American Airlines Bankruptcy Likely to Result in Deep Pension Cuts

I've written numerous previous posts about the precarious state of pension plans in both the public and private sector. With the bankruptcy declaration earlier this week by America's largest air carrier, comes this report regarding the likely cuts to the pensions of its retirees:

Retirees of American Airlines parent AMR Corp. could lose $1 billion in benefits if the bankrupt carrier decides to end its four pension plans, according to a Tuesday statement from the U.S. agency responsible for protecting pension benefits. AMR's pension plans cover almost 130,000 participants, but collectively had just $8.3 billion in assets to cover about $18.5 billion in benefits, the Pension Benefit Guaranty Corp. said. Congress limited the size of pensions the PBGC can pay for, so AMR retirees should expect their pensions to be dramatically cut, the agency said. "As we did with Visteon, and with some plans at Delta and Northwest Airlines, we will encourage American to fix its financial problems and still keep its pension plans," the agency said. The PBGC added it recorded a $26 billion deficit as a result of failed plans the agency has already assumed.

In at least one way, the American Airlines retirees are lucky: this happened while the PBGC is still able to make good on at least part of thir pensions. With more and more large companies failing, meaning more PBGC payouts and fewer companies paying in to the system, the day is eventually going to come when the agency is no longer able to backstop ANY pension payments. As I've written before, if part of your future plans involve relying on any sort of pension, you need to seriously rethink your options.