AMR Files Bankruptcy, So it Pensioners Are Flying Blind - Rodney Johnson/HSDent (11/30/11)

Back in 2002-2004 United Airlines had a problem.  Its costs were out of control, its pension obligations were skyrocketing, and the company was losing money.  So they did what any business would do – they asked the US government for an emergency loan.  When they were turned down, the company filed for bankruptcy and foisted its pension liabilities onto the Pension Benefit Guaranty Corp.  This is how things work in America.  If you are a private company that has a pension and you go bankrupt, your existing pension assets and your existing pension liabilities are handed over to the PBGC.

The problem is that the liabilities almost always outstrip the assets, leaving the PBGC with a mess.  The way this is solved is by the PBGC not honoring the terms of the pension plans it takes over.  Instead, the PBGC has its own schedule of benefits that will be paid to pensioners, and they are usually much less that what the company plan called for.  This means that current pensioners from a company like United can see their monthly checks cut dramatically to match the PBGC schedule.  Those still working will see their expected benefits fall as well.  That’s not happy news.

Unless you are an auto worker.

In late 2008 and then early 2009, not only did the US government make an emergency loan to the auto companies (excluding Ford), the US government also GUARANTEED the gold plated benefits of UAW pensioners after the companies went bankrupt.  There’s no slumming it at the PBGC for those retirees.  Which brings us to AMR.
 
American Airlines filed for bankruptcy and is expected to hand the PBGC over $18 billion in pension liabilities with only $8 billion of pension assets.  The PBGC will kick in some other funds, but the overall plan will still be more than $1 billion underfunded.  Expect the benefits of current and future AMR retirees to be slashed, as there’s no way the PBGC can, or would, maintain the existing benefit levels of the program.  The PBGC is more than $25 billion underfunded itself.

If only those pilots had chosen a different career.  Or maybe it would have been enough if their unions had been better at politics.