Lawmaker wants PBGC to prevent termination of American Airlines' pension plans

WASHINGTON—The top Democrat on the House Education and Workforce Committee has urged the Pension Benefit Guaranty Corp. to try to prevent termination and agency takeover of American Airlines Inc.'s massively underfunded pension plans.

“I urge the PBGC to do everything in its power to prevent a termination from happening,” Rep. George Miller, D-Calif., wrote PBGC Director Joshua Gotbaum in a letter released Wednesday.

Termination of corporate pension plans can “wreak havoc” on plan participants, Rep. Miller wrote. “Tens of thousands of American Airlines employees and retirees count on these pension plans, not just for their accrued benefits, but for their expected benefits as well…Termination should only be a last resort and not part of any business strategy,” Rep. Miller added.

In several statements, Mr. Gotbaum has encouraged parent company AMR Corp. to keep its pension plans. Speculation about the future of American Airlines’ pension plans has mounted since Fort Worth, Texas-based AMR filed for bankruptcy reorganization in late November.

Under federal law, the PBGC is required to take over an underfunded pension plan when a plan sponsor can prove—to the agency or to a bankruptcy court—that it cannot remain in business unless the plan is terminated.

American Airlines has not definitively said whether it will try to terminate the plans, which have about 130,000 participants, but has said the issue is under review.

“Given American's plans to reduce its costs to a more reasonable level in line with industry norms, these costs and many other factors are considerations when deciding whether to continue the pension plans,” an American Airlines spokesman has said.

American’s intent concerning the future of its pension plans could become clearer when it presents new contract proposals to its unions on Wednesday.

According to preliminary PBGC estimates, the four plans have about $8.3 billion in assets and about $18.5 billion in promised benefits.

The PBGC said if the plans were to fold, the agency would be liable for about $17 billion in benefits, resulting in an $8.7 billion loss to the agency, which would be its largest ever.