Defined Benifit Pensions, The Pbgc

[NewHampshire Black Bears]

Ok Guys and Gals, try this on for size.

AA's DB pension is close to 90%(I SAID "close") funded, and healthiest in the Industry.

Congress will probably come out with some sort of pension reform.
(AA SAY's It's looking for a change(ONLY) in the funding procedures)

Other legacy carriers STILL could go BK-11, with or without pension reform, which could hypothetically see AA go BK !!!

Question: Do you think It's possible that AA "signals" Washington that "no matter what", they(AA) will not dump ANY part of their pensions on the PBGC, in exchange for a favorable ruling on the Wright Ammendment ?????????????

Oh what a tangled web we weave !!!


NH/BB's

 

[TechBoy]

I think that you have too much time on your hands. 🙂

I really rarely works that way in Washington. Pensions and the Wright Amendment are disparate issues under the jurisdiction of different committees. It would be rather difficult to tie them together.

 

[eolesen]

Doubtful. I'd be surprised to see any organized effort to repeal Wright this term, since Kay Bailey Hutchison seems to be holding her ground.

I also don't think we could legally commit to "never" turning our plans over to the PBGC. Should the highly unlikely day come where AA is liquidated, there'd be no choice but to turn the plans over to the PBGC.

 

[Wretched Wrench]

Bear, your logrolling hypothesis could be plausible, but logrolling usually involves only immediate quid pro quo. AA would never make a long term commitment without a weasel clause.

 

[Boomer]

Ok Guys and Gals, try this on for size.

AA's DB pension is close to 90%(I SAID "close") funded, and healthiest in the Industry.

Congress will probably come out with some sort of pension reform.
(AA SAY's It's looking for a change(ONLY) in the funding procedures)

Other legacy carriers STILL could go BK-11, with or without pension reform, which could hypothetically see AA go BK !!!

Question: Do you think It's possible that AA "signals" Washington that "no matter what", they(AA) will not dump ANY part of their pensions on the PBGC, in exchange for a favorable ruling on the Wright Ammendment ?????????????

Oh what a tangled web we weave !!!
NH/BB's

[post="281249"][/post]​

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Bear,

Before I could answer, I need to answers to three questions:

1) What verifiable data is publically available that states the Pension funding for all employees covered by a Defined Benefit Plan covered by AMR is funded to the 90% level?

2) What accounting criteria was used when determining the verifiable 90% funding level?

3) What is the total amount of underfunding according to the accounting criteria used to reach the 90% funding level stated?


Based on earlier postings, there is a tremendous swing according to the acceptable accounting methods used to determine the level of funding.

 

[NewHampshire Black Bears]

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Bear,

Before I could answer, I need to answers to three questions:

1) What verifiable data is publically available that states the Pension funding for all employees covered by a Defined Benefit Plan covered by AMR is funded to the 90% level?

2) What accounting criteria was used when determining the verifiable 90% funding level?

3) What is the total amount of underfunding according to the accounting criteria used to reach the 90% funding level stated?
Based on earlier postings, there is a tremendous swing according to the acceptable accounting methods used to determine the level of funding.

[post="281344"][/post]​

+++++++++++++++++++++++++++++++++++++++++++++++++++

Boomer,

You could be VERY WELL right !!

I've only used info from links of newspaper article's that have "suggested" that AA's pension was the healthiest, and funded in the 80+ percentile.

Plus I used info from(DON"T HIT ME ) Jetnet.

NH/BB's

Ps.

Ah ####, like ANYTHING else that's EVER happened to this company,
"TIME WILL TELL" !!!!!!!!

 

[Boomer]

+++++++++++++++++++++++++++++++++++++++++++++++++++

Boomer,

You could be VERY WELL right !!

I've only used info from links of newspaper article's that have "suggested" that AA's pension was the healthiest, and funded in the 80+ percentile.

Plus I used info from(DON"T HIT ME ) Jetnet.

NH/BB's

Ps.

Ah ####, like ANYTHING else that's EVER happened to this company,
"TIME WILL TELL" !!!!!!!!

[post="281364"][/post]​

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Bear,

Jetnet and other sources could be correct in stating that AMR has reached a 90% funding level for their DBPs' while still continuing the same practices that UAL performed--all legal, but vastly understating their true status.

The problem I have is that the current law allows DBP plan sponsors to keep that information priviledged and out of our hands.

 

[NewHampshire Black Bears]

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Bear,

Jetnet and other sources could be correct in stating that AMR has reached a 90% funding level for their DBPs' while still continuing the same practices that UAL performed--all legal, but vastly understating their true status.

The problem I have is that the current law allows DBP plan sponsors to keep that information priviledged and out of our hands.

[post="281540"][/post]​

====================================================

AMEN !!

