American Airlines Asks to End Retiree Health, Life Benefit Coverage

American Airlines Inc. and parent company AMR Corp. have filed suit in U.S. Bankruptcy Court asking for a ruling to allow the airline to stop providing retiree health and life insurance to current retirees.

In its suit filed July 6 in U.S. Bankruptcy Court for the Southern District of New York, American and AMR said they never promised to provide benefits for life and reserved their rights to modify the plans.

“Because the retiree health and welfare benefits are not vested, and because modifying retiree health and welfare benefits to reduce costs fall within American’s sound business judgment, American may unilaterally modify health and welfare benefits for current retirees,” the airline argued in the suit.

American, which filed for Chapter 11 bankruptcy reorganization in November 2011, said it intends to freeze three of its four massively underfunded pension plans.

It also intends to freezea fourth plan—one covering its pilots—assuming the Internal Revenue Service finalizes a proposed rule that would allow employers that have filed for bankruptcy to remove plan participants’ right to receive their accrued benefits as a lump sum rather than as a monthly annuity.

Without such a change, American said it fears that a high number of pilots eligible to retire early would take their accrued benefit as a lump sum and retire, adversely affecting the airline’s ability to operate.

Jerry Geisel writes for Business Insurance, a sister publication of Workforce Management. To comment, email editors@workforce.com.

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