Pension Termination


Jul 23, 2003
Universal Changes: Pension Benefits

Our Approach
We need to make company-wide changes to our current retirement benefit plans and transition the company to a sustainable and modern plan. The elimination of our pension underfunding obligations is one of three key components we must address in order to put us on a path to restore our rightful place at the top of our industry. Our pension plans and the liability they put on our books, as well as the additional expenses of future accruals, are not sustainable.

Targeted Cost Savings
American's pension plans are very expensive – we spend more on them than our competitors spend on their retirement plans. We simply do not see a way we can secure the company’s future without terminating our defined benefit plans.

Part of the savings the company seeks to achieve by terminating its defined benefit plans and transitioning to defined contribution plans is included in the overall direct employee cost savings of $1.25 billion that is necessary as part of the restructuring process.

Not included in the total direct employee cost reductions in the restructuring proposals is the unfunded pension liability for previously-accrued benefits. If this liability is not eliminated, we will need to have more than $800 million each year in additional savings to service the unfunded liabilities. This represents the annual cost of paying off our liability over the term of the contract.

Summary of Changes
American proposes to amend all of the collective bargaining agreements so the company is not required to maintain, fund or provide benefits under a defined benefit pension plan. This will permit the company to seek to terminate our defined benefit pension plans for its unionized employees, as well as those of its management, support staff and independent employees. If we receive court approval to terminate our plans, every active employee’s and retiree's vested defined pension benefit will be turned over to the PBGC and guaranteed up to the PBGC's 2011 maximum benefit limits.

American also proposes to replace the existing retirement benefit plans with a defined contribution benefit plan for all employees. All active, eligible employees would be offered retirement benefits under the $uper $aver – 401(k) plan. All non-pilot employees would receive a company match dollar-for-dollar of up to 5.5 percent. Pilots would participate in a new defined contribution plan which will replace its defined benefit plan and B Plan.

It is important to note that upon termination, the vast majority of employees whose pension benefit has vested will see no reduction in their benefit accrued as of November 29, 2011, assuming payments begin at normal retirement age.
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