To Cut And Run Or Not

Aug 22, 2002
Some pilots at American Airlines are weighing whether to forgo some promised
benefits later and take what pension they can now.

"They're faced with the decision, is it best for them to cut and run or
not?" said Stan Spiewak, a financial planner in Downer's Grove, Ill., who
specializes in advising American's pilots.

Delta's pilots can take only half of their total benefits as a lump sum, but
at some other airlines, such as American, pilots can take their entire
benefit immediately. American officials declined to discuss the rate of
withdrawals from the pilots' pension plan.

Though little chronicled, a rush by individuals to pull cash out of a
weakened fund represents a hidden risk to pensions. Their accelerating
withdrawals can work like a bank run, draining more and more assets from the

If their withdrawals reduce the plan below a certain level, the company can
be required to make large catch-up contributions. At worst, the plan could
fail, and even with government insurance, workers and retirees could lose
benefits. The threat is increasing as plans become underfunded and more
companies allow people to take a big check, called a lump-sum distribution,
at retirement. Polaroid experienced a run on its pension fund before it
failed last year.

Officials of the Pension Benefit Guaranty Corp., which insures the plans,
are monitoring the pension funds of two companies whose worried employees
are withdrawing their benefits and further eroding weakened plans. A
spokesman for the insurance agency declined to name the companies, citing
concerns about the possible effect on their stock prices.

An AA spokesman confirmed that pilots are taking lump-sum distributions but
said he did not know the amounts or their effect on the pension fund.
Something similar happend at Campbells Soup Company in the 80s. The run on the pension fund wasn't by the average employee, but by the top executives who cut their millions out in lump sums while no one was looking, perfectly legal, and the next thing you knew, the plan was bankrupt, the employees had lost everything they had invested in it, and hundreds of retirees already drawing on it suddenly saw their payments stop.

It sucks, but employees should always keep an eagle eye on their pension funds, and not just by looking at an annual report, they need to get their hands on the monthly distribution reports and watch what is happening. You might be surprised at what groups are sucking on the pension fund teat the hardest. <_<
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Wasn't this one of the woes at Eastern?

My brother lost all of his, (united) and what about the US Air pilots. . .
Looking at United and US Air, I wonder if AA pilots would be smart to take it now, rather than lose it later?

It is too bad things are set up in such a way people are faced with this type of decision. :down: