The ongoing saga of American Airlines and its troublesome employee pension obligations took a turn for the positive – at least in the eyes of those 130,000 workers – with news Wednesday that the embattled air carrier will not in fact be dumping its pensions.
Instead, the money employees have earned will be frozen from here on in, in a move oddly reminiscent of recent changes at both General Motors and the Bank of America.
GM and BofA sweetened their deals, somewhat, by offering enhanced 401(k) benefits in place of their costly pension contributions; no word yet if American will provide anything extra for its workers.
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American's offer, which still needs to be approved by a judge, will come as a better-case scenario to the company's unionized flight attendants and ground workers, who are covered by the deal , though what happens to the initial plans to cut 13,000 jobs is also up in the air.
Pilots and their union were excluded from the offer; they're still busy trying to sort out details of a lump-sum payment buyout plan which the company said would again be too expensive to survive.
The PBGC, which has emerged from its federal shadows during the last two months, also seems positively elated that American's deep pension obligations were not summarily dropped on its doorstep in the middle of the night, as it was beginning to look like it might happen during the early stages of the bankruptcy talks.
Whatever the outcome, it's a more telling sign that the defined benefit era is indeed coming to an end, perhaps a little more quickly than anticipated. As reported earlier this week, major trade organizations are backing a proposal tacked onto the Senate highway bill which would lower their obligations to contribute cash to their existing pension funds – saying that low interest rates are essentially squandering the money, which could be better used elsewhere.
For employees like myself who are seeing our parents enjoying the benefits of what might be the last great pension-drawing generation, it does give you pause to think about the 401(k) and the IRA and … whatever mechanism exists to save yourself.
As an advisor, the good news is that there are many, many people in my boat and we (and our companies) need all the help we can get.
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