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Airline provision would allow higher interest rate


WASHINGTON--U.S. airlines that haven't frozen their pension plans, including AMR Corp. unit American Airlines and Continental Airlines Inc., would be allowed to use substantially higher interest rates to value plan liabilities under legislation President Bush is expected to sign Friday or over the weekend.

The provision, tucked into a bill appropriating funds for the war in Iraq, would allow the airlines to use an interest rate of 8.25% in valuing liabilities, just over two percentage points higher than the methodology mandated by a 2006 pension funding bill.

The effect of a higher interest rate assumption is to lower the value of plan liabilities for reporting purposes, reducing the contributions they must make to the plans.

The airlines lobbied legislators for the change, noting that the 2006 law gave similar favorable interest rate assumption treatment to airlines that had frozen their pension plans.

American has not frozen it plans, while Continental froze a plan covering pilots but continued benefit accruals for other employees.