(February 1, 2012) — AMR Corp’s American Airlines wants to kill pensions for 130,000 employees, but the Pension Benefit Guaranty Corporation (PBGC) asks: is that really necessary?
In a statement released today, PBGC Director Josh Gotbaum said: “Before American takes such a drastic action as killing the pension plans of 130,000 employees and retirees, it needs to show there is no better alternative. Thus far, they have failed to provide even the most basic information to decide that.”
American Airlines — which reportedly received $1 billion in pension relief since 2008 and has $4 billion in cash — has revealed plans to terminate its four pension funds, which are underfunded by about $10 billion, and begin offering 401(k) plans to employees, according to a statement released today on its website. The airline’s proposed termination of its pensions would be the largest in history, the PBGC has asserted, reiterating that pension termination should only be a last resort and not part of a business strategy to take advantage of the bankruptcy process, leaving taxpayers with the burden. Under federal law, if a company in bankruptcy plans to end its pensions, it must demonstrate that doing so is the only way it can reorganize.
The airline explained that it will seek Bankruptcy Court approval to terminate its defined benefit pension plans. “If the plans are terminated, American will contribute matching payments in a 401(k) plan,” the statement said. “American also will seek to discontinue subsidizing future retiree medical coverage for current employees, but will offer access to these plans if employees choose to pay for them. American also proposes to implement common medical plans and contribution structures across all active employee groups.”
Tom Horton, AMR Chairman and Chief Executive Officer, said: “These are painful decisions, but they are essential to American’s future. We will emerge from our restructuring process as a leaner organization with fewer people, but we will also preserve tens of thousands of jobs that would have been lost if we had not embarked on this path – and that’s a goal worth fighting for. By reinvesting savings back into our business, we will support job growth, including growth at our suppliers and partners over the long run. Only a successful, profitable and growing American Airlines can provide stability and opportunity for our people.”
Last week, PBGC claimed that American Airlines employees should worry about pensions as the airline struggles to pull itself out of bankruptcy. American Airlines’ recent statements, through its lead bankruptcy counsel and in employee communications, have signaled the airline’s intent to dump its retirement obligations on the PBGC, said J. Jioni Palmer, director of communications of the federal agency, in a statement. He continued: “American Airlines is telling their workers and retirees not to worry, but they should. American said nothing’s been decided yet, but didn’t even bother to pretend that it was trying to preserve its employees’ pensions.”
According to the federal agency, American Airlines’ management have been downplaying the serious consequences of what could happen if the company terminated its pension plans. “The letter ignored that PBGC doesn’t insure retiree health benefits, which are usually canceled when companies terminate pension plans,” the statement by the PBGC said.
Since American Airlines sought Chapter 11 protection on November 29, PBGC has been working to try to preserve the airlines’ pension plans. While the PBGC has repeatedly stated that the airline must be preserved, it has said that doing so while preserving its plans would be in the best interest of both the airline and the PBGC, which has been hit with burgeoning debts as corporate bankruptcies and pension failures have contributed to its widening deficit. Furthermore, PBGC noted that other airlines had reorganized successfully without terminating their plans.