U. S. Pension Update Inter-Alliance Meeting April 7, 2005

1
U. S. Pension UpdateInter-Alliance
MeetingApril 7, 2005

• Seth Rosen, Industrial Advisor

2
