[WingNaPrayer]

WASHINGTON -(Dow Jones)- Senate Minority Whip Trent Lott, R-Miss., and Sen. Johnny Isakson, R-Ga., said Tuesday they are considering ways to repeal a pension funding break for AMR Corp.'s (AMR) American Airlines, inserted last month into a must-pass wartime spending bill.

That bill was signed into law May 26 and allows American Airlines, rival Continental Airlines Inc. (CAL) and some regional carriers to assume an 8.25% rate of return on pension assets when calculating pension underfunding.

Ever since Congress agreed last summer to allow airlines that have frozen their pension plans to use a more optimistic interest rate in calculating their pension obligations, American and Continental have been pushing allies in Congress to allow them to use similar assumptions for their ongoing pension plans.

Under the bill signed into law last month, American and Continental will be allowed to assume an 8.25% rate of return on their assets for ongoing pension plans. That's less than the 8.85% rate allowed airlines with frozen pension plans, including Northwest Airlines Corp. (NWA) and Delta Air Lines Inc. (DAL), but still about 2 percentage points higher than they would be required to assume under prior law.

"This is very, very bad," Lott said. "There is going to be substantial cost involved."

American Airlines' pension obligations are underfunded by roughly $2.4 billion according to the company's 2006 annual report. Lott and other opponents of the provision argue that it will allow American to avoid making pension fund contributions even as its pension obligations increase.

American and its allies in Congress have argued that it simply wants even footing with competitors Northwest and Delta, who under the 2006 Act can use the 8.85% rate in calculating their pension obligations.

"All we are asking is to be treated similarly," said Mary Frances Fagan, director of corporate communications for American, when discussing the airline's lobbying efforts in February.

Northwest and Delta in turn argue that they won the interest rate reprieve because their pension plans are frozen to new benefits and new beneficiaries.

"I don't think this issue is over," Isakson said Tuesday.

Isakson was in the thick of negotiations last year over what pension funding breaks to grant airlines as part of a broader overhaul of the nation's pension funding rules.

Isakson had promised at the time to work with American and Continental to address their concerns this year, so he said he was surprised to see the provision inserted into an unrelated spending bill without his knowledge.

Isakson and Lott plan to write the Pension Benefit Guaranty Corporation for a formal estimate of how much additional exposure the provision will create for the federal corporation.

PBGC is a federal corporation which guarantees pension benefits for defined benefit plans, including those offered by American, Continental, Delta, and Northwest.

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Guess they shouldn't have been so "in your face" with the bonuses, it made it look like they had more money than they needed and perhaps don't need the pension breaks after all.

Wierder things have happened!

[Boomer]

Until and unless we get the assumed rate of return for the last twenty years along with the data for the actuall returns and the actuall investments over that same period; no one really knows how fast or loose AMR has been playing with the money.


Call your Congressional Representative: demand that AMR and the PBGC jointly agree on an enforceable statement regarding the actual investments, and their actual resepective returns, so that a full measure of the obligations can be measured.

[eolesen]

I seem to remember seeing this a few years back -- with the exception of a couple of years, the actual interest rate was said to be running closer to 10%, while the 30-year Treasury bill was forcing assumptions of 6%.

[Boomer]

There is no reason for anyone to have to trust someones' memory with something like their pension.

The Congress passed the law preventing employees from forcing companies to provide the information about where pension funds were actually invested.

The Congress passed the law allowing companies to "book" anticipated returns as real despite the actual performance.

The Congress needs to un-"cluster" what they "clustered."

Allow employees to see the actual versus the claimed and check the books for themselves.

[WingNaPrayer]

UPDATE: Senate Panel Asks AMR, Continental For Pension Data

WASHINGTON -(Dow Jones)- Leaders of the Senate's tax writing panel are pressing AMR Corp. (AMR), parent of American Airlines, and Continental Airlines Inc. (CAL) for information on the possible impact of a pension funding break dropped into a recently enacted war-time spending bill.