NH/BB's

 

[eolesen]

----------------------------------------------
Jetnet and other sources could be correct in stating that AMR has reached a 90% funding level for their DBPs' while still continuing the same practices that UAL performed--all legal, but vastly understating their true status.

The problem I have is that the current law allows DBP plan sponsors to keep that information priviledged and out of our hands.

[post="281540"][/post]​

Hold on a second.... Current law -requires- disclosure to plan participants. It's available to you on request, and it's also provided to the general public.

If you go thru the SEC 10K filings over the years, the information on present contributions, expected contributions, and investment rate of return assumptions is all there.

Wall Street analysts had been warning about the pension situation at UAL before it even happened, so it is by no means privileged, and thanks to Edgar, it is available to anyone with a web browser and the time to read thru the filings.

The current crisis with DBP's is tied to the tech stock bubble burst as much as anything else. When interest rates, stock performance, etc. all collapsed in 2001, the investments supporting DBP's -and- 401K's no longer were getting the same rates of return.

Many of us saw our 401K's value drop by 10-20%, and didn't think twice about it (aside from being pissed off about the losses). The difference is that with the 401K, there's no way to make up for the investment shortfall, while with the DBP's, the company is required to make up for the investment shortfall.

AMR, DAL and CAL have been making up for the investment shortfalls with cash out of corporate revenues, which is what is required by law. NWA made up for part of their shortfall with the value of the stock from Pinnacle's spin off, but only after getting approval from the government. UAL simply didn't do anything.

Those are huge differences...

 

[NewHampshire Black Bears]

"E",
Thanx for the update(s) !!

NH/BB's

 

[TWU informer]

But I belive everyone's 401K has now recovered most if not all losses.

So where did the pension investments money go? Seems if that was the shortfall, then the returns should have wiped the underfunding.

 

[eolesen]

But I belive everyone's 401K has now recovered most if not all losses.

So where did the pension investments money go? Seems if that was the shortfall, then the returns should have wiped the underfunding.

[post="281757"][/post]​

That's one of the issues being argued in Washington.

401K returns are based on short term performance, which is why they recover quickly, and can tank just as quickly.

DBC returns were previously tied to the 30 year treasury (no longer offered) and now are pegged at another long term bond rate which escapes me at the moment, which means DBC plans are forced to forecast liabilities using rates at 7-10%. AA's funds (and others) have seen actual returns have averaged 13% over the past 10-15 years. That's why you keep hearing people say that even thought the paper underfunding rate was 80% last year, it could easily be considered fully funded by the end of 2005 if interest rates and stock performance follow the path they're currently on.

Once corporate funds are put into the DBC plan, they can't be withdrawn (and rightfully so), which is why the laws allow for a few years before catch-up payments need to be made. More often than not, investment interest makes up the shortfall.

In UAL's case, the plans were so underfunded there was no way that investments alone would ever make up the shortfall, and the company didn't have billions of dollars sitting around with which to make up the missed contributions. Don't recall what shape US's plans were in, but I think those were terminated more to address ongoing cashflow issues than they were to fix an underfunding crisis like UAL's.

 

[FWAAA]

But I belive everyone's 401K has now recovered most if not all losses.

So where did the pension investments money go? Seems if that was the shortfall, then the returns should have wiped the underfunding.

[post="281757"][/post]​

To add just a little to FormerModerAAtor's excellent answer, the pension funds have largely recovered their equity losses from the bear market. The equity gains over the past three years have restored the funds. Problem is, since interest rates are still really low (compared to historical norms), the funding rules require companies to assume that the very low rates are here to stay (as in forever) when we all know how unlikely that is. Interest rates are bound to increase, as the economy is strong and the Fed won't ever allow inflation to ravage the economy as long as people remember the '70s.

And the point about not being able to withdraw excess contributions explains why the law doesn't require one year catch-up periods, since a rise in rates in a year or two can easily erase any underfunding.

Boomer raises a valid point above - there are different ways of computing whether the plans are "fully funded" and no matter how it is computed, it is still based on actuarial assumptions that may or may not turn out to be accurate. Still, AA's plans are better funded than any other airline DB plans, and it is likely that they will be "fully funded" within the next year.

 

[MCI transplant]

<_< I believe the critical date to be aware of is Oct.17th, of this year. On that date the rules of this game changes drasticaly! Whether NW, and, or, Delta go into BK in Sept., to dump their retirements before the change, will tell how much pressure will be put on Congress for pension reform! At this point I don't believe aa will go that route due to the new regs that will go into effect. I believe they are banking on the government to come up with some significant relief for the Airline Industry in the form of an extension of payments! Just one man's opinon!!! :unsure:

 

[TWU informer]

Corporate Finance is about as corrupt as it gets.

There is always some way to manipulate every cash flow situation to explain stupidity.

"Never trust a number you did not maniplulate yourself is the name of the game"