Will Maintain, But Freeze Pensions At Current Levels

AMR Corporation has backed off its plan to terminate employee pensions as part of its Chapter 11 bankruptcy reorganization, saying now it will maintain the pensions but freeze them at current levels. Pilots' pensions are not included in the new strategy.

The airline had said it would terminate pensions for about 130,000 employees, both current and already retired, and turn them  over to the Pension Benefit Guaranty Corp., an agency of the federal government. Under the new plan, the Chicago Tribune reports that more employees, including those with higher salaries and larger pensions, will be paid their full pension amounts.

But fearing that too many pilots would retire at the same time and take lump-sum pension payments, the airline excluded them from the plan. The airline also was reportedly concerned that such a mass retirement could leave them with too few pilots to maintain the current schedule of flights.

The freeze means that workers with the exception of pilots will maintain what ever benefits they have accrued to date, but that the amounts will not increase. The current cap on pensions is about $56,000 per year. AMR is shifting to a 401(k) retirement plan for new hires.

Meanwhile the airline continues to negotiate with its unions about an estimated $1.25 billion in savings it says it needs to realize to bring the company out of bankruptcy. Union leaders called the move on the pension issue a "win." James C. Little, president of the Transportation Workers Union, said that while he would have liked to see the defined benefit plan stay in place, "that simply was not possible."

FMI: www.aa.com