Underscoring just how expensive defined benefit pension plans have become–and explaining the shift to 401(k)-type defined contribution plans–American Airlines’ parent company, AMR, disclosed last week its proposal to terminate its lower-level employee pension plan.
Under the proposal, the Pension Benefit Guaranty Corporation would assume all the plan’s liabilities and would pay benefits. AMR claims the termination will save the bankrupt airline over $1.25 billion. It needs bankruptcy court approval before terminating the plans.
AMR also noted that it has paid over $236 million in PBGC premiums since 1994. However, given the financial strain at the PBGC during the recent financial crisis, it’s obviously unhappy with AMR’s suggestion.