AMR Corporation, the parent of bankrupt American Airlines, has announced that it will only freeze three of the four employee pension plans — the ones for everybody except its pilots — instead of turning them over to the federal government.
If the airline had turned them over to the government, the federal Pension Benefit Guaranty Corporation, would have borne losses of around $8 billion if it had to take on responsibility for the three pension plans.
“It is great progress,” the pension agency’s director, Joshua Gotbaum, said in a statement. “Bankruptcy forces tough choices, but that doesn’t mean pensions must be sacrificed for companies to succeed.”
The American’s pilots’ pension plan remains uncertain but the airline is searching for a way to freeze this plan too. However, because pilots have the right to take their pensions as a single big payment when they first retire, as well as in an annuity, there is a risk that when the airline emerges from Chapter 11, many of pilots (5,207 pilots in their 50s) could take retirement en masse and demand lump-sum distributions, which it could not afford. Unless the lump sum issue can be addressed, a freeze scenario cannot be considered by the airline. Legally it would be very difficult for American to revoke the lump-sum distribution option unilaterally because a federal law bars companies from reducing pensions once workers have already earned them. However the airline is in talks with the Allied Pilots Association union, the federal government and its unsecured creditors’ committee “to identify creative solutions that would enable us to explore alternatives to terminating the pilot pension plan.”