American Airlines has 130,000 retirees. It only has 78,000 active employees.
The AA pension fund only has $8 billion in assets to cover $16 billion in promise to those retirees. During the good times when stock values went up, it was assumed that values would keep rising, so new contributions were not necessary. Then the bubble burst.
The AA Bankruptcy will be sending their retirement into the government run Pension Benefit Guarantee Corporation to die. The general description of what this agency does – they take the assets in the plan, impose a cap on monthly benefits, and are especially punitive toward plans that offer high benefits to retirees younger than 65. By cutting the outflow, they hope to at least keep sending out some checks. This failure is due at least in part to the Fed/Treasury’s low interest rate policy. Just as bank CD’s are paying almost nothing, pension funds and life insurance companies made promises based on assumptions about “safe” interest rates they can earn for 20 years into the future.
The PBGC is already in the hole to the tune of $26 billion from other pension plans Congress wants them to “save”