PBGC backs plan for no lump-sum pension payments to American pilots
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The Pension Benefit Guaranty Corp. disclosed Friday that it supports American Airlines Inc. parent AMR Corp.'s request to a federal bankruptcy court for permission to allow the airline to amend its frozen pilots' pension plan so that retiring pilots cannot receive their accrued benefits as a lump sum.
The PBGC said in a filing with the U.S. Bankruptcy Court for the Southern District of New York that elimination of the lump-sum option is necessary to avoid a distress plan termination before AMR emerges from bankruptcy and a huge loss to the PBGC.
The bankruptcy court has scheduled a hearing Wednesday on AMR's proposal.
In its filing, the PBGC, which reported a record $29.1 billion deficit in fiscal 2012 in its insurance program for single-employer plans, said it would incur a $2.3 billion loss if it took over the American pilots' plan.
In a previous filing with the bankruptcy court, AMR warned that the availability of the lump-sum option would lead to mass retirements of pilots.
Under one scenario outlined by AMR, a 50-year-old pilot, for example, “may conclude that he or she can have the best of both worlds by retiring from American with a substantial lump sum while continuing to fly the most prestigious aircraft at a top salary for a foreign airline.”
A surge in retirements “would create a pilot shortage which, in turn, would result in an operational crisis involving the wholesale cancellation of flights and the grounding of airplanes, with a corresponding devastating reduction in revenue and profitability,” AMR said in its filing.
To prevent that from happening, American would be forced to seek bankruptcy court approval to terminate the plan, AMR said. That would shift liability to pay the plan's promised but unfunded benefits from American to the PBGC.
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