AA and the PBGC

[Justme]

There's something here (and elsewhere) that just isn't right. But the numbers are so big and the "assertions" so bold, that average people reading this experience some sort of glazed-over brain effect. Well, at least I do.

Here's the link: American Airlines Pension Plans

From The Washington Post; By Steven Mufson, Published: February 3

American Airlines has saved $2.1 billion since 2006, thanks to two congressional measures that allowed it to reduce contributions to its pension plans. The company said it would make up any shortfall later.

Later has come, but there’s been a change in that plan.

American Airlines, whose parent company filed for bankruptcy in November, said this week that it wants to terminate its four pension plans for 130,000 workers and retirees and ask the federal government’s Pension Benefit Guarantee Corp. to bail out its unfunded pension obligations to the tune of $9 billion. It would be the largest PBGC bailout ever. Without the congressional relief, the gap would have been smaller, the PBGC said.

 

[wrencher]

There's something here (and elsewhere) that just isn't right. But the numbers are so big and the "assertions" so bold, that average people reading this experience some sort of glazed-over brain effect. Well, at least I do.

Here's the link: American Airlines Pension Plans

From The Washington Post; By Steven Mufson, Published: February 3

American Airlines has saved $2.1 billion since 2006, thanks to two congressional measures that allowed it to reduce contributions to its pension plans. The company said it would make up any shortfall later.

Later has come, but there’s been a change in that plan.

American Airlines, whose parent company filed for bankruptcy in November, said this week that it wants to terminate its four pension plans for 130,000 workers and retirees and ask the federal government’s Pension Benefit Guarantee Corp. to bail out its unfunded pension obligations to the tune of $9 billion. It would be the largest PBGC bailout ever. Without the congressional relief, the gap would have been smaller, the PBGC said.

YES WITH THE HELP OF OUR UNIONS. GO FIGURE MAYBE WE OUGHT TO GET THE SHORTFALL FROM THEM ONE MONTHS DUES AT A TIME

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[jimntx]

The PBGC is fighting AMR tooth and nail on this plan to dump the pensions on them. The downside for the company is two-fold.

One, the PBGC may win and the company is still stuck with the underfunded pensions, and the Federal law is going to require them to take care of the underfunding at some point in time. AMR's "business plan" does not allow for $9 billion in payments that might have to be deducted from the executive salaries, bonusses, and pension plans.

Two, the company wins, but then the PBGC becomes an unsecured creditor in the amount of the underfunding--$9 billion. . Oh, and as a Federal agency, the PBGC gets first dibs on the money which means the company might have to give the money to them instead of to Boeing and other preferred destinations for the money--such as, executive salaries, bonusses, and pensions.

If the pensions end up at the PBGC, the only employees really, really hurt by this will be the pilots. Currently, the PBGC can pay a maximum monthly benefit in the $4000/mo range. No non-management employee that I know of, other than the pilots, is eligible for anything close to $4000/mo. So, most everyone will get the pension that they would have gotten from AMR at age 65. However, there are restrictions on "early out" pensions--for instance, flight attendants currently have an option to retire at age 50 or 55 with some reduction in benefits. I don't think those will be available from the PBGC.

 

[BoeingBoy]

The PBGC has little chance of forcing AA to retain the DB pensions, barring passage of a law barring it retroactively. At the end of the day, it's up to the judge and as long as AA presents a credible argument that it can't successfully restructure if forced to keep the DB plans he'll allow them to be terminated (assuming that's what AA asks to do).

The PBGC becoming a big unsecured creditor won't be new - the same happened at the other carriers that terminated DB plans. They'll get a share of the new stock or stock warrents when AA emerges from bankruptcy, just like every other unsecured creditor - bankruptcy law prohibits treating some creditors differently.

If your DB plan specifies a minimum age that you can retire, you can still retire at or after that. Your benefit, just like under the DB plan, will probably be reduced in most cases though. This is very general - a specific employees situation will affect what he/she would get. I've gone over the process that the PBGC uses to set benefits for each individual so won't go through it again here.

Jim

 

[FWAAA]

Gotbaum has been banging a "$10 billion pension shortfall" drum ever since AA filed, but he's overstating the shortfall by a significant amount.

We don't have numbers for 12/31/11, but as of 12/31/10, the AA pensions were underfunded by $3.7 billion on an ABO (accumulated benefit obligation) basis and they were underfunded by $5.2 billion on a PBO (projected benefit obligation) basis. Equity markets were up slightly for the year so I doubt the AA plans had asset value declines in 2011.

Worst case - the court does not approve the termination of the AA plans. So instead, AA does a hard freeze of the plans (by abrogating the labor agreements if the employees don't agree). Then AA would have something like 17 years to make up the shortfall, just like DL/NW for their frozen plans. Given the underfunding of $3.7 billion (ABO), that would be within AA's means.

Retiree medical is underfunded by $3 billion, but the PBGC doesn't have anything to do with that obligation.

 

[757fixer]

If you think your pension won't be affected because your not a pilot you are sadly mistaken. I'm a former mechanic with US and I lost roughly two thirds of what I was entitled to monthly.

 

[FWAAA]

If you think your pension won't be affected because your not a pilot you are sadly mistaken. I'm a former mechanic with US and I lost roughly two thirds of what I was entitled to monthly.

Either you retired very young (age 50 or 55) and were already collecting your pension or if you were not already retired, you are confusing the pension that you had already earned on the termination date with the pension that you had not yet earned (but that you hoped to earn between the termination and the date you turned 60 or 65). The termination of the US pension meant that whatever benefit you had already earned on that date (as if you had resigned from US on that date) would be paid to you at your normal retirement age. Sure, that amount may be only one-third what you had hoped it would be if you worked for US until retirement age, but that does not equal "losing" any of your earned pension.

The only employees or retirees who "lose" accrued (earned) pension benefits upon a termination are pilots, some management and perhaps FAs, mechanics or fleet who retired very early and were already collecting their pension.

If you were still working as a mechanic for US on the date of the pension termination, you didn't "lose" any pension benefits. You simply didn't get to earn as much as you had hoped you would due to the termination of the plans.

 

[JABORD]

Question,some of the old timers have the belief that if the PBGC administers the pension, that they will be able to collect while staying actively employed in there present job with AA. Any info?

 

[damajagua]

Question,some of the old timers have the belief that if the PBGC administers the pension, that they will be able to collect while staying actively employed in there present job with AA. Any info?

Just flew with a flight attendant in her 70's
She was talking about this. She is already collecting
social security ; so if she can collect her pension too
and work that would be three checks coming in at the
same time. She wants to work to at least 80-85

 

[jimntx]

Question,some of the old timers have the belief that if the PBGC administers the pension, that they will be able to collect while staying actively employed in there present job with AA. Any info?

No, what they are confusing is that the former TW f/as (possibly others as well) who were eligible for their PBGC-administered pension from TWA were able to start drawing that pension while on furlough from AA, and continue to draw it even if they have been recalled. Two different companies. Two different pension plans. And, the paying company (TWA) no longer exists.

If you are an AA employee, you may not draw a pension from AA unless you retire from AA.

Yes, you can draw Social Security and continue to work, but SS is not company-specific as far as the payment of benefits like a DB pension plan is. I am already drawing Social Security and working full-time. In fact, my SS payment has already increased a little for the additional contributions made after I started drawing.

 

[BoeingBoy]

Question,some of the old timers have the belief that if the PBGC administers the pension, that they will be able to collect while staying actively employed in there present job with AA. Any info?

Congress passed a law in either 2007 or 2008 that changed the PBGC process for plan terminations by airlines. It was prompted by the previous FAA requirement limiting flying to age 60 for pilots. Since the PBGC tables use 65 as a normal retirement age, pilots took a 5 year early retirement hit right off the top. I don't know if the change applied to all airline employees or just pilots, but part of it was that one could start to draw their PBGC benefit at 60 and continue working. Prior to that, one had to retire/quit/whatever to start drawing PBGC benefits.

However, if your benefit is based on the PBGC maximum, the longer you wait to draw retirement the more you get, up to age 70 I believe.

Jim

 

[xUT]

Either you retired very young (age 50 or 55) and were already collecting your pension or if you were not already retired, you are confusing the pension that you had already earned on the termination date with the pension that you had not yet earned (but that you hoped to earn between the termination and the date you turned 60 or 65). The termination of the US pension meant that whatever benefit you had already earned on that date (as if you had resigned from US on that date) would be paid to you at your normal retirement age. Sure, that amount may be only one-third what you had hoped it would be if you worked for US until retirement age, but that does not equal "losing" any of your earned pension.

The only employees or retirees who "lose" accrued (earned) pension benefits upon a termination are pilots, some management and perhaps FAs, mechanics or fleet who retired very early and were already collecting their pension.

If you were still working as a mechanic for US on the date of the pension termination, you didn't "lose" any pension benefits. You simply didn't get to earn as much as you had hoped you would due to the termination of the plans.

With the exception of the 5 year look back clause. If your pension was raised within 5 years prior to termination they have a nice formula that reduces the pension back to the old book rate. Also, there were (for UA) company approved 'out of contract' companies that would take your pension benefit from the contract and offer a 'life certain' level income pension at a much higher rate than the contract. Since this was not in 'the contract' the PBGC did not recognize the option for 'future retirees' but did allow it for people already retired under the plan.
B) xUT

 

[xUT]

Just flew with a flight attendant in her 70's
She was talking about this. She is already collecting
social security ; so if she can collect her pension too
and work that would be three checks coming in at the
same time. She wants to work to at least 80-85

From the UAL FA FAQ:

4) At what age can I collect the PBGC benefit while continuing to work as a Flight Attendant for United Airlines?

You must be of normal retirement age - age 65 to continue working as a Flight Attendant and collect your PBGC benefit.

IIRC, this applies to everyone. If you meet the maximum age 'by contract' while still working for 'the company' you are eligible to collect your PBGC retirement while still working for 'the company'.

JMHO,
B) xUT

 

[BoeingBoy]

offer a 'life certain' level income pension at a much higher rate than the contract.

You have to be careful with "life certain" annuities. If you die before a given time or age, the payments stop. Live longer and the benefit MAY become a lifetime benefit (depends on the fine print). You're betting that you'll live long enough to get a lifetime benefit (and a higher benefit than the company plan) and the company is betting you won't (that's how they make money), and generally they've got the life expectancy tables on their side.

I think the PBGC has a life certain choice that pays a higher benefit, but it only pays for a certain number of years before payments stop. If the PBGC takes over your pension, they'll send you a bunch of papers containing all the payment options and how much each will pay/month.

Jim

 

[xUT]

You have to be careful with "life certain" annuities. If you die before a given time or age, the payments stop. Live longer and the benefit MAY become a lifetime benefit (depends on the fine print). You're betting that you'll live long enough to get a lifetime benefit (and a higher benefit than the company plan) and the company is betting you won't (that's how they make money), and generally they've got the life expectancy tables on their side.

I think the PBGC has a life certain choice that pays a higher benefit, but it only pays for a certain number of years before payments stop. If the PBGC takes over your pension, they'll send you a bunch of papers containing all the payment options and how much each will pay/month.

Jim

Absolutely!
I took the Joint-and-Survivor annuity. Less money up front but the Mrs. will get it until she dies.
B) xUT