American Airlines 1997 Annual Report Download - page 64

AMR CORPORATION
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The projected benefit obligation was calculated using
weighted-average discount rates of 7.25% and 7.75% at
December 31, 1997 and 1996, respectively; rates of
increase for compensation ranging from 4.0% to 4.20% at
December 31, 1997 and 1996; and the 1983 Group
Annuity Mortality Table. The weighted-average expected
long-term rate of return on assets was 9.50% in 1997,
1996 and 1995. The vested benefit obligation and plan
assets at fair value at December 31, 1997, for plans whose
benefits are guaranteed by the Pension Benefit Guaranty
Corporation were $4.6 billion and $5.2 billion, respectively.
In October 1997, AMR spun off the portion of its
defined benefit pension plan applicable to employees of
The SABRE Group to the Legacy Pension Plan (LPP), a
defined benefit plan established by The SABRE Group
effective January 1, 1997. At the date of the spin-off, the
net obligation attributable to The SABRE Group employ-
ees participating in AMR’s plan was approximately $20
million. The SABRE Group also established The SABRE
Group Retirement Plan (SGRP), a defined contribution
plan. Effective January 1, 1997, employees of The SABRE
Group who were under the age of 40 as of December 31,
1996 participate in the SGRP. Employees of The SABRE
Group who were age 40 or over as of December 31, 1996
had the option of participating in either the SGRP or the
LPP. The SABRE Group contributes 2.75 percent of each
participating employee’s base pay to the SGRP. The
employees vest in the contributions after three years of ser-
vice, including any prior service with AMR affiliates. In
addition, The SABRE Group matches 50 cents of each dol-
lar contributed by participating employees, limited to the
first six percent of the employee’s base pay contribution,
subject to IRS limitations. Employees are immediately
vested in their own contributions and the Company’s
matching contributions. In 1997, costs for the SGRP were
$11 million.
In addition to pension benefits, other postretirement
benefits, including certain health care and life insurance
benefits, are also provided to retired employees. The
amount of health care benefits is limited to lifetime
maximums as outlined in the plan. Substantially all
employees of American and employees of certain other
subsidiaries may become eligible for these benefits if they
satisfy eligibility requirements during their working lives.
Certain employee groups make contributions toward
funding a portion of their retiree health care benefits
during their working lives. AMR funds benefits as incurred
and makes contributions to match employee prefunding.
Net other postretirement benefit cost was (in millions):
Year Ended December 31,
1997 1996 1995
Service cost - benefits earned
during the period $48 $58 $ 48
Interest cost on accumulated other
postretirement benefit obligation 95 102 101
Return on assets (4) (3) (2)
Net amortization and deferral (14) (5) (6)
Net other postretirement benefit cost $125 $152 $ 141
In addition to net other postretirement benefit cost, in
late 1995, AMR offered early retirement programs to
select groups of employees as part of its restructuring
efforts. In accordance with Statement of Financial
Accounting Standards No. 106, “Employers’ Accounting
for Postretirement Benefits Other than Pensions,” AMR
recognized additional other postretirement benefit
expense of $93 million associated with the program in
1995 which was included in restructuring costs. Of this
amount, $26 million was for special termination benefits
and $67 million was for the net actuarial losses resulting
from the early retirements for 1995.
The funded status of the plan, reconciled to the
accrued other postretirement benefit cost recognized in
AMR’s balance sheet, was (in millions):
December 31,
1997 1996
Retirees $630 $593
Fully eligible active plan participants 178 128
Other active plan participants 598 492
Accumulated other postretirement
benefit obligation 1,406 1,213
Plan assets at fair value 56 39
Accumulated other postretirement
benefit obligation in excess of plan assets 1,350 1,174
Unrecognized net gain 177 300
Unrecognized prior service benefit 52 56
Accrued other postretirement benefit cost $1,579 $1,530
Plan assets consist primarily of shares of mutual funds
managed by a subsidiary of AMR.