Employee Benefit Plans

12 Months Ended

Dec. 31, 2016

9. Employee Benefit Plans

We sponsor defined benefit and defined contribution pension plans for eligible employees. The defined benefit pension plans provide benefits for participating employees based on years of service and average compensation for a specified period of time before retirement. Effective November 1, 2012, substantially all of our defined benefit pension plans were frozen and we began providing enhanced benefits under our defined contribution pension plans for certain groups. We use a December 31 measurement date for all of our defined benefit pension plans. We also provide certain retiree medical and other postretirement benefits, including health care and life insurance benefits, to retired employees. Effective November 1, 2012, we modified our retiree medical and other postretirement benefits plans to eliminate the company subsidy for employees who retire on or after November 1, 2012. As a result of modifications to our retiree medical and other postretirement benefits plans in 2012, we recognized a negative plan amendment of $1.9 billion, which is included as a component of actuarial gain in OCI and will be amortized over the future service life of the active plan participants for whom the benefit was eliminated, or approximately eight years. As of December 31, 2016, $871 million of actuarial gain remains to be amortized.

Benefit Obligations, Fair Value of Plan Assets and Funded Status

The following tables provide a reconciliation of the changes in the pension and retiree medical and other postretirement benefits obligations, fair value of plan assets and a statement of funded status as of December 31, 2016 and 2015:


	Pension Benefits						Retiree Medical and Other Postretirement Benefits
	2016			2015			2016			2015
	(In millions)
Benefit obligation at beginning of period	$	16,395		$	17,594		$	1,131		$	1,325
Service cost		2			2			3			3
Interest cost		749			737			47			50
Actuarial (gain) loss ^{(1) (2)}		729			(1,159	)		(105	)		(177	)
Plan amendments		—			—			7			—
Settlements		(2	)		(3	)		—			—
Benefit payments		(635	)		(776	)		(92	)		(94	)
Other		—			—			—			24

Benefit obligation at end of period	$	17,238		$	16,395		$	991		$	1,131

Fair value of plan assets at beginning of period	$	9,707		$	10,986		$	253		$	244
Actual return on plan assets		915			(506	)		22			(10	)
Employer contributions		32			6			83			89
Settlements		(2	)		(3	)		—			—
Benefit payments		(635	)		(776	)		(92	)		(94	)
Other ⁽³⁾		—			—			—			24

Fair value of plan assets at end of period	$	10,017		$	9,707		$	266		$	253

Funded status at end of period	$	(7,221	)	$	(6,688	)	$	(725	)	$	(878	)

⁽¹⁾	The December 31, 2016 and 2015 pension actuarial (gain) loss primarily relates to weighted average discount rate assumption changes and changes to our mortality assumptions.

⁽²⁾	The December 31, 2016 and 2015 retiree medical and other postretirement benefits actuarial gain primarily relates to medical trend and cost assumption changes, favorable plan experience adjustments and weighted average discount rate assumption changes.

⁽³⁾	At December 31, 2015, certain trust assets totaling approximately $24 million, were added to the retiree medical and other postretirement benefits plans asset values that were previously offset against the benefit obligation.

Balance Sheet Position


	Pension Benefits				Retiree Medical and Other Postretirement Benefits
	2016		2015		2016			2015
	(In millions)
As of December 31,
Current liability	$	7	$	7	$	97		$	109
Noncurrent liability ⁽¹⁾		7,214		6,681		628			769

Total liabilities	$	7,221	$	6,688	$	725		$	878


Net actuarial loss (gain)	$	5,484	$	5,047	$	(430	)	$	(339	)
Prior service cost (benefit) ⁽¹⁾		188		216		(837	)		(1,084	)

Total accumulated other comprehensive loss (income), pre-tax	$	5,672	$	5,263	$	(1,267	)	$	(1,423	)

⁽¹⁾	The 2016 noncurrent liability does not include $20 million of other postretirement benefits or $1 million of prior service cost. The 2015 noncurrent liability does not include $17 million of other postretirement benefits or $1 million of prior service cost.

