US says American Airlines underpaid on pensions

AP News

1/19/2012 4:52:27 PM - AP News

American Airlines contributed only $6.5 million of the $100 million that it was supposed to pay into employee pension plans this week.

The underpayment raised tensions between the company, which filed for bankruptcy protection in November, and federal pension-protection officials.

"This is a disturbing development, as the airline has more than $4 billion in cash," said J. Jioni Palmer, a spokesman for the Pension Benefit Guaranty Corp., which insures certain types of retirement plans. "American's actions hurt the financial health of the pension plans, and undermine the retirement security of American's workers and retirees."

American Airlines spokesman Sean Collins said, "The company has determined this is the appropriate course of action for the quarterly contribution amount due by Jan. 15, 2012. This action allows the company to preserve cash."

American and parent AMR Corp. filed for bankruptcy protection Nov. 29 after losing $11 billion since 2001. The company hopes to reduce debt and labor costs while it reorganizes.

Company executives and lawyers have raised the possibility that American could terminate its pension plans, under which retirees get fixed monthly payments based on their earnings and years of service. Such "defined-benefit" plans are common in the airline industry but differ from the retirement accounts such as 401(k) plans that are provided by many other U.S. employers.

PBGC director Joshua Gotbaum has publicly criticized American for even suggesting that it might terminate pension plans. Gotbaum's agency would take over the airline's obligations.

The PBGC ran a $26 billion deficit last year, the largest in its history, as the recession and weak recovery caused more companies to eliminate pension plans. Gotbaum has said that taxpayers might have to bail out the agency, if Congress doesn't raise insurance premiums on private companies with pension plans.