AA at pension disadvantage!

[Wretched Wrench]

I remember when the TWU told us just last year don't worry fellas our pensions are fully funded.

The question is, by whom? Our pensions are supposedly funded by the PBGC, but they are woefully underfunded. It is underfunded on purpose, to be "business friendly" to the companies that must contribute to its funding.

In short, it was just another "feelgood" program that promised way more than it could deliver. Like the federal Do Not Call registry. Or the recent law requiring TV commercials to be no louder than the program.

 

[BoeingBoy]

The question is, by whom? Our pensions are supposedly funded by the PBGC, but they are woefully underfunded.

Untrue, the PBGC does not fund on-going DB pensions. Unless a DB pension is frozen/terminated, the company provides the funds.

Underfunding happens for a couple of reasons, both really due to the same circumstances. Since funds in the plan are invested, poor market performance can result in underfunding since company contributions are calculated on expected ROI of the funds already in the pension. Once underfunded, the company has a number of years to make up the shortfall which can leave the plan underfunded during those years.

It's worth noting that there are actually two ways to calculate whether a pension is fully funded or not. The first, for on-going pensions, uses the assumed ROI of the funds in the pension to determine if the funds will be available to pay pension obligations as the covered employees retire over the next 10-20-30-40 years. The second is used to determine if the pension is fully funded on a termination basis - is there enough money in the fund to pay every covered employee's benefit if all retired today (which is what the PBGC looks at when it takes over a terminated pension). Almost always a DB plan will be less fully funded on a termination basis than on an ongoing basis because all future ROI on the funds in the pension are lost in the terminated basis calculation.

Jim

 

[Buck]

Yea, what he said!!

The FCC rule for the loudness of commercials is to take effect one year from the ruling.

 

[Wretched Wrench]

Untrue, the PBGC does not fund on-going DB pensions. Unless a DB pension is frozen/terminated, the company provides the funds.

The PBGC is woefully underfunded, even ignoring the likely default of AA on its pensions.

Underfunding happens for a couple of reasons, both really due to the same circumstances. Since funds in the plan are invested, poor market performance can result in underfunding since company contributions are calculated on expected ROI of the funds already in the pension.

Quite so. AA calculated on an unrealistic ROI expectation. It was intentional, allowing them to use this figure to underfund the pensions.

Once underfunded, the company has a number of years to make up the shortfall which can leave the plan underfunded during those years.

AA never intended to catch up. They were gaming the system. And it worked.

It's worth noting that there are actually two ways to calculate whether a pension is fully funded or not. The first, for on-going pensions, uses the assumed ROI of the funds in the pension to determine if the funds will be available to pay pension obligations as the covered employees retire over the next 10-20-30-40 years. The second is used to determine if the pension is fully funded on a termination basis - is there enough money in the fund to pay every covered employee's benefit if all retired today (which is what the PBGC looks at when it takes over a terminated pension). Almost always a DB plan will be less fully funded on a termination basis than on an ongoing basis because all future ROI on the funds in the pension are lost in the terminated basis calculation.

True. Either way you look at it, AA's pension has been underfunded for years. Intentionally so. Eventual default was not only a predictable result, it was planned to work out that way. By cynical top executives who had set up their own golden parachutes well in advance.

 

[BoeingBoy]

The PBGC is woefully underfunded, even ignoring the likely default of AA on its pensions.

undeniably true. I was responding to your statement that the PBGC supplied the funding for DB pensions, which is untrue of on-going DB pensions. Once a DB pension is terminated, the PBGC partially funds it - how big a part depending on the funding in the plan when it's terminated and for plans terminated in bankruptcy, how much the PBGC gets for the underfunding (generally in stock/warrents). With the airlines former tendency to have DB pensions, the PBGC is usually one of if not the biggest unsecured creditors when the DB plans are terminated in bankruptcy.

Jim

 

[FWAAA]

Quite so. AA calculated on an unrealistic ROI expectation. It was intentional, allowing them to use this figure to underfund the pensions.

AA never intended to catch up. They were gaming the system. And it worked.

True. Either way you look at it, AA's pension has been underfunded for years. Intentionally so. Eventual default was not only a predictable result, it was planned to work out that way. By cynical top executives who had set up their own golden parachutes well in advance.

Sorry to interrupt your conspiracy-fest, but your facts are incorrect. On 12/31/07, AA's pensions were 96% funded as a result of AA's cash contributions and the rising equities markets. The market meltdown of 2008 lowered the funded percentage substantially, but AA has contributed over $1.2 billion to the pension plans since the end of 2007.

 

[jersey777]

Sorry to interrupt your conspiracy-fest, but your facts are incorrect. On 12/31/07, AA's pensions were 96% funded as a result of AA's cash contributions and the rising equities markets. The market meltdown of 2008 lowered the funded percentage substantially, but AA has contributed over $1.2 billion to the pension plans since the end of 2007.

According to the APFA our pension is currently funded at 97%. Not sure about the other employees.




2. What is the funding status of the Pension Plan?
The funding level of the Pension Plan is based on the investments of the plan assets. As the market goes up and down, so does the funding level of the Plan. In its most recent filing with the Department of Labor AMR stated that the Flight Attendant Pension Plan was funded at 97%.

 

[FWAAA]

I'm not doubting you but that sounds too good to be true and I'm betting that the APFA is using some old data; it would certainly have been true in 2008 or very early in 2009, when the most recent filing would have reflected the funding at year-end 2007. I seriously doubt that they are that well funded today. The good news is that even if terminated, no flight attendant is in line for a pension exceeding the PBGC maximum.

 

[jersey777]

I'm not doubting you but that sounds too good to be true and I'm betting that the APFA is using some old data; it would certainly have been true in 2008 or very early in 2009, when the most recent filing would have reflected the funding at year-end 2007. I seriously doubt that they are that well funded today. The good news is that even if terminated, no flight attendant is in line for a pension exceeding the PBGC maximum.

The data the APFA used came from American Airlines on their most recent filing with the Department of Labor...I would hope that would not have been almost two years ago. After do a little reserarch...each pension plan administrator is required to file a plan with the department of labor annually.

 

[IORFA]

I think that was from the end of 2009. Some time in January, we will get the Dec 31, 2010 numbers.

 

[Wretched Wrench]

Sorry to interrupt your conspiracy-fest,.......... .

Good business planning is not necessarily a conspiracy. It's only a conspiracy if an illegal act is being planned.

You know that and I know that. Be civil.

 

[Bob Owens]

Sorry to interrupt your conspiracy-fest, but your facts are incorrect. On 12/31/07, AA's pensions were 96% funded as a result of AA's cash contributions and the rising equities markets. The market meltdown of 2008 lowered the funded percentage substantially, but AA has contributed over $1.2 billion to the pension plans since the end of 2007.

96% based on what? Legally accepted assumptions? But are they realistic assumptions? Then here is he issue of th pension reform act of 2006.

 

[Buck]

Section 436(d)(2) of the Internal Revenue Code prohibits a defined benefit plan from paying an amount greater than the amount of a single life annuity benefit during any period in which the plan sponsor is a debtor in Chapter 11, unless the plan is 100 percent funded. The Plans are not 100 percent funded; therefore the Level Income, Installment Option and Lump Sum Option will not be available distribution forms if you have a benefit commencement date on or after the date of the Chapter 11 filing (November 29, 2011).