Democratic leaders sidestepped the Senate Finance Committee by inserting the provision into the $95 billion spending bill. And now, the Democrat chairman and highest-ranking Republican on the committee are trying to "analyze the impact," according to a letter sent Wednesday to the companies.

"These two airlines flew around the Finance Committee to get this pension provision in the spending bill, but we will review in the light of day exactly what deal they got," said Finance Committee Chairman Max Baucus, D-Mont.

That spending bill was signed into law May 26 and allows American Airlines, operated by AMR, rival Continental and some regional carriers to assume an 8.25% rate of return on pension assets when calculating pension underfunding.

That's less than the 8.85% rate allowed airlines with frozen pension plans, including Northwest Airlines Corp. (NWA) and Delta Air Lines Inc. (DAL), but still about 2 percentage points higher than they would be required to assume under prior law.

Continental President Jeff Smisek defended the spending bill provision in a letter to the Wall Street Journal, published Wednesday.

"While Continental plans to make contributions to its pensions significantly above the amount legally required, this bipartisan solution corrects a disparity imposed on certain airlines by Congress as a result of the passage of the Pension Protection Act of 2006, and helps all airlines remain competitive," Smisek said.

In that pension bill, Congress agreed to the 8.85% rate for airlines with frozen pension plans, but made no special interest rate provision for airlines with ongoing pension plans.

Both the House and Senate had voted to give the more generous pension funding break to all airlines, but the White House objected strenuously. After months of deliberations the provision in the pension act was restricted to frozen airline pension plans.

"Now these two airlines and their allies in Congress have undermined that work," Grassley said Wednesday. "Chairman Baucus and I need to learn about the consequences of that action."

Alaska Airlines, a unit of Alaska Air Group Inc. (ALK), and some airline food service plans could also benefit from the bill - signed into law last month, though the bulk of the potential benefit would go to American, according to a source familiar with the legislation.

The Pension Benefit Guaranty Corp. has estimated that the provision could allow the affected companies to reduce their pension contributions by $2 billion over the next decade, the source said.

In letters to AMR and Continental, Baucus and Grassley ask the companies to explain how much of a funding break they could get under the new law.

Baucus and Grassley also ask whether reduced pension contributions could increase performance-based compensation at the companies.

In addition to Baucus and Grassley, several top Republicans, including Senate Minority Whip Trent Lott, R-Miss., have said they'd like to revisit the matter.

But other top Republicans and key Democratic leaders backed the latest change, and chances it will be repealed are seen as slim.

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The Plot Thickens!

[Bob Owens]

Boomer, on Jun 6 2007, 07:18 PM, said:

There is no reason for anyone to have to trust someones' memory with something like their pension.

The Congress passed the law preventing employees from forcing companies to provide the information about where pension funds were actually invested.

The Congress passed the law allowing companies to "book" anticipated returns as real despite the actual performance.

The Congress needs to un-"cluster" what they "clustered."

Allow employees to see the actual versus the claimed and check the books for themselves.

Well as long as most campaign money comes from corporations government will continue to make laws that favor corporations instead of employees. USA Inc.

One of the problems with these high assumptions is that when the return actually exceeds the assumption they can contribute nothing or even cash out the excess. So they get 12% one year, take out the extra 4%, then lose money the next, then they (we) are in a huge hole. Eolson cites that the average has been 10% however if thats the case then how did all these companies end up in such a mess using a lower figure? I say the lower the assumption the better.

This is a first, I actually believe that Lott has a valid point.

[Wild Onion]

Wait a minute: I thought that Republicans were pawns of the evil corporations and that Democrats were the savior of the "working man." I'm confused.

[Wretched Wrench]

Wild Onion, on Jun 6 2007, 11:03 PM, said:

Wait a minute: I thought that Republicans were pawns of the evil corporations and that Democrats were the savior of the "working man." I'm confused.

Bob Owens, on Jun 6 2007, 10:06 PM, said:

As long as most campaign money comes from corporations government will continue to make laws that favor corporations instead of employees.

Does that clear it up?

.