American Airlines 2004 Annual Report Download - page 71

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10. Retirement Benefits
All employees of the Company may participate in pension plans if they meet the plans’ eligibility requirements.
The defined benefit plans provide benefits for participating employees based on years of service and average
compensation for a specified period of time before retirement. The Company uses a December 31 measurement
date for all of its defined benefit plans. American’s pilots also participate in a defined contribution plan for which
Company contributions are determined as a percentage of participant compensation.
Effective January 1, 2001, American established a defined contribution plan for non-contract employees in which
the Company will match the employees’ before-tax contribution on a dollar-for-dollar basis, up to 5.5 percent of
their pensionable pay. During 2000, American provided a one-time election for current non-contract employees to
remain in the defined benefit plan or discontinue accruing future credited service in the defined benefit plan as of
January 1, 2001 and begin participation in the defined contribution plan. Effective January 1, 2002, all new non-
contract employees of the Company become members of the defined contribution plan.
In addition to pension benefits, other postretirement benefits, including certain health care and life insurance
benefits (which provide secondary coverage to Medicare), are provided to retired employees. The amount of
health care benefits is limited to lifetime maximums as outlined in the plan. Substantially all regular 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. The Company funds benefits as incurred and makes contributions to match employee
prefunding.
In the second quarter of 2003, as a result of the Labor Agreements and Management Reductions discussed in
Note 2, the Company remeasured its defined benefit pension plans. The significant actuarial assumptions used
for the remeasurement were the same as those used as of December 31, 2002, except for the discount rate and
salary scale, which were lowered to 6.50 percent, and 2.78 percent through 2008 and 3.78 percent thereafter,
respectively. In addition, assumptions with respect to interest rates used to discount lump sum benefit payments
available under certain plans were updated. As a result of workforce reductions related to the Labor Agreements
and Management Reductions, the Company recognized a curtailment loss of $46 million in 2003 related to its
defined benefit pension plans, which is included in Special charges in the accompanying consolidated statements
of operations. Net periodic benefit cost for defined benefit pension plans in 2003 includes eight months of expense
calculated based upon the revised measurement.