American Airlines could hand off pensions
An American Airlines airplane lands at Toncontin international airport, in the southern outskirts of Tegucigalpa, on April 19, 2011. It looks like the bankrupt airline could hand over employee pensions to the Pension Benefit Guaranty Corporation.
Steve Chiotakis: American Airlines' parent firm, AMR, is expected in U.S bankruptcy court today in New York. And going forward, not only will American have to negotiate with creditors, it'll also have to figure out what to do with its big pension plan. One possibility is that American would turn its employee pensions over to the Pension Benefit Guaranty Corporation.
The PBGC was set up by the federal government as an independent agency to safeguard against employees losing their pensions when companies go bankrupt or under. Josh Gotbaum is director of the PBGC and he's with us right now. Good morning sir.
Josh Gotbaum: Good morning. How are you doing, Steve?
Chiotakis: I'm doing well. Will American Airlines eventually turn over their pensions, do you think, in their bankruptcy over to you guys?
Gotbaum: No one knows for sure yet. But it's pretty clear that they're thinking about it, and that's enough to engage us.
Chiotakis: Engage you like, are you troubled by that? Do you think you can cover it?
Gotbaum: The job of the PBGC is when companies can't take over their plans, to step in and make sure that people get a pension. However, it is always better for employees to get the plan that their employer originally promised them. For two reasons: one is we don't cover health benefits; and two is, there is a dollar maximum on the pension that we can pay. And as it happens, airline pensions very often go above our dollar maximum.
Chiotakis: I want to talk a little bit about your corporation. It's sort of a corporation that's charged with being a backstop, but you may need a backstop too, because your agency's already in a pretty big hole, right? There's a possibility that you guys might even need a taxpayer bailout?
Gotbaum: The way we pay our benefits is we -- like insurance companies -- we charge premiums to pension plans. And unfortunately, the history has been that those premiums have been determined by the Congress and they have been too low. So what has happened every couple of years is we have gone to Congress and said, 'Look, the premiums are too low; the PBGC deficit is getting larger -- you've got to raise the premiums.' And more than a dozen times in the 37 years we've been in existence, Congress has said yes, 'We're going to raise them.' And we think that's going to continue to happen.
Chiotakis: What is it going to do to the agency if you have to take on American Airlines' pensions? I mean, an agency that's already having to tighten its belt?
Gotbaum: If we take over American's pensions, we're going to pay those benefits. We will, as we've already done, go back to the Congress and say, "Congress, do the right thing and let PBGC set realistic premiums."
Chiotakis: Josh Gotbaum, director of the Pension Benefit Guaranty Corporation. Mr. Gotbaum, thank you.
Gotbaum: Glad to help.