Plans with Accumulated Benefit Obligations Exceeding Fair Value of Plan Assets


	Pension Benefits				Retiree Medical and Other Postretirement Benefits
	2016		2015		2016		2015
	(In millions)
Projected benefit obligation (PBO)	$	17,209	$	16,369	$	—	$	—
Accumulated benefit obligation (ABO)		17,197		16,357		—		—
Accumulated postretirement benefit obligation (APBO)		—		—		990		1,129
Fair value of plan assets		9,986		9,677		266		253
ABO less fair value of plan assets		7,211		6,680		—		—

Net Periodic Benefit Cost (Income)


	Pension Benefits									Retiree Medical and Other Postretirement Benefits
	2016			2015			2014			2016			2015			2014
	(In millions)
Defined benefit plans:
Service cost	$	2		$	2		$	3		$	3		$	3		$	1
Interest cost		749			737			746			47			50			61
Expected return on assets		(750	)		(851	)		(786	)		(20	)		(19	)		(19	)
Settlements		—			1			4			—			—			—
Amortization of:
Prior service cost (benefit) ⁽¹⁾		28			28			28			(240	)		(243	)		(244	)
Unrecognized net loss (gain)		126			112			43			(17	)		(9	)		(8	)

Net periodic benefit cost (income)		155			29			38			(227	)		(218	)		(209	)
Defined contribution plan cost		766			662			546			N/A			N/A			N/A

Total cost (income)	$	921		$	691		$	584		$	(227	)	$	(218	)	$	(209	)

⁽¹⁾	The 2016, 2015 and 2014 prior service cost does not include amortization of $1 million, $3 million and $14 million, respectively, related to other postretirement benefits.

The estimated amount of unrecognized net loss for the defined benefit pension plans that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost over the next fiscal year is $144 million.

The estimated amount of unrecognized net gain for the retiree medical and other postretirement benefits plans that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost over the next fiscal year is $23 million.

Assumptions

The following actuarial assumptions were used to determine our benefit obligations and net periodic benefit cost for the periods presented:


	Pension Benefits						Retiree Medical and Other Postretirement Benefits
	2016			2015			2016			2015
Benefit obligations:
Weighted average discount rate		4.30	%		4.70	%		4.10	%		4.42	%


	Pension Benefits									Retiree Medical and Other Postretirement Benefits
	2016			2015			2014			2016			2015			2014
Net periodic benefit cost:
Weighted average discount rate		4.70	%		4.30	%		5.10	%		4.42	%		4.00	%		4.74	%
Weighted average expected rate of return on plan assets		8.00	%		8.00	%		8.00	%		8.00	%		8.00	%		8.00	%
Weighted average health care cost trend rate assumed for next year ⁽¹⁾		N/A			N/A			N/A			4.25	%		5.21	%		5.25	%

⁽¹⁾	The weighted average health care cost trend rate at December 31, 2016 is assumed to decline gradually to 3.77% by 2024 and remain level thereafter.

As of December 31, 2016, our estimate of the long-term rate of return on plan assets was 8% based on the target asset allocation. Expected returns on long duration bonds are based on yields to maturity of the bonds held at year-end. Expected returns on other assets are based on a combination of long-term historical returns, actual returns on plan assets achieved over the last ten years, current and expected market conditions, and expected value to be generated through active management, currency overlay and securities lending programs.

A one percentage point change in the assumed health care cost trend rates would have the following effects on our retiree medical and other postretirement benefits plans (in millions):


	1% Increase		1% Decrease
Increase (decrease) on 2016 service and interest cost	$	3	$	(3	)
Increase (decrease) on benefit obligation as of December 31, 2016		53		(50	)

Minimum Contributions

We are required to make minimum contributions to our defined benefit pension plans under the minimum funding requirements of the Employee Retirement Income Security Act of 1974 and various other laws for U.S. based plans as well as under funding rules specific to countries where we maintain defined benefit plans. Based on current funding assumptions, we have minimum required contributions of $25 million for 2017. We expect to make supplemental contributions of $254 million to our U.S. based defined benefit plans in 2017. Currently, the minimum funding obligation for our U.S. based defined benefit pension plans is subject to temporary favorable rules that are scheduled to expire at the end of 2017. Our pension funding obligations are likely to increase materially following expiration of the temporary funding rules, when we will be required to make contributions relating to the 2018 fiscal year. The amount of these obligations will depend on the performance of our investments held in trust by the pension plans, interest rates for determining liabilities, the amount of and timing of any supplemental contributions and our actuarial experience.

Benefit Payments

The following benefit payments, which reflect expected future service as appropriate, are expected to be paid (approximately, in millions):


	2017		2018		2019		2020		2021		2022-2026
Pension	$	688	$	722	$	762	$	804	$	845	$	4,819
Retiree medical and other postretirement benefits		97		93		88		79		73		312

Plan Assets

The objectives of our investment policies are to: maintain sufficient income and liquidity to pay retirement benefits; produce a long-term rate of return that meets or exceeds the assumed rate of return for plan assets; limit the volatility of asset performance and funded status; and diversify assets among asset classes and investment managers.

