlines (The New York Times)

The PBGC says it had little choice but to file the liens after AA fell far short last week in making a required contribution toward its pension plans. American paid only $6.5 million of the nearly $100 million due, according to the AP.

AP says the PBGC's move "escalated a fight between American and the (PBGC), whose director accused the company of pocketing pension relief money instead of putting it into workers' retirements."

The New York Times also picks up on the story, writing that "while American has not said it intends to force the government to take over its pension plans, Joshua Gotbaum, director of the (PBGC), said he was hoping to get out in front of any such move by the airline."

The Times adds "most of the assets (affected by the PBGC's move) are in Latin America. They include aircraft, ticketing offices and real estate and are not part of the bankruptcy."

American's four pension plans cover about 130,000 people, according to the Times.

"Our basic goal is very simple: We want American Airlines to be able to reorganize successfully and succeed as a business. That is most important," Gotbaum says to The Dallas Morning News. "However, if at all possible, we would like for it to reorganize its business without killing its employees' pensions plans and terminating them."

AA spokesman Bruce Hicks responded to the Morning News: "We agree with Mr. Gotbaum's statement that the most important thing is for American Airlines to reorganize successfully and succeed as a business."

If that involves doing away with pensions, however, AA may have hard time making its case to the PBGC.

"The case, if you will, that 130,000 people to have their pensions killed in order for American to survive is not a strong case," Gotbaum says to the Fort Worth Star-Telegram.

Stay tuned ...

 

[densoo]

Review of "Retirement Heist"

Drawing on original analysis of company data, government filings, internal corporate documents, and confidential memos, Schultz uncovers decades of widespread deception during which employers have exaggerated their retiree burdens while lobbying for government handouts, secretly cutting pensions, tricking employees, and misleading shareholders. She reveals how companies:

-- Siphon billions of dollars from their pension plans to finance downsizings and sell the assets in merger deals
-- Overstate the burden of rank-and-file retiree obligations to justify benefits cuts while simultaneously using the savings to inflate executive pay and pensions
-- Hide their growing executive pension liabilities, which at some companies now exceed the liabilities for the regular pension plans

"Ellen Schultz documents the biggest heist in history, all the more horrifying because it is legal. Accounting tricks, perverse tax incentives, and bonus-hungry executives have taken the retirement money American workers have saved over decades. Meticulously researched and as gripping as a crime novel, this is essential reading for anyone who has, had, or hopes to have a job."

"Americans have long been burdened by the overwhelming challenge of saving for retirement, as tax deductions for retirement savings favor the highest income earners and pension coverage erodes. But as an economist investigating the retirement crises I was shocked at Ellen Schultz''s exposure of outright lies, manipulations, and pure greed of the employers trusted with our retirement funds."

 

[waveflyer]

+1
Enormous +1 densoo

If you feel Hard Landings is an essential read for an airline pilot- so is Retirement Heist

I might out myself a bit here, but I'm starting to leave copies in flight decks.

 

[densoo]

+1
Enormous +1 densoo

If you feel Hard Landings is an essential read for an airline pilot- so is Retirement Heist

I might out myself a bit here, but I'm starting to leave copies in flight decks.

Could not read more than a chapter at a time. It was brutal. One company couldn't terminate plan but a lawyer said it was legal to send out a letter to verify you weren't dead "just for our records." One third failed to reply mostly due to reduced mental or physical capacity. Ninety-year olds' pensions stopped the following month requiring them or their guardians to take affirmative steps to restore and recoup. Sickening was the fact that the Social Security Administration keeps an up to database which the company had and was using to verify beneficiaries.

 

[airplane wizard]

Not fair to have the taxpayers pay for YOUR retirement. If you want to retire then save your money!

 

[HalinTexas]

Pensions are Ponzi schemes. This isn't the first time this has happened, and won't be the last. Companies frequently "borrow" from the pension funds to keep company cash flow up. A $91M lien is nothing. The PBGC might own some airplanes now.

 

[Lear70]

The problem isn't that they were borrowing from their pension funds throughout the late 80's and 90's, the problem is that they were using the run-up in dot-com stocks and other over-inflated stocks to cash out huge payouts to senior management in the form of bonuses.

Then, when the market adjusted, as everyone knew it eventually would, there was a huge shortfall that couldn't be recouped because of the literally hundreds of millions of $$$ that had been sucked out of the pension funds.

This happened at many airlines, and what helped put the icing on the cake was 9/11, which allowed the airlines a real "out" financially to file bankruptcy, dump the pensions on the PBGC, and laugh all the way to the bank.

History... like Moulder said, "The truth is out there". Which reminds me, can anyone at Southwest shed a little light on your 401(k) funds? Ours suck, been stuck at 7-8% returns for a long while and was wondering how your funds are performing over the last couple years? Rumor has it you guys had one of the best fund managers in the biz working for you guys. Feel free to PM me if you don't want to thread hijack.

Back to the thread topic, oh yeah, American (management) sucks. From TWA to this... just not a good example of real leadership in the last 10 or so years there.

 

[fam62c]

The PBGC should be able to force them to use some of that 4B in cash to increase pension funding. Why should a company be able to stop funding it's obligations when they have that much cash? Has any airline ever filed for Ch. 11 and been denied? The bankruptcy laws are too generous to deadbeat corporations and they get abused. Sometimes I think we would be better off if liquidation was required instead of reorganization, it would force all parties to work together better.

This bankruptcy will prove to be a huge windfall for the incumbent management team. They will get to keep their salaries, retirements, they will get retention bonuses and they will get an equity stake to cash in during the next IPO. Crime may not pay but in this industry failure sure does for management teams.

 

[bizicmo]

Don't worry to cover the shortfall in funds the PBGC will be given new equity in the new American. As that equity doubles and triples over the coming years, it will be American that actually bails out the PBGC.

 

[CDub]

..... Which reminds me, can anyone at Southwest shed a little light on your 401(k) funds? Ours suck, been stuck at 7-8% returns for a long while and was wondering how your funds are performing over the last couple years? ......

I'd settle for consistent 7-8% annual return in a heartbeat. What do you realistically want it to be? Just curious. Sorry for the thread hijack.