American Will Freeze Most Pensions, Not Kill Them
FORT WORTH (CBSDFW.COM/AP) — American Airlines will freeze pensions for most workers instead of terminating them as the company reorganizes under bankruptcy protection.
American, which is based in Fort Worth, told employees of the decision Wednesday.
The freeze will apply to flight attendants and ground workers but not to pilots. The pilots’ pension plan includes a lump-sum payment upon retirement, and the company fears a surge in retirements would leave it without enough pilots to operate.
The decision to freeze instead of terminate pensions was a surprise. American hopes that the gesture will push labor unions to go along with other cost-cutting steps.
Last month American said it would terminate pension plans for 130,000 current and retired employees and hand over the plans’ assets and obligations for future payments to a government agency.
The airline’s unions and the U.S. Pension Benefit Guaranty Corp. opposed ending the pensions, which would have needed approval from a bankruptcy judge.
The director of the U.S. pension agency, Joshua Gotbaum, called American’s reversal “great progress and good news.” Gotbaum had waged an unusually public argument against American’s initial decision to dump its pensions.
“Bankruptcy forces tough choices, but that doesn’t mean pensions must be sacrificed for companies to succeed,” he said.
Under a freeze, workers will keep their current pensions but won’t earn any additional benefits. Termination could have reduced benefits for a few highly paid workers. American estimated that about 2 percent of workers other than pilots and executives might have lost some of their benefits.
American’s senior vice president of human resources, Jeff Brundage, said the company also wants to freeze and not terminate pilot pensions but only if it can eliminate the pilots’ option to get part of their money in a lump sum instead of monthly payments.
Delta Air Lines ended traditional pensions for pilots but kept them for other workers after it filed for bankruptcy in 2005.
American’s so-called defined-benefit pension plans are underfunded — the company hasn’t contributed enough to cover all the money it expects to pay out as workers retire. Brundage said Wednesday that American will look for new capital when it reorganizes under bankruptcy protection to meet its pension obligations.
The president of the Transport Workers Union, which represents mechanics and baggage handlers, said the union would have preferred keeping the current plans. But terminating the pensions “was totally unacceptable,” said James Little. So the union proposed a freeze instead.
Little said that American also dropped a demand for an additional $600 million to $800 million in annual labor-cost concessions from his group — the amount that American hoped to save by terminating the pensions.
American is negotiating with TWU and unions for pilots and flight attendants over pay cuts and contract changes that it claims would save $1.25 billion per year. If the company can’t agree with the unions, it can ask the bankruptcy judge in New York to impose its terms on workers.
The dispute over dumping pensions had threatened to make the bankruptcy process longer and more difficult for American and its parent company, AMR Corp. With Wednesday’s move, the company hopes to take the issue off the table while still seeking other concessions from employees.
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Copyright 2012 CBS Local. The Associated Press contributed to this report.