Based on these investment objectives, a long-term strategic asset allocation has been established. This strategic allocation seeks to balance the potential benefit of improving funded position with the potential risk that the funded position would decline. The current strategic target asset allocation is as follows:


Asset Class/Sub-Class	Allowed Range
Equity		65% - 90%
Public:
U.S.		20% - 45%
International		17% - 27%
Emerging Markets		5% - 11%
Alternative Investments		5% - 30%
Fixed Income		15% - 40%
U.S. Long Duration		15% - 40%
High Yield and Emerging Markets		0% - 10%
Other		0% - 5%
Cash Equivalents		0% - 5%

Public equity and emerging market fixed income securities are used to provide diversification and are expected to generate higher returns over the long-term than U.S. long duration bonds. Public stocks are managed using a value investment approach in order to participate in the returns generated by stocks in the long-term, while reducing year-over-year volatility. U.S. long duration bonds are used to partially hedge the assets from declines in interest rates. Alternative (private) investments are used to provide expected returns in excess of the public markets over the long-term. Additionally, the pension plan’s master trust engages currency overlay managers in an attempt to increase returns by protecting non-U.S. dollar denominated assets from a rise in the relative value of the U.S. dollar. The pension plan’s master trust also participates in securities lending programs to generate additional income by loaning plan assets to borrowers on a fully collateralized basis. These programs are subject to market risk.

Investments in securities traded on recognized securities exchanges are valued at the last reported sales price on the last business day of the year. Securities traded in the over-the-counter market are valued at the last bid price. The money market fund is valued at fair value which represents the net asset value of the shares of such fund as of the close of business at the end of the period. Investments in limited partnerships are carried at estimated net asset value as determined by and reported by the general partners of the partnerships and represent the proportionate share of the estimated fair value of the underlying assets of the limited partnerships. Common/collective trusts are valued at net asset value based on the fair values of the underlying investments of the trusts as determined by the sponsor of the trusts. The pension plan’s master trust also invests in a 103-12 investment entity (the 103-12 Investment Trust) which is designed to invest plan assets of more than one unrelated employer. The 103-12 Investment Trust is valued at net asset value which is determined by the issuer at the end of each month and is based on the aggregate fair value of trust assets less liabilities, divided by the number of units outstanding. No changes in valuation techniques or inputs occurred during the year.

Benefit Plan Assets Measured at Fair Value on a Recurring Basis

The fair value of our pension plan assets at December 31, 2016 and 2015, by asset category, are as follows (in millions):


	Fair Value Measurements as of December 31, 2016
Asset Category	Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Cash and cash equivalents	$	573		$	—	$	—	$	573
Equity securities:
International markets ^(a), ^(b)		3,232			—		—		3,232
Large-cap companies ^(b)		2,253			—		—		2,253
Mid-cap companies ^(b)		371			—		—		371
Small-cap companies ^(b)		6			—		—		6
Mutual funds ^(c)		49			—		—		49
Fixed income:
Corporate bonds ^(d)		—			2,337		—		2,337
Government securities ^(e)		—			150		—		150
U.S. municipal securities		—			37		—		37
Alternative instruments:
Private equity partnerships ^(f)		—			—		21		21
Private equity partnerships measured at net asset value ^{(f) (h)}		—			—		—		703
Common/collective trusts ^(g)		—			32		—		32
Common/collective trusts and 103-12 Investment Trust measured at net asset value ^{(g) (h)}		—			—		—		227
Insurance group annuity contracts		—			—		2		2
Dividend and interest receivable		40			—		—		40
Due to/from brokers for sale of securities – net		(9	)		—		—		(9	)
Other liabilities – net		(7	)		—		—		(7	)

Total	$	6,508		$	2,556	$	23	$	10,017

^a)	Holdings are diversified as follows: 15% United Kingdom, 12% Japan, 10% France, 7% Switzerland, 6% Netherlands, 17% of other emerging markets and the remaining 33% with no concentration greater than 5% in any one country.

^b)	There are no significant concentrations of holdings by company or industry.

^c)	Investment includes mutual funds invested 42% in equity securities of large-cap, mid-cap and small-cap U.S. companies, 33% in U.S. treasuries and corporate bonds and 25% in equity securities of international companies.

^d)	Includes approximately 74% investments in corporate debt with a S&P rating lower than A and 26% investments in corporate debt with a S&P rating A or higher. Holdings include 86% U.S. companies, 12% international companies and 2% emerging market companies.

^e)	Includes approximately 61% investments in U.S. domestic government securities and 39% in emerging market government securities. There are no significant foreign currency risks within this classification.

^f)

Includes limited partnerships that invest primarily in U.S. (95%) and European (5%) buyout opportunities of a range of privately held companies. The pension plan’s master trust does not have the right to redeem its limited partnership investment at its net asset value, but rather receives distributions as the underlying assets are liquidated. It is estimated that the underlying assets of these funds will be gradually liquidated over the next one to ten years. Additionally, the pension plan’s master trust has future funding commitments of approximately $456 million over the next ten years.

^g)

Investment includes 73% in an emerging market 103-12 Investment Trust with investments in emerging country equity securities, 12% in Canadian segregated balanced value, income growth and diversified pooled funds and 15% in a common/collective trust investing in securities of smaller companies located outside the U.S., including developing markets. Requests for withdrawals must meet specific requirements with advance notice of redemption preferred.

^h)

In accordance with ASU 2015-07, certain investments that are measured using net asset value per share (or its equivalent) as a practical expedient for fair value have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the notes to the consolidated financial statements.


	Fair Value Measurements as of December 31, 2015
Asset Category	Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Cash and cash equivalents	$	287		$	—	$	—	$	287
Equity securities:
International markets ^(a), ^(b)		2,873			—		—		2,873
Large-cap companies ^(b)		1,999			—		—		1,999
Mid-cap companies ^(b)		361			—		—		361
Small-cap companies ^(b)		18			—		—		18
Mutual funds ^(c)		47			—		—		47
Fixed income:
Corporate bonds ^(d)		—			2,204		—		2,204
Government securities ^(e)		—			917		—		917
U.S. municipal securities		—			48		—		48
Alternative instruments:
Private equity partnerships ^(f)		—			—		16		16
Private equity partnerships measured at net asset value ^{(f) (h)}		—			—		—		706
Common/collective trusts ^(g)		—			30		—		30
Common/collective trusts and 103-12 Investment Trust measured at net asset value ^{(g) (h)}		—			—		—		189
Insurance group annuity contracts		—			—		2		2
Dividend and interest receivable		50			—		—		50
Due to/from brokers for sale of securities – net		23			—		—		23
Other assets – net		8			—		—		8
Other liabilities – net		(71	)		—		—		(71	)

Total	$	5,595		$	3,199	$	18	$	9,707

^a)	Holdings are diversified as follows: 16% United Kingdom, 12% Japan, 10% France, 7% Switzerland, 7% Netherlands, 6% Republic of Korea, 11% of other emerging markets and the remaining 31% with no concentration greater than 5% in any one country.

^b)	There are no significant concentrations of holdings by company or industry.

^c)	Investment includes mutual funds invested 40% in equity securities of large-cap, mid-cap and small-cap U.S. companies, 35% in U.S. treasuries and corporate bonds and 25% in equity securities of international companies.

^d)	Includes approximately 74% investments in corporate debt with a S&P rating lower than A and 26% investments in corporate debt with a S&P rating A or higher. Holdings include 82% U.S. companies, 16% international companies and 2% emerging market companies.

^e)	Includes approximately 75% investments in U.S. domestic government securities and 25% in emerging market government securities. There are no significant foreign currency risks within this classification.

^f)

Includes limited partnerships that invest primarily in U.S. (89%) and European (11%) buyout opportunities of a range of privately held companies. The pension plan’s master trust does not have the right to redeem its limited partnership investment at its net asset value, but rather receives distributions as the underlying assets are liquidated. It is estimated that the underlying assets of these funds will be gradually liquidated over the next one to ten years. Additionally, the pension plan’s master trust has future funding commitments of approximately $428 million over the next ten years.

^g)

Investment includes 73% in an emerging market 103-12 Investment Trust with investments in emerging country equity securities, 14% in Canadian segregated balanced value, income growth and diversified pooled funds and 13% in a common/collective trust investing in securities of smaller companies located outside the U.S., including developing markets. Requests for withdrawals must meet specific requirements with advance notice of redemption preferred.

^h)

Changes in fair value measurements of Level 3 investments during the year ended December 31, 2016, were as follows (in millions):


	Private Equity Partnerships			Insurance Group Annuity Contracts
Beginning balance at December 31, 2015	$	16		$	2
Actual return on plan assets:
Relating to assets sold during the period		7			—
Purchases		7			—
Sales		(9	)		—

Ending balance at December 31, 2016	$	21		$	2

Changes in fair value measurements of Level 3 investments during the year ended December 31, 2015, were as follows (in millions):


	Private Equity Partnerships			Insurance Group Annuity Contracts
Beginning balance at December 31, 2014	$	17		$	2
Actual return on plan assets:
Relating to assets still held at the reporting date		(1	)		—

Ending balance at December 31, 2015	$	16		$	2

The fair value of our retiree medical and other postretirement benefits plans assets at December 31, 2016 by asset category, were as follows (in millions):


	Fair Value Measurements as of December 31, 2016
Asset Category	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Money market fund	$	5	$	—	$	—	$	5
Mutual funds – Institutional Class		261		—		—		261

Total	$	266	$	—	$	—	$	266

The fair value of our retiree medical and other postretirement benefits plans assets at December 31, 2015 by asset category, were as follows (in millions):


	Fair Value Measurements as of December 31, 2015
Asset Category	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Money market fund	$	4	$	—	$	—	$	4
Mutual funds – Institutional Class		19		—		—		19
Mutual funds – AMR Class		—		230		—		230

Total	$	23	$	230	$	—	$	253

Investments in the retiree medical and other postretirement benefits plans’ mutual funds are valued by quoted prices on the active market, which is fair value and represents the net asset value of the shares of such funds as of the close of business at the end of the period. AMR Class shares are offered without a sales charge to participants. Purchases are restricted to certain retirement benefit plans, including our retiree medical and other postretirement benefits plans, resulting in a fair value classification of Level 2. Investments include approximately 27% of investments in non-U.S. common stocks in each of 2016 and 2015. Net asset value is based on the fair market value of the funds’ underlying assets and liabilities at the date of determination.

Profit Sharing Program

We instituted an employee profit sharing program effective on January 1, 2016 and accrue 5% of our pre-tax income excluding special items to distribute to employees in early 2017. For the year ended December 31, 2016, we accrued $314 million for this program.

American Airlines, Inc. [Member]

Employee Benefit Plans

7. Employee Benefit Plans

American sponsors defined benefit and defined contribution pension plans for eligible employees. The defined benefit pension plans provide benefits for participating employees based on years of service and average compensation for a specified period of time before retirement. Effective November 1, 2012, substantially all of American’s defined benefit pension plans were frozen and American began providing enhanced benefits under its defined contribution pension plans for certain groups. American uses a December 31 measurement date for all of its defined benefit pension plans. American also provides certain retiree medical and other postretirement benefits, including health care and life insurance benefits, to retired employees. Effective November 1, 2012, American modified its retiree medical and other postretirement benefits plans to eliminate the company subsidy for employees who retire on or after November 1, 2012. As a result of modifications to its retiree medical and other postretirement benefits plans in 2012, American recognized a negative plan amendment of $1.9 billion, which is included as a component of actuarial gain in OCI and will be amortized over the future service life of the active plan participants for whom the benefit was eliminated, or approximately eight years. As of December 31, 2016, $871 million of actuarial gain remains to be amortized.

Benefit Obligations, Fair Value of Plan Assets and Funded Status


	Pension Benefits						Retiree Medical and Other Postretirement Benefits
	2016			2015			2016			2015
	(In millions)
Benefit obligation at beginning of period	$	16,310		$	17,504		$	1,129		$	1,324
Service cost		2			2			3			3
Interest cost		746			733			47			50
Actuarial (gain) loss ^{(1) (2)}		725			(1,153	)		(104	)		(178	)
Plan amendments		—			—			7			—
Settlements		(2	)		(3	)		—			—
Benefit payments		(633	)		(773	)		(92	)		(94	)
Other		—			—			—			24

Benefit obligation at end of period	$	17,148		$	16,310		$	990		$	1,129

Fair value of plan assets at beginning of period	$	9,660		$	10,935		$	253		$	244
Actual return on plan assets		911			(505	)		22			(10	)
Employer contributions		32			6			83			89
Settlements		(2	)		(3	)		—			—
Benefit payments		(633	)		(773	)		(92	)		(94	)
Other ⁽³⁾		—			—			—			24

Fair value of plan assets at end of period	$	9,968		$	9,660		$	266		$	253

Funded status at end of period	$	(7,180	)	$	(6,650	)	$	(724	)	$	(876	)

⁽¹⁾	The December 31, 2016 and 2015 pension actuarial (gain) loss primarily relates to weighted average discount rate assumption changes and changes to American’s mortality assumptions.

⁽²⁾	The December 31, 2016 and 2015 retiree medical and other postretirement benefits actuarial gain primarily relates to medical trend and cost assumption changes, favorable plan experience adjustments and weighted average discount rate assumption changes.

⁽³⁾	At December 31, 2015, certain trust assets totaling approximately $24 million, were added to the retiree medical and other postretirement benefits plans asset values that were previously offset against the benefit obligation.

Balance Sheet Position


	Pension Benefits				Retiree Medical and Other Postretirement Benefits
	2016		2015		2016			2015
	(In millions)
As of December 31,
Current liability	$	7	$	7	$	97		$	109
Noncurrent liability ⁽¹⁾		7,173		6,643		627			767

Total liabilities	$	7,180	$	6,650	$	724		$	876


Net actuarial loss (gain)	$	5,472	$	5,036	$	(429	)	$	(339	)
Prior service cost (benefit) ⁽¹⁾		188		216		(837	)		(1,084	)

Total accumulated other comprehensive loss (income), pre-tax	$	5,660	$	5,252	$	(1,266	)	$	(1,423	)

⁽¹⁾	The 2016 noncurrent liability does not include $20 million of other postretirement benefits or $1 million of prior service cost. The 2015 noncurrent liability does not include $17 million of other postretirement benefits or $1 million of prior service cost.

Plans with Accumulated Benefit Obligations Exceeding Fair Value of Plan Assets


	Pension Benefits				Retiree Medical and Other Postretirement Benefits
	2016		2015		2016		2015
	(In millions)
Projected benefit obligation (PBO)	$	17,119	$	16,283	$	—	$	—
Accumulated benefit obligation (ABO)		17,108		16,272		—		—
Accumulated postretirement benefit obligation (APBO)		—		—		990		1,129
Fair value of plan assets		9,936		9,630		266		253
ABO less fair value of plan assets		7,172		6,642		—		—

Net Periodic Benefit Cost (Income)


	Pension Benefits									Retiree Medical and Other Postretirement Benefits
	2016			2015			2014			2016			2015			2014
	(In millions)
Defined benefit plans:
Service cost	$	2		$	1		$	2		$	3		$	3		$	1
Interest cost		746			733			742			47			50			61
Expected return on assets		(747	)		(848	)		(783	)		(20	)		(19	)		(19	)
Settlements		—			1			4			—			—			—
Amortization of:
Prior service cost (benefit) ⁽¹⁾		28			28			28			(240	)		(243	)		(244	)
Unrecognized net loss (gain)		125			111			43			(16	)		(9	)		(8	)

Net periodic benefit cost (income)		154			26			36			(226	)		(218	)		(209	)
Defined contribution plan cost		761			657			527			N/A			N/A			N/A

Total cost (income)	$	915		$	683		$	563		$	(226	)	$	(218	)	$	(209	)

⁽¹⁾	The 2016, 2015 and 2014 prior service cost does not include amortization of $1 million, $3 million and $14 million, respectively, related to other postretirement benefits.

Assumptions

The following actuarial assumptions were used to determine American’s benefit obligations and net periodic benefit cost for the periods presented:


	Pension Benefits						Retiree Medical and Other Postretirement Benefits
	2016			2015			2016			2015
Benefit obligations:
Weighted average discount rate		4.30	%		4.70	%		4.10	%		4.42	%


	Pension Benefits									Retiree Medical and Other Postretirement Benefits
	2016			2015			2014			2016			2015			2014
Net periodic benefit cost:
Weighted average discount rate		4.70	%		4.30	%		5.10	%		4.42	%		4.00	%		4.74	%
Weighted average expected rate of return on plan assets		8.00	%		8.00	%		8.00	%		8.00	%		8.00	%		8.00	%
Weighted average health care cost trend rate assumed for next year ⁽¹⁾		N/A			N/A			N/A			4.25	%		5.21	%		5.25	%

⁽¹⁾	The weighted average health care cost trend rate at December 31, 2016 is assumed to decline gradually to 3.77% by 2024 and remain level thereafter.

As of December 31, 2016, American’s estimate of the long-term rate of return on plan assets was 8% based on the target asset allocation. Expected returns on long duration bonds are based on yields to maturity of the bonds held at year-end. Expected returns on other assets are based on a combination of long-term historical returns, actual returns on plan assets achieved over the last ten years, current and expected market conditions, and expected value to be generated through active management, currency overlay and securities lending programs.

A one percentage point change in the assumed health care cost trend rates would have the following effects on American’s retiree medical and other postretirement benefits plans (in millions):


	1% Increase		1% Decrease
Increase (decrease) on 2016 service and interest cost	$	3	$	(3	)
Increase (decrease) on benefit obligation as of December 31, 2016		53		(50	)

Minimum Contributions

American is required to make minimum contributions to its defined benefit pension plans under the minimum funding requirements of the Employee Retirement Income Security Act of 1974 and various other laws for U.S. based plans as well as under funding rules specific to countries where American maintains defined benefit plans. Based on current funding assumptions, American has minimum required contributions of $25 million for 2017. American expects to make supplemental contributions of $254 million to its U.S. based defined benefit plans in 2017. Currently, the minimum funding obligation for American’s U.S. based defined benefit pension plans is subject to temporary favorable rules that are scheduled to expire at the end of 2017. American’s pension funding obligations are likely to increase materially following expiration of the temporary funding rules, when American will be required to make contributions relating to the 2018 fiscal year. The amount of these obligations will depend on the performance of American’s investments held in trust by the pension plans, interest rates for determining liabilities, the amount of and timing of any supplemental contributions and American’s actuarial experience.

Benefit Payments

The following benefit payments, which reflect expected future service as appropriate, are expected to be paid (approximately, in millions):


	2017		2018		2019		2020		2021		2022-2026
Pension	$	685	$	719	$	758	$	800	$	841	$	4,797
Retiree medical and other postretirement benefits		97		93		88		79		73		312

Plan Assets

The objectives of American’s investment policies are to: maintain sufficient income and liquidity to pay retirement benefits; produce a long-term rate of return that meets or exceeds the assumed rate of return for plan assets; limit the volatility of asset performance and funded status; and diversify assets among asset classes and investment managers.


Asset Class/Sub-Class	Allowed Range
Equity		65% - 90%
Public:
U.S.		20% - 45%
International		17% - 27%
Emerging Markets		5% - 11%
Alternative Investments		5% - 30%
Fixed Income		15% - 40%
U.S. Long Duration		15% - 40%
High Yield and Emerging Markets		0% - 10%
Other		0% - 5%
Cash Equivalents		0% - 5%

Benefit Plan Assets Measured at Fair Value on a Recurring Basis

The fair value of American’s pension plan assets at December 31, 2016 and 2015, by asset category, are as follows (in millions):


	Fair Value Measurements as of December 31, 2016
Asset Category	Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total

Cash and cash equivalents	$	573		$	—	$	—	$	573
Equity securities:
International markets ^(a), ^(b)		3,232			—		—		3,232
Large-cap companies ^(b)		2,253			—		—		2,253
Mid-cap companies ^(b)		371			—		—		371
Small-cap companies ^(b)		6			—		—		6
Fixed income:
Corporate bonds ^(c)		—			2,337		—		2,337
Government securities ^(d)		—			150		—		150
U.S. municipal securities		—			37		—		37
Alternative instruments:
Private equity partnerships ^(e)		—			—		21		21
Private equity partnerships measured at net asset value ^{(e) (g)}		—			—		—		703
Common/collective trusts ^(f)		—			32		—		32
Common/collective trusts and 103-12 Investment Trust measured at net asset value ^{(f) (g)}		—			—		—		227
Insurance group annuity contracts		—			—		2		2
Dividend and interest receivable		40			—		—		40
Due to/from brokers for sale of securities – net		(9	)		—		—		(9	)
Other liabilities – net		(7	)		—		—		(7	)

Total	$	6,459		$	2,556	$	23	$	9,968

^a)	Holdings are diversified as follows: 15% United Kingdom, 12% Japan, 10% France, 7% Switzerland, 6% Netherlands, 17% of other emerging markets and the remaining 33% with no concentration greater than 5% in any one country.

^b)	There are no significant concentrations of holdings by company or industry.

^c)	Includes approximately 74% investments in corporate debt with a S&P rating lower than A and 26% investments in corporate debt with a S&P rating A or higher. Holdings include 86% U.S. companies, 12% international companies and 2% emerging market companies.

^d)	Includes approximately 61% investments in U.S. domestic government securities and 39% in emerging market government securities. There are no significant foreign currency risks within this classification.

^e)

^f)

^g)


	Fair Value Measurements as of December 31, 2015
Asset Category	Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total

Cash and cash equivalents	$	287		$	—	$	—	$	287
Equity securities:
International markets ^(a), ^(b)		2,873			—		—		2,873
Large-cap companies ^(b)		1,999			—		—		1,999
Mid-cap companies ^(b)		361			—		—		361
Small-cap companies ^(b)		18			—		—		18
Fixed income:
Corporate bonds ^(c)		—			2,204		—		2,204
Government securities ^(d)		—			917		—		917
U.S. municipal securities		—			48		—		48
Alternative instruments:
Private equity partnerships ^(e)		—			—		16		16
Private equity partnerships measured at net asset value ^{(e) (g)}		—			—		—		706
Common/collective trusts ^(f)		—			30		—		30
Common/collective trusts and 103-12 Investment Trust measured at net asset value ^{(f) (g)}		—			—		—		189
Insurance group annuity contracts		—			—		2		2
Dividend and interest receivable		50			—		—		50
Due to/from brokers for sale of securities – net		23			—		—		23
Other assets – net		8			—		—		8
Other liabilities – net		(71	)		—		—		(71	)

Total	$	5,548		$	3,199	$	18	$	9,660

^a)	Holdings are diversified as follows: 16% United Kingdom, 12% Japan, 10% France, 7% Switzerland, 7% Netherlands, 6% Republic of Korea, 11% of other emerging markets and the remaining 31% with no concentration greater than 5% in any one country.

^b)	There are no significant concentrations of holdings by company or industry.

^c)	Includes approximately 74% investments in corporate debt with a S&P rating lower than A and 26% investments in corporate debt with a S&P rating A or higher. Holdings include 82% U.S. companies, 16% international companies and 2% emerging market companies.

^d)	Includes approximately 75% investments in U.S. domestic government securities and 25% in emerging market government securities. There are no significant foreign currency risks within this classification.

^e)

^f)

^g)

Changes in fair value measurements of Level 3 investments during the year ended December 31, 2016, were as follows (in millions):


	Private Equity Partnerships			Insurance Group Annuity Contracts
Beginning balance at December 31, 2015	$	16		$	2
Actual return on plan assets:
Relating to assets sold during the period		7			—
Purchases		7			—
Sales		(9	)		—

Ending balance at December 31, 2016	$	21		$	2

Changes in fair value measurements of Level 3 investments during the year ended December 31, 2015, were as follows (in millions):


	Private Equity Partnerships			Insurance Group Annuity Contracts
Beginning balance at December 31, 2014	$	17		$	2
Actual return on plan assets:
Relating to assets still held at the reporting date		(1	)		—

Ending balance at December 31, 2015	$	16		$	2

The fair value of American’s retiree medical and other postretirement benefits plans assets at December 31, 2016 by asset category, were as follows (in millions):


	Fair Value Measurements as of December 31, 2016
Asset Category	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Money market fund	$	5	$	—	$	—	$	5
Mutual funds – Institutional Class		261		—		—		261

Total	$	266	$	—	$	—	$	266

The fair value of American’s retiree medical and other postretirement benefits plans assets at December 31, 2015 by asset category, were as follows (in millions):


	Fair Value Measurements as of December 31, 2015
Asset Category	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Money market fund	$	4	$	—	$	—	$	4
Mutual funds – Institutional Class		19		—		—		19
Mutual funds – AMR Class		—		230		—		230

Total	$	23	$	230	$	—	$	253

Investments in the retiree medical and other postretirement benefits plans’ mutual funds are valued by quoted prices on the active market, which is fair value and represents the net asset value of the shares of such funds as of the close of business at the end of the period. AMR Class shares are offered without a sales charge to participants. Purchases are restricted to certain retirement benefit plans, including American’s retiree medical and other postretirement benefits plans, resulting in a fair value classification of Level 2. Investments include approximately 27% of investments in non-U.S. common stocks in each of 2016 and 2015. Net asset value is based on the fair market value of the funds’ underlying assets and liabilities at the date of determination.

Profit Sharing Program

American instituted an employee profit sharing program effective on January 1, 2016 and accrues 5% of its pre-tax income excluding special items to distribute to employees in early 2017. For the year ended December 31, 2016, American accrued $314 million for this program.