03.16.05

This is Tommie Hutto-Blake with the APFA Hotline for Wednesday, March 16, 2005.

Today, all three of the unions on this property, along with American Airlines CEO Gerard Arpey, issued a press release announcing a Joint Pension Reform Statement signed by the leadership of the three unions and management. APFA has been instrumental in the formation of this important document and I would like to share some information about it with you. You can find all relevant documents at www.apfa.org.

As you know, pension reform is an extremely important and timely topic. The Bush administration and Congress are currently examining this subject and have made it clear that they plan legislation to help stabilize the Pension Benefit Guaranty Corporation – referred to as the PBGC – the government’s “pension insurance program”. The Bush administration has prepared a 33-page proposal, which focuses on three areas:

1. Reforming the funding rules to ensure that employers fully fund their retirement commitments,

2. Increase and restructure the premiums paid by private sector employers to the PBGC,

3. Increase disclosure to workers, investors and regulators to ensure greater transparency and accountability.

 

This urgent need to pass legislation has been brought on, in part, by the current financial crisis and subsequent default on pensions by some of the weaker airlines and similar problems in the Auto and Manufacturing sectors. In the last year several of the pension plans at US Air and United Airlines have been taken over by the PBGC because of their severely under-funded status, and management’s decision to stop making required contributions.

We agree that these issues and others should be addressed but some of the administration’s proposals would actually hurt us. The Unions and management at American recognize that we are unique in a number of ways.

1. We are in the enviable position of having a pension fund, which is better funded than any other Airline.

2. Gerard Arpey has repeatedly stated he believes that companies have a MORAL obligation to try to protect the retirement benefits that have been promised to their people.

3. The three Unions and management are working together to resolve issues, such as this one, that affect all of us.

4. Most importantly, through large sacrifices in wages, benefits and work rules the employees have entered into a partnership with this employer to return to profitability and retain our defined benefit plans. Management has responded by making all of the required contributions to our pensions. Last year AA made payments of $461 million to our pension funds during very difficult times.

 

As we have been spending time in Washington watching this debate unfold, we have had numerous questions from representatives asking what we at American could support. It was very important to be able to answer that question in a way that would protect our employees and our unique position.

In January, the three unions met to determine if we could find mutually agreeable ideas that would protect all of our benefits. Although each group has unique areas of concern we were able to find mutually satisfactory concepts that protected the foundation of all of the plans on the property.

APFA, APA, TWU and American Airlines support pension reform that does not discriminate based on the credit rating of the plan sponsor, and that better protects employees’ retirement benefits by making it more flexible and affordable for companies to fund them.

What are we saying? Our joint position on pension reform can be found at www.www.apfa.org In layman’s terms, here is what we are saying:

We are saying that we support pension reform. Unfortunately, the Bush Administration’s proposal would consider the corporations’ credit rating to evaluate the security of the plan. We see no need for that! Airline bond ratings are notoriously cyclical and low and this would unfairly impact airlines over other industries. Besides, the real issue here is how much money is in the plan, not whether it’s a good year for the company sponsor.

We are saying that we want to continue with our defined benefit plan. Some of the proposals on Capitol Hill have addressed totally freezing all defined benefit plans, everyone at American agrees that we do not want our pension plan frozen as a mandatory part of reform.

We are saying that we support reasonably extending the number of years companies would have to make up the under-funded portions. Currently, Congress has put into place a temporary extension on funding. However, we support permanent rules for extensions.

We are saying that we support a reasonable interest rate to determine plan liabilities. Right now there are different rates used by each Company, the PBGC, the IRS and the auditors to evaluate a Plan’s soundness. Therefore, each review shows a different level of funding. There needs to be consensus on one rate.

We are saying that Pension Plan data needs to be user friendly. Right now the data is reported in the annual IRS filing, which is due in September of the following year. So, right now, we are working with information reported at the end of 2003. In this electronic day and age, the deadlines for reporting should be improved dramatically,

We are saying that we support flexibility to fund more in a good year without penalties for doing so. Under the current rules, a corporation cannot make “extra” contributions to the pension funds in a good year without tax penalties.

And finally, we are saying that pension premiums should be adjusted associated with a Plan. Currently every employer pays insurance premiums of $19.00 a year per employee to the PBGC. We believe the premium should be tied to the stability of the Plan. Think about the insurance you buy for your home, if you are in Florida, where the risk for hurricanes is high you pay more for windstorm insurance than say your cousin in Ohio. We believe that healthy plans should not pay the same rates as sick ones pay.

A point on Supplemental Executive Retirement Plans: The parties are in agreement that the minimum annual contributions to all corporate defined benefit plans must be made prior to any funding of executive supplemental plans.

And finally, we are saying that we support legislation that would also provide pension relief to companies that freeze their Plan through the collective bargaining process rather than terminate them in bankruptcy. Make no mistake; we are not discussing terminating or freezing our Plans. Some companies are faced with no other options in bankruptcy but to terminate their plans. We think there should be another alternative to termination, and a freeze is usually better for the employees. In addition to saying that we DO NOT support legislation that makes it mandatory to freeze all plans, we also want to ensure that when a corporation does approach this path that they do so through collective bargaining NOT through bankruptcy!

We are very proud of this collaborative position, the document, and perhaps more importantly, that the Unions and American are approaching very real concerns jointly with substantive solutions.

We will be visiting Washington DC on May 11th to discuss this and other issues with Congress, It has never been more important for each of you to join us and make your voices heard.