A Victory for American Airline Workers, but
Pension-Free Future Still Looks Bleak for Most 

By David Moberg

In These Tmes


http://www.inthesetimes.com/working/entry/12850/a_victory_for_american_airline_workers_but_pension-free_future_still_looks_/

Half of U.S. workers have no employer-funded retirement
plan

When AMR--the holding company for American Airlines and
American Eagle--declared bankruptcy in November, it
claimed that the airline needed $1.25 billion in
concessions from employees, including termination of
13,000 jobs and the end of four employee pension plans.

But pressure and suggestions of alternatives from its
unions and the federal government's pension insurance
fund led AMR on Wednesday to promise the Transport
Workers Union---which represents ramp crews, mechanics
and five smaller crafts--that it would "freeze" pensions
for those workers, as well as pensions for flight
attendants and nonunion employees. That means existing
workers and retirees, who total 130,000 in all four
plans, would keep their collectively bargained AMR
pensions. AMR is still negotiating with the pilots'
union, making a freeze dependent on pilots giving up
their right to take their pension as a lump sum when
they retire. Future employees that American hires would
only have a 401k plan, to which the company will make
defined contributions but which will not guarantee
benefits.

AMR had hoped to dump its pension obligations on the
Pension Benefit Guarantee Corporation, a government
agency funded by insurance premiums on traditional
pension plans offering defined benefits to retirees.
The PBGC would then have been responsible for providing
pension benefits to American employees, but the agency
does not cover retiree health insurance and by law has
limits on how big a monthly pension it could pay. All
employees, but especially pilots and others with
negotiated benefits far higher than the PBGC limit,
would have lost future income. And with the largest
pension termination ever potentially adding $10 billion
to its responsibilities, the PBGC, already facing
obligations amounting to $26 billion more than
projected income, would have been pushed closer to
crisis.

"We would have preferred to keep the existing defined
benefit plan in place," TWU president Jim Little said,
"but that was simply not possible." TWU got AMR to
abandon its demand for $600 to $800 billion in
additional concessions as the price of freezing the
plan, partly by proposing alternatives including
low-cost borrowing, according to a source close to TWU.

But Little emphasized that implementing the pension
plan freeze depended on resolving other issues and
reaching "an overall agreement." AMR still needs to
settle pension and other issues with its pilots and
flight attendants, with whom negotiations have
reportedly been more testy.

The breakthrough is a tentative victory for both PBGC
and the TWU, but it is also part of a trend that
endangers the retirement security of not only airline
employees but also all American workers. Most
seriously, half of all workers have no employer-funded
retirement plan. But the dramatic change from defined
benefit plans to 401(k) plans shifts risk to workers,
who are left with plans inferior in virtually every
other way as well.

Corporations have often declared bankruptcies as a way
to reduce labor costs, including pensions, as well as
to shortchange suppliers and often to wipe out
shareholders, not because they are about to fail. Wall
Street refers to such moves as "strategic
bankruptcies," as a Wall Street Journal editorial
described AMR's declaration.

After all, despite four years of losses, AMR had over
$4 billion in cash when it filed for bankruptcy, and
the same after announcing a $234 million loss in
January. Furthermore, around $2.1 billion of that cash
can be attributed to congressional relief of rules
governing AMR contributions to the pension plans. "In
effect," the PBGC wrote, "that's money AMR borrowed
from its workers' pensions, money that helped keep the
company afloat."

PBGC director Josh Gotbaum forthrightly challenged
AMR's attempt to dump its pension responsibilities.
"Before American takes such a drastic action as killing
the pension plans of 130,000 employees and retirees,"
he said on Feb. 1, "it needs to show there is no better
alternative. Thus far, they have failed to provide even
the most basic information to decide that."

While some airlines, like United and US Air, used
bankruptcy to end pension plans, Northwest, Delta and
Continental either froze or preserved intact all or
most of their plans. And despite complaints about their
high costs, PBGC says many American competitors have
higher pension costs. Delta pays into its funds 2/3
more per employee than American. Many of the other
bankruptcies and pension terminations occurred when the
whole industry was in trouble. Now American is the only
major airline losing money.

Workers and their pensions are not the problem, Little
says. Since 2003 TWU workers have surrendered 30
percent of their pay--about $600 million, adding to a
grand total of "billions of dollars" in concessions
from all union workers since 2001, Little says. Bad
management is the problem: "They didn't modernize their
fleet, missed merger opportunities, got stuck with
higher fuel costs, lost money year after year--and
rewarded themselves with hundreds of millions in
executive bonuses," he wrote.

Gotbaum's persistent, tough challenges to AMR's claims
played a major role in reaching the tentative agreement
and represents a much-needed shift.

"Gotbaum did what the PBGC should have done in previous
events," says Teresa Ghilarducci, economics professor
and pension expert at The New School for Social
Research and author of When I'm Sixty-Four: The Plot
Against Pensions and the Plan to Save Them  "He's doing
his job, making them prove there's a business reason to
[end the  pension plans]....He's acting appropriately
and raising red flags as he should. He's acting like
any insurance executive would and like previous PBGC
directors under Bush should have done. There were
opportunities for plans to consolidate [and form
multi-employer pension plans]. We lost eight years
under Bush, and these plans lost a lot under Bush, who
had an ideological interest in undermining defined
benefit plans."

University of Massachusetts-Amherst finance professor
Ben Branch adds that Gotbaum may also be motivated to
save PBGC from more financial strain, which is likely
to grow if more corporations abandon defined benefit
plans and thus stop paying PBGC premiums. Ghilarducci
argues that the administration, the PBGC and unions
should first try to preserve defined benefit plans,
encouraging multi-employer plans wherever they might
strengthen such pensions. But if defined benefit plans
can't work, she believes 401(k) plans are the worst
alternative (other than no plan) and that unions should
strive for hybrids.

Defined benefit plans are run by legal fiduciaries
focused on long-term investment for the benefit of
pension recipients, Ghilarducci says, but defined
contribution plans, especially 401(k)s, typically are
managed by investment "professionals" whose fiduciary
responsibility is to their investment firm employers,
whose costs are high, and who often promote investments
that are not well-designed for retirement needs.

But she believes some hybrid vehicles--such as some cash
balance plans--combine some of the 401(k) features
employers like with traditional pension characteristics
that are good for workers. Government policy on pension
tax credits for employers could be designed to favor
defined benefit plans, or hybrids, instead of treating
them the same as 401(k)s.

Although TWU had already tentatively negotiated 401(k)s
for new hires before bankruptcy, it may still be
possible for the unions, Gotbaum and the administration
to craft a better alternative with American. But at
least they seem on the way to salvaging pensions for
current American workers and retirees.

____________________________________________

PortsideLabor aims to provide material of interest to
people on the left that will help them to interpret the
world and to change it.

Submit via email: [log in to unmask]

Submit via the Web: http://portside.org/submittous3

Frequently asked questions: http://portside.org/faq

Sub/Unsub: http://portside.org/subscribe-and-unsubscribe

PS Labor Archives: http://portside.org/archive

Contribute to Portside: https://portside.org/donate