Glimmer of hope for AA pensions

Dan Roman

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AMR Pensions Stir Debate
By SUSAN CAREY

The director of the Pension Benefit Guaranty Corp. on Friday assailed recent comments by AMR Corp.'s lead bankruptcy lawyer suggesting the airline may be planning to terminate its underfunded employee pension plans.

Josh Gotbaum targeted remarks made Wednesday on Bloomberg TV by Harvey Miller, a partner at Weil, Gotshal & Manges LLP. In the television interview, Mr. Miller said American's defined-benefit pension plans are underfunded by at least $4 billion. Defined-benefit pension plans "simply cannot work," he said, because unpredictable market conditions mean sponsors never can tell what their return on plan assets will be.

"It has to change to a defined-contribution plan," Mr. Miller said. "The PBGC won't be happy. I'm certain the retirees are not going to be happy. But we have to face economic reality." Reached Friday, Mr. Miller declined to comment.

Mr. Gotbaum, in a statement, said American "will have to prove it can't successfully reorganize if the pensions continue. PBGC is a pension safety net, not a convenient option for companies that want to sidestep their retirement commitments." He noted that the agency has helped "dozens" of companies in bankruptcy keep their pensions.

American on Friday said it had no comment on Mr. Miller's television interview. The carrier said it hasn't filed any pension-related documents in bankruptcy court, nor has it discussed the issue in any court proceedings. In internal employee communications, AMR has said the plans are "very expensive" and their termination is a possible outcome.

Tom Horton, AMR's chief executive, said in a letter to workers on Thursday that the reorganization means "we will have to make very tough and sometimes unpopular decisions that will impact people's lives." He said there will be job losses and more competitive labor contracts, but he didn't mention retirement benefits specifically.

Defined-benefit plans, traditional pensions, provide guaranteed payments from retirees' former employers. A defined-contribution plan is one in which the employer makes a contribution into a 401K-type program, and the employee, who often also contributes, must manage the assets—with investment results that are far from guaranteed.

AMR, which filed for Chapter 11 in late November, has four plans covering a total of 130,000 workers and retirees. The PBGC estimates the four plans have assets of about $8.3 billion to cover about $18.5 billion in benefits. If American, with the assent of the bankruptcy judge, terminates those plans, the PBGC would assume the plan assets and most of the liabilities and be responsible for paying benefits to American retirees. The PBGC estimates that about $1 billion in promised pension benefits wouldn't be covered.

Mr. Gotbaum said Northwest Airlines emerged from bankruptcy without terminating its pension plans. Delta terminated one but reorganized in Chapter 11 with its other plans intact. United Airlines terminated all of its plans, as did US Airways Group Inc. when they were in bankruptcy protection. In many cases, their workers' pensions were cut, in some cases dramatically, after the PBGC assumed those programs because the agency has limits on what it can pay.

The PBGC, which is funded by insurance premiums paid by 27,500 private-sector pension plan sponsors and the assets of failed plans, has a record $26 billion deficit as a result of failed plans it already has assumed. Mr. Gotbaum encouraged American to fix its financial problems but also to keep its pension plans.
 

MECH

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Defined-benefit pension plans "simply cannot work," he said, because unpredictable market conditions mean sponsors never can tell what their return on plan assets will be.

Wow and neither will "defined contribution" plans. For the very same reason stated above. The only way an average American who is under 45 years old will be able to retire is save 30% plus of their earnings each year. You do not see these companies even offering to pay half that!
 

rudder

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I hope that AMR Corp and its current senior management group get hosed in CH11.

This is the most blatant and opportunistic filing by any of the major airlines. It purports to use the narrow provisions of CH11.13c to eliminate the need to deal fairly with the unions, and then to subsidize the restructuring using taxpayer dollars via the PBGC. And all the while protecting the nest of the current AMR Executive suite who presume to remain.

Get organized - find new money - develop a new (and better) plan - and get rid of these arrogant bozos.
 

HalinTexas

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It's been rehashed many times. Don't count on the pension plans being saved in BK. That is why I've NEVER been in favor of them! Give me my money now, and let me invest it myself, thank you. Pensions are lies. They require a growth in contributors, in the company, and growth in the economy over time to fund those that are in retirement now. Kinda sounds like Social Security, don't it?

The smartest airline pilots out there were those that retired from AMR since Sept. Bravo, to you.
 

XR650R

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I hope that AMR Corp and its current senior management group get hosed in CH11.

This is the most blatant and opportunistic filing by any of the major airlines. It purports to use the narrow provisions of CH11.13c to eliminate the need to deal fairly with the unions, and then to subsidize the restructuring using taxpayer dollars via the PBGC. And all the while protecting the nest of the current AMR Executive suite who presume to remain.

Get organized - find new money - develop a new (and better) plan - and get rid of these arrogant bozos.

Damned straight!
 

Fubijaakr

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Enough
. The only way an average American who is under 45 years old will be able to retire is save 30% plus of their earnings each year. You do not see these companies even offering to pay half that!

Hope anyone without a DB pension is saving 30%. And that's CONSERVATIVE. If you're not, it doesn't matter how big your paycheck is today.
 

Andy

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Hope anyone without a DB pension is saving 30%. And that's CONSERVATIVE. If you're not, it doesn't matter how big your paycheck is today.

I'm in rare agreement with you that 30% savings is a minimum.
I disagree with you that one with a DB plan should count on receiving a single penny in retirement. I'm drawing a military pension and I don't expect it to last the rest of my lifetime which is why I'm saving a large portion of it. That lowers my standard of living today but gives me security for the future.
Anyone counting on social security or other government retirement schemes need to do some research on what happened to pensioners in Russia when they defaulted on their debt in 1998. ... I'd be surprised if we don't meet the same fate.
 

Draginass

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Pensions for non-pilots are as good as gone at AA. For the pilots, the A Fund is going to be turned over to the PBGC and the B Fund probably continued at a few percent less. Horton is going to go through the employee benefits with a dull chain-saw before this is all over. And he's going to do his part to contribute to the unemployment rolls in the US.
 

GoPats

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Pensions for non-pilots are as good as gone at AA. For the pilots, the A Fund is going to be turned over to the PBGC and the B Fund probably continued at a few percent less. Horton is going to go through the employee benefits with a dull chain-saw before this is all over. And he's going to do his part to contribute to the unemployment rolls in the US.

To make a long story short...
 
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