American Airlines Calls for Full Pension Funding in Fifteen Years

June 23, 2005 ( - American Airlines officials say they agree with the notion that defined benefit pension plans should have to be 100% funded, but claim it will take them longer to reach that goal than lawmakers are currently suggesting.

A group of the air carrier’s executives and employees was in Washington Wednesday meeting with lawmakers who are pondering a variety of pension reform bills including a recent proposal by Representative John Boehner, (R-Ohio), calling for full funding within seven years (See  Latest GOP Pension Reform Bill Includes Advice ).

Gerard Arpey, American chairman and chief executive officer, and several union executives told lawmakers that the company would prefer legislation allowing 15 years to get pension plans fully funded.

“We believe that short amortization periods may result in unintended plan terminations,” American said in  a position paper . “We support allowing 15 years to reach a funding level of 100% – without requiring any plan freeze – as a more suitable approach.”

The carrier said its pension plans now are about 80% funded – the best among the older air carriers. American said it has contributed more than $1 billion in the last four years to its pension plans.

“We are asking for a sensible approach to pension legislation that does not undo the hard work of the employees and management of American Airlines to restore our company and preserve our retirement plans,” the company statement said.

Boehner Bill Analysis

Regarding other aspects of Boehner’s proposal, American asserted:

  • Yield Curve : “The use of a yield curve and three categories or ‘buckets’ for determining liabilities and therefore contributions is an innovative and practical way to address funding. We believe the modified yield curve approach of (the Boehner bill) should maintain a difference in treatment of contribution and lump-sum payouts that recognizes the different time and risk horizons of corporations and individuals. The substitution of a single liability measure as opposed to the current seven measures is appropriate.”
  • PBGC Funding: “We endorse the gradual phase in of a higher PBGC base premium and the indexing of the variable premiums that will improve the funding levels of the PBGC while minimizing corporate expense during this transition.”
  • Compliance Standards:   We applaud the elimination of any suggestion that standards should be based on the rating of a plan sponsor’s debt. The health of any particular plan is dependent on the funding of that plan – not the bond rating provided by some unaccountable rating agency.”
  • “Good Times” Contributions : “We strongly endorse the provisions allowing for increased permitted contributions to fund in good times in anticipation of more difficult economic conditions later.”

The text of a speech Arpey gave in Washington is  here . More information about the latest Boehner bill is  here .