PBGC receives no taxpayer dollars and never has, it claims. This is misleading since the government requires participation by corporations offering pensions. Furthermore, serious questions have been raised about the agency's competencies, most recently by the Inspector General reviewing its bungled handing of the United Airlines bankruptcy.
American Airlines, Inc. said today that its parent company, AMR Corporation, and other United States-based subsidiaries voluntarily filed for Chapter 11 reorganization. In a statement, American said it wants to achieve a cost and debt structure that is competitive in the airline industry. American will lose more than $1 billion this year and has been averaging billion dollar a year loses for the past decade.
American Airlines has four traditional pension plans that cover almost 130,000 participants. As of today, the plans collectively had only about $8.3 billion in assets to cover about $18.5 billion in benefits, according to the Pension Benefit Guaranty Corporation. If American Airlines were to end their plans, the agency would be responsible for paying about $17 billion in benefits; about $1 billion in benefits would be lost.
“In past bankruptcies, workers and retirees have lost their healthcare and seen their pensions cut. Based on our estimates American Airlines employees could lose a billion dollars in pension benefits if American terminates their plans,” said PBGC Director Josh Gotbaum.
A termination would also weaken the financial health of PBGC, which has a record $26 billion deficit as a result of failed plans the agency has already assumed.
American said it expects to continue normal business operations throughout the reorganization process, and the business will continue to be operated by the Company’s management. The United States Chapter 11 reorganization process enables a company to maintain normal business operations while it reorganizes.
American’s main competitors, United and Delta have used bankruptcy and mergers with Continental and Northwest respectively, to trim costs as fuel prices have soared. Even though American has obtained contract concessions from its unions, its costs still remain far higher than competitors.
WASHINGTON – January 12, 2012 – Pension Benefit Guaranty Corporation Director Josh Gotbaum released the following statement today on the American Airlines’ pension plans:
Some have suggested that American must duck its pension commitments and kill its pension plans in order to survive. We think that commitments to 130,000 workers and retirees shouldn’t be disposable, that American should have to prove in court that this drastic step is necessary.
For other airlines, it hasn’t been. American’s competitors found ways to increase revenues and get competitive costs while honoring pension benefits. Delta maintained its non-pilots plan, and both Northwest and Continental kept their plans going after their bankruptcies.
Counsel for American claims that it needs to kill its employees’ pensions in order to be competitive with other major carriers. The numbers tell a different story: Delta Airlines, which reorganized in bankruptcy, pays an average of $13,210 per employee in pension costs – almost 2/3 more than American’s pre-bankruptcy cost of $8,102. (Source: 2010 annual reports)
American has more than $4 billion in cash; some of that money should already have been paid into its pension plans. However, Congress, hoping to preserve plans, allowed American to defer the payments. It would be a tragedy if American repaid Congress’s generosity by turning around and killing the plans anyway.
PBGC is always ready to provide a safety net to employees whose companies can no longer afford their commitments, but that doesn’t mean that it’s good for employees and retirees when we do. There are legal limits to the amounts we can pay, and we don’t cover retiree health care. That’s why PBGC always tries first to preserve plans. We will continue to encourage American to fix its financial problems and still keep its pension plans.
We stand with American’s workers and retirees who are concerned about their futures. Many of the airline’s employees took lower wages so the plans could continue. Now, it’s American’s turn to step up so workers aren’t short-changed.
December 16, 2011
WASHINGTON—Pension Benefit Guaranty Corporation Director Josh Gotbaum released the following statement today in response to comments made by American Airlines’ Counsel Harvey Miller:
When American Airlines filed for bankruptcy they took great pains to say to their customers that nothing will change, that they will still have their frequent flyer miles and service will continue. But they didn’t make the same promises to their employees about the future of their pensions.
Recent comments by the company’s bankruptcy counsel, Harvey Miller, suggest that American wants to back out of its retirement commitments. For that to happen, American will have to prove it can’t successfully reorganize if the pensions continue.
Mr. Miller also said that traditional pensions no longer work because of unpredictable market conditions. That may come as a surprise to the 60 million Americans that have them. Traditional pensions remain the best option for a secure retirement for most people. Those who have moved into 401K-type plans are discovering that investing is hard, the results are far from guaranteed, and they may end up having to work longer than expected. A defined benefit is always there, you can’t outlive it, and it gives people real retirement security.
PBGC has helped dozens of companies in bankruptcy keep their pensions, so their employees and retirees get the benefits they worked for.
For instance, Visteon, the former Ford Motor Co. auto-parts subsidiary, initially planned to terminate three of its pension plans in bankruptcy. We showed Visteon they could reorganize successfully without terminating their employees’ plans. Today, the company’s 23,000 workers and retirees continue to receive all the benefits they’ve earned.
Contrary to Mr. Miller’s comments, airlines have reorganized successfully without damaging the retirement security of workers and retirees. In the most recent airline bankruptcies, Northwest Airlines emerged without terminating its plans. Delta terminated its pilots plan, but reorganized with its other plans intact.
PBGC is a pension safety net, not a convenient option for companies that want to sidestep their retirement commitments. We step in when we have to and pay all benefits the law allows. When the agency assumed airline plans in the past, many people’s pensions were cut, in some cases dramatically. That’s why PBGC always tries first to preserve plans. We will continue to encourage American to fix its financial problems and still keep its pension plans.
Just let them go. To hell with the unions and their members.
As part of the Troubled Asset Relief Program, the U.S. Treasury provided funding to help GM and Chrysler continue their operations while they restructured under forced bankruptcies, which could have resulted in failed pension plans. When so-called New GM and New Chrysler emerged in 2009, they assumed sponsorship of all the old companies’ defined benefit pension plans. As a result, more than 700,000 participants in the GM plans and more than 250,000 participants in the Chrysler plans kept their full plan benefits.
This remarkable save as a result of effective Federal government intervention is mostly, almost entirely unheralded in the mass media, and actively scorned by the right wing ideologues and legislators, who – true to form – are ignorant of history and any common sense concerning public policy issues such as how we care for our older citizens.
In 1963, the Studebaker Corporation, then the nation’s oldest major automobile manufacturer, closed its U.S. operations and terminated its pension plan. About 4,000 workers lost most of their pensions, receiving only fifteen cents on the dollar of vested benefits. At an average age of 52, these Studebaker employees had worked for the company, which went back to building wagons for the Union during the Civil War, an average of 23 years, and faced dim prospects. It was a human tragedy.
In 1974, Congress passed the Employee Retirement Income Security Act – ERISA – which created PBGC to insure pensions earned by American workers under private-sector defined benefit plans. PBGC now insures the pensions of more than 44 million workers, retirees, and beneficiaries in about 30,000 plans.
When a plan terminates in an underfunded condition – usually because the employer goes out of business or can no longer fund the promised benefits – PBGC takes over the plan as trustee and pays benefits as defined by ERISA.