8.22.06 – (LAA) – Pension Reform Legislation

This is Leslie Mayo, National Communications Coordinator, with a special Hotline update for Tuesday, August 22, 2006.

Late last week, President Bush signed into law the massive 900+ page pension reform legislation that our members and fellow AA employees, labor and management alike, have been working so hard on for almost two years. As with any law that size, it contains things we like and things we don’t. It also does NOT contain some of the very negative items that were suggested along the way.

We like the fact that it changes the old Orwellian sounding “90 percent-funded equals fully-funded” to a more rational definition of “100 percent-funded equals fully-funded.” This will force corporate America to put hundreds of billions more into pension funds to better protect the promises they have made to their employees. Most employers have seven years to catch up to the new funding requirement.

We also like that the financially-strapped airline industry gets extra time on top of the seven years to get caught up. As we are all painfully aware, airlines are short of cash right now and we don’t want to push more of them into abandoning or freezing their pensions, especially our own employer.

We do not, however, like the increased level of relief for some airlines that creates a two-class funding environment. Airlines that have frozen their plans) get more time to pay their debt than those airlines that have been responsible and committed to preserving their plans. That creates a competitive disadvantage for responsible airlines and is unfair to them and their employees.

This two-class approach is a leftover toxic remnant of the efforts by some anti-worker forces to eliminate all Defined Benefit plans. We are glad the rest of their garbage was deleted from the bill, but still think that the unfair two-class relic needs to be taken to the dump as well.

As you know, if you are trying to figure out how long your savings will last, you should calculate how much interest you are going to earn on that money. That means you have to project the interest rate you can get down the road. Under the old rules, corporations basically got to pick a number out of the sky as their interest rate. We like the fact that under the new rules, most corporations must use the corporate bond rate as their projected interest rate. That is a much more rational approach.

We are also comfortable with the part of the bill that gives airlines extra time to fund on the post-9/11 DRC debt relief. We are hopeful that the constant payments from AA and continued above-market returns on the pension assets will have our plans at 100% funding in the next few years. That is our ultimate goal – 100% funding.

We also like some of the other changes in the bill. Two changes in particular that will help our members who have domestic partners and other non-spousal beneficiaries are as follows. The first is Non-Spousal Rollover, which expands the non-taxable transfer of a 401(k) or IRA to non-spouses when the account holder dies. The second, known as Hardship Distribution allows individuals who list their same-sex partner or other non-spouse beneficiary under a 401(k) plan the ability to tap into their retirement funds in case of certain medical or financial emergency of the beneficiary.

The other intangible benefit from this process is the realization that as a united work group we can make a difference, even in the halls of Congress. It is obvious now that without the highly-visible presence of AA employees in the offices of Congress, and without the persistent communication from employees reinforcing our message; the foes of Defined Benefit plans would have succeeded in making it impossible for any of these plans to continue. AA employees stood up to some powerful interests and proved once again that a unified workforce is more powerful than corporate greed.