The IRS on Wednesday offered a solution to American Airlines' attempt to freeze its defined benefit plan for pilots, proposing a rule change that would allow for elimination of lump-sum distributions.
Parent company AMR Corp., Fort Worth, Texas, already agreed to freeze three of four defined benefit plans as it goes through Chapter 11 bankruptcy proceedings, but hit a sticking point with the pilots' union, whose plan included a lump-sum option the company said it could not afford. The other plans did not have a lump-sum option.
Normally, tax laws prohibit changes eliminating or reducing accrued benefits, but the proposed rule would allow “a debtor in a bankruptcy proceeding to amend its single-employer defined benefit plan to eliminate a single-sum distribution option,” the IRS notice said.
“When we proposed freezing all non-pilot pension plans in March, we committed to work collaboratively with the Allied Pilots Association, Pension Benefit Guaranty Corp. and Unsecured Creditors Committee to develop a solution that would allow us to preserve this important benefit for pilots. We've done just that, and the Treasury's proposed regulation moves us one step closer to that goal,” American spokesman Bruce Hicks said in an e-mail.
Officials of the pilots union were not available for comment.
There will be a public hearing Aug. 24 on the proposed rule change, and comments are due 60 days from now.
A federal bankruptcy court judge is scheduled to rule June 22 on whether American can void its interim collective bargaining contracts with its unions.