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Latest News - November 2012

November 8, 2012
American Airlines gets OK to freeze (not terminate) pilot pensions
By: TMaxon

It appears the road is now clear for American Airlines to freeze the A Plan for its pilots, with the U.S. Treasury and Internal Revenue Service agreeing to regulatory changes to eliminate a roadblock.

Here’s the background:

Back on Feb. 1, American Airlines proposed terminating its employee pensions, including the A Plan for its pilots.

That would have dumped the responsibility of the pensions on the Pension Benefit Guaranty Corp. and, for employees making more than the PBGC maximum pension, a reduction in their pensions when they retired.

Under pressure from the PBGC, American relented. It agreed in March to freeze the pensions. That meant that the employees couldn’t accrue any greater pension than they had accrued to the time of the freeze. But it meant they would get all the monthly pension benefits that they had earned up to that point.

But there was a problem with that compromise as it applied to pilots. Pilots who were hired before Nov. 1, 1983, the so-called A-scale pilots, were protected by a supplement to the Allied Pilots Association’s contract. That supplement said American couldn’t reduce their retirement benefits, ever, as I understand it.

Among the benefits was an option to take their accrued pension as a lump sum upon departure rather to take monthly pension payments. American considered that a deal-killer. However, it couldn’t do away with the lump sum because federal regulations said that would be “impermissibly reducing accrued benefits.”

In the amendment posted Wednesday and made effective Thursday, Treasury and the IRS created an exception to cases like American’s to allow the elimination of the lump sum option.

Without getting too technical, a company has to meet a number of requirements, like having an underfunded pension plan, be in bankruptcy, has a finding from a bankruptcy judge and the PBGC that the plan will be terminated otherwise, etc. American would meet those requirements, presumably.

Although the A-scale pilots opposed the change, the APA as an organization preferred the elimination of the lump-sum option to the termination of their plans.

“The freeze will preserve our pilots’ accrued A Plan benefits and will require continued plan funding,” the union said in a news update to members Thursday night.

It added: “The APA leadership has consistently expressed support for a plan freeze versus plan termination, with APA Government Affairs Committee representatives actively lobbying in favor of amending the ‘anti-cutback’ rules.”

American management said it was pleased as well.

“As we’ve said since March, we are committed to working collaboratively with the Allied Pilots Association, Pension Benefit Guaranty Corporation and Unsecured Creditors’ Committee to develop a solution that maintains the freeze of our pilot defined benefit plan,” American spokesman Bruce Hicks said.

“We continue discussions with all groups, including the PBGC, and publication of the Treasury Department’s final regulation moves us one step closer to that goal,” he said.

We’re accepting volunteers who want to give a more cogent explanation of the new regulation.



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