Administration May 3, 2006

American Airlines Mgt., Labor Join to Save Pensions

March 17, 2005 (PLANSPONSOR.com) - In an era when cash-strapped companies and their workers are increasingly doing battle over the future of their pension plans, American Airlines management and labor have joined forces to help protect the carrier's retirement programs.
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In fact, the two sides have signed a joint proposal for reforming the nation’s pension system which they intend to give to Congressional lawmakers for the expected debate later this year on a pension overhaul, according to a Fort Worth Star Telegram report. The document asserts that “companies must try to protect the retirement benefits that have been promised to their people.”

It was the strongest statement yet from American’s top executives that they want to preserve the carrier’s pensions, at least for now, rather than closing down or freezing their pensions. The proposal “further underlines our joint commitment to the preservation of our pension plans,” said Jim Little, international executive vice president of the Transport Workers Union, which represents American’s ground workers, according to the newspaper report. “Pension reform is one of the most important issues (employees) are concerned about,” Little said in a letter to union members.

The American Airlines document also addressed general system reforms as well, according to the Star Telegram. The statement urged relief for companies that freeze pension plans outside of bankruptcy when employers continue funding their current pension obligations but typically provide future benefits from a 401(k). That is what Delta Air Lines did earlier this year with its pilot pension plan. American currently owes its pensions about $2.7 billion. Last year, it made $461 million in pension payments, and is expected to pay another $300 million into the plans this year.

In terms of general pension reforms, the American Airlines document suggested that:

  • companies with poor credit ratings – like American – should not be required to pay higher premiums
  • plans should remain flexible and not be subject to a host of new restrictions
  • companies should have more time to make up for the shortfall in their pensions. Current law requires plans to be fully funded within three to five years.

The proposal also stated that companies should be banned from putting money into special pension plans for executives while not paying into the employee pension. American has such a plan for executives. It was created in 1985, but was funded with $25 million and placed in a bankruptcy-proof trust in 2002.

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