By Jilian Mincer
NEW YORK (Reuters) - Millions of Americans remember US Airways pilot Chesley B. "Sully" Sullenberger III. In 2009, he became an instant hero for saving 155 lives by landing on New York City's Hudson River when his aircraft lost power after it was struck by birds shortly after taking off.
But few know that - like thousands of other airline employees - Sullenberger was struggling financially at the time because two US Airways bankruptcies had derailed his pension and slashed his salary 40 percent.
"We had saved some money, but not enough to make up for everything we were losing," says Sullenberger, who has since become a successful author, consultant and volunteer.
His fellow pilots were mostly in their late 40s or 50s, he says. "We didn't have a lot of time to regain what we had lost."
Soon, roughly 130,000 workers - along with retirees - at American Airlines and parent AMR Corp could face similar difficulties. On Tuesday, American became the last major domestic airline to file for bankruptcy protection. The airline has not announced yet whether it plans to unload its pension, but the Pension Benefit Guaranty Corp estimated on Tuesday that its four plans are $10 billion underfunded.
American Airlines spokesman Tim Smith says a Chapter 11 reorganization "does not necessarily mean that" a company will terminate its four plans, which collectively have about $8.3 billion in assets, according to the PBGC.
"American's pension and retiree medical plans are very expensive. The company spends more on them than our competitors," he says. "These costs and many other factors are considerations when deciding to continue these benefits."
Other airlines, including United, Delta Air Lines Inc and US Airways Group Inc, abandoned their pensions in recent years when filing for bankruptcy, costing the PBGC more than $11 billion.
"It's too soon to say what American will do," says Marc Hopkins, a spokesman for the agency.
But the PBGC estimates employees and retirees could lose $1 billion in pension benefits if it has to take over the plans.
That is because annual benefits are capped if the agency assumes responsibility for a pension plan. The limit is $54,000 for employees whose companies drop their plans in 2011. While that is enough to cover most benefit payments, more than 20 percent of airline workers were affected by the cap in the past, according to a 2008 PBGC study of 17 airline plans between 1990 and 2005.
Bob Coffman, an American captain who is also chairman of Allied Pilots Association's government affairs committee, says the union and airline are still negotiating future benefits.
Most experts agree that employees will likely receive only self-funded 401(k) benefits, which are different from company sponsored pension benefits. Until now, American employees have had a 401(k) option, as well as the pension plan and a second defined contribution plan, which was funded by the plan company.
Employees were notified on Tuesday that future retirees can no longer get a lump sum distribution because the plan is now underfunded. However, those who retired this fall -- including more than 300 pilots -- could still receive their lump-sum pension distributions.
That is a relief for American Airlines Captain Rod Carlone, 61, who retired sooner than he planned in October, primarily because he wanted a lump-sum payout. The typical distribution for a captain with about 30 years experience is about $1 million, according to Allied Pilots Association.
"I look like a genius now," says Carlone, who lives in Las Vegas, Nevada.
But for him the decision to retire was simpler than it might be for colleagues paying for college or not old enough to leave the workforce.
"A lot of guys have to be hurting really bad," Carlone says of some of his colleagues.
Captain Joel Jeppson made a similar decision. The 61-year-old retired on October 1 after 33 years with American.
"It was tough to walk away," says Jeppson, who lives near Dallas, Texas. "I was going to fly until at least 62 and maybe slow down then. I'm in great health and I love the job."
Jeppson, who is still waiting for his lump sum distribution check to arrive, says he is fretting about the status of former colleagues.
"I've got several friends that selected to stick around and I'm sure they're not feeling too good about it. I'm more worried about what the bankruptcy courts decide for the people who are already retired," he says.
Coffman, who has been with American for 23 years, knows his benefits will change, but at age 53, he has more time than older colleagues to save for retirement. While the bankruptcy is tragic, the company has been struggling and this could help American rebuild, he says.
Coffman compares the situation to the training pilots receive about handling an engine fire. Pilots are taught to anticipate a problem but cannot act on it until it occurs.
"To an extent, this is a very similar," says Coffman, who is based in Miami. "There is no longer anxiety about whether the company will enter Chapter 11. Now we have a path, rather than worrying about decision."
American's bankruptcy filing was sad news, says Sullenberger, who can relate to what is happening.
A day before the fateful 2009 flight, Sullenberger talked with his wife about selling their home to save money. He planned to fly until he was at least 65 -- the mandatory retirement age -- and then get another job to make up for his pension and income loss.
"You can imagine how hard that would be at 65 for someone who had worked a professional career as a pilot," Sullenberger says. "Where would you go? What would you do? Tens of thousands are facing this, and not just in the airline industry."
(Additional reporting by Kyle Peterson, John Crawley and Himanshu Ojha; editing by Lauren Young and Andre Grenon)