Retirement Benefits

9 Months Ended

Sep. 30, 2012

Compensation and Retirement Disclosure [Abstract]

Retirement Benefits

Retirement Benefits

The Company is required to make minimum contributions to its defined benefit pension plans under the minimum funding requirements of ERISA, the Pension Funding Equity Act of 2004, the Pension Protection Act of 2006, and the Pension Relief Act of 2010.

As a result of the Chapter 11 Cases, AMR contributed $6.5 million to its defined benefit pension plans on January 13, 2012 to cover the post-petition period of November 29, 2011 to December 31, 2011. As a result of only contributing the post-petition portion of the required contribution, the PBGC filed a lien against certain assets of the Company’s non-debtor subsidiaries. On April 13, 2012, the Company contributed $86 million to its defined benefit pension plans to cover the post-petition period of January 1, 2012 to March 31, 2012. Additionally, the Company contributed $86 million on July 13, 2012 to its defined benefit pension plans to cover the post-petition period of April 1, 2012 to June 30, 2012. On September 13, 2012, the Company contributed $6.9 million to its defined benefit pension plans, and on October 15, 2012, the Company contributed $86 million to its defined benefit pension plans to cover the post-petition period of July 1, 2012 to September 30, 2012.

On March 7, 2012, the Company announced that, in working with Creditors' Committee and the PBGC, it developed a solution that would allow the Company to pursue a freeze of its defined benefit pension plans for non-pilot employees instead of seeking termination. On September 14, 2012, the Company sent formal legal notice to all defined benefit plan participants and beneficiaries announcing that it was in fact freezing each of the defined benefit pension plans effective November 1, 2012. For eligible non-pilot employees, a replacement benefit will begin under the $uper $aver 401(k) Plan starting November 1, 2012, with the Company matching employee contributions up to 5.5 percent of eligible earnings.

The Company also announced its plans to terminate the Pilot B Plan, a defined contribution plan, on November 30, 2012. The Company continues to work with the APA, PBGC, and U. S. Treasury Department to develop a solution to certain structural aspects of the Pilot A Plan, a defined benefit plan, that would preclude the need to seek a termination of that Plan. As the Company does not yet have a consensual agreement with the APA, details concerning a replacement retirement benefit for pilots are not known this time.

The Company also announced its plans to modify its subsidized retiree medical coverage effective November 1, 2012. Those who initiate retiree medical coverage on or after November 1, 2012 will go into a new retiree medical program. For those who retire under age 65, two medical options will be available, but the Company will not be subsidizing them. Those who retire at age 65 and over may purchase a guaranteed-issue Medicare supplement plan. Flight attendants and TWU-represented employees will receive a refund of their prefunding contributions within 120 days of November 1, 2012.

On August 15, 2012, the Company filed a proceeding in the Bankruptcy Court seeking a determination on the issue of vesting for former employees who retired and initiated retiree medical coverage before November 1, 2012.  On September 20, 2012, the Company opened negotiations with the Retiree Committee, seeking a consensual agreement to terminate subsidized retiree medical coverage and life insurance coverage for former employees who retired and initiated coverage before November 1, 2012.  Those negotiations are continuing. 

As a result of these announcements, the Company's Pension and postretirement benefits liability has been classified as liabilities subject to compromise as of September 30, 2012.

Curtailment and Plan Amendment

In accordance with ASC 715 “Retirement Benefits” (ASC 715), in the third quarter of 2012 the Company remeasured its defined benefit pension and retiree medical plans as a result of modifications to its retirement plans and reductions in certain work groups (see above and Note 1 to the Condensed Consolidated Financial Statements). The Company updated its significant actuarial assumptions used for the remeasurements including the discount rate, which was lowered to 4.10 percent and 3.80 percent for the defined benefit pension plans and retiree medical plans, respectively. The fair value of pension plan assets and retiree medical plan assets as of the remeasurement date was $8.9 billion and $211 million, respectively.

The remeasurement of the defined benefit plans increased the pension liability to $6.6 billion. The change in the pension liability reflects an actuarial loss of $1.9 billion offset by a curtailment gain of $1.8 billion. In addition, a loss of $58 million, representing unamortized prior service cost as of the remeasurement date of the frozen defined benefit plans, is included as a component of reorganization items, net.

Further, as a result of modifications to its retiree medical plans, the Company recognized a negative plan amendment which decreased its retiree medical and other liability to $1.2 billion. The plan amendment of $1.9 billion is included as a component of actuarial gain arising in current year in other comprehensive income and will be amortized over the future service life of the active plan participants for whom the benefit was eliminated, or approximately 8 years. In addition, a net credit of $124 million, representing unamortized prior service credits of $157 million offset by a curtailment loss of $33 million, is included as a component of reorganization items, net.

See Note 1 to the Condensed Consolidated Financial Statements for the breakout of liabilities subject to compromise, including that related to pension and postretirement benefits.

For the third quarter of 2012, net periodic benefit cost for defined benefit pension plans and retiree medical and other benefits reflects expense calculated based upon the revised measurement.

The following tables provide the components of net periodic benefit cost for the three and nine months ended September 30, 2012 and 2011 (in millions):

	Pension Benefits
	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Components of net periodic benefit cost
Service cost	$	104		$	97		$	312		$	289
Interest cost	191			189			573			568
Expected return on assets	(166		)	(165		)	(498		)	(493		)
Amortization of:
Prior service cost	3			3			10			10
Unrecognized net (gain) loss	63			39			187			115
Net periodic benefit cost	$	195		$	163		$	584		$	489

	Retiree Medical and Other Benefits
	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Components of net periodic benefit cost
Service cost	$	15		$	15		$	45		$	45
Interest cost	38			44			114			132
Expected return on assets	(4		)	(5		)	(12		)	(15		)
Amortization of:
Prior service cost	(7		)	(7		)	(21		)	(21		)
Unrecognized net (gain) loss	(2		)	(2		)	(6		)	(6		)
Net periodic benefit cost	$	40		$	45		$	120		$	135