I agree that there's no way, even if they are successful at killing a lot of us off before we retire, that $1127/year will provide us the pension they are promising but then again aren't the airlines allowed to legally make assumptions that are unrealistic? Wasnt a bill passed shortl;y after 9-11 allowing them to make smaller contributions? I recall our union helping to lobby for it. Maybe thats what Weel meant when he stated that the 401K they were offering would be more expensive at first but over the long run it would save them money. Twenty years of underfunding the plan then get the new guys with the 401K to vote the plan away.
The actual cost of the pension plan compared to a defined contribution/401(k) plan is certainly capable of calculation, but way beyond my abilities. And Bob, your pension rests on a lot more than the $1127 shown on your total value statement. Defined benefit plans do not maintain segregated accounts for each participant. When you retire, your benefit check comes out of the pool, and that pool currently has $7.8 billion in it.
In simple terms, however, the current pension plan is desirable. Many people bemoan the loss of the defined benefit plans across the working world as those plans have been replaced with defined contribution plans that place all the investment risk on the employee instead of the employer.
Right now, AA bears the risk that the investments perform poorly or lose money. If that happens, AA's required cash contributions increase. If the investments perform well (like they did during the 1980s and 1990s), then the pension fund grows substantially and reduces the amount of cash AA must put away each year.
AA says that about 128,500 people currently participate in AA's plans. That counts all the retired beneficiaries and all the active employee participants. Last year, the plans paid out $581 million in benefits. AA contributed $466 million in cash to the plans. Wait: AA contributed less to the plans than the benefits paid out? Whaaaaaat? How can that be?
At the beginning of 2010, the plans had a littel more than $7 billion of assets. During 2010, the plans earned $837 million of investment income and gains. That's about 12%. Not bad. At the end of 2010, the plans were worth $7.77 billion, more than 10% greater than they were worth at the beginning of the year. If the investment performance were to continue for a few years, AA's cash contributions will be reduced. If the investments do poorly, then AA's cash contributions will go up.
About the bolded portion, the answer is yes. Congress finally authorized a longer catch-up period for underfunded plans. That was too late for UAL, however, as UAL faced required contrbutions of a couple billion dollars in 2002-04 and did not have the cash to make those contributions. So UAL management choose the alternative and filed Ch 11 and terminated the plans, wiping out much of the pensions received by retired pilots and much of the pension already earned and vested for many active pilots. Same thing at US. The delay Congress authorized gives companies some breathing room so that they don't have to make up pension shortfalls quickly. For companies that have shown a commitment to preserving the pensions, the longer make-up periods are a good thing.
At the end of 2010, the AA pensions were funded at 67.5%, a much lower percentage than they were before the last stock market meltdown in 2008. Over the long-term, markets tend to recover and, like last year, when the plans earned 12%, further recovery in the equities markets will enhance the value of the plan assets.
