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Message: [QUOTE="Dan Roman, post: 2249618, member: 14406"] 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. [/QUOTE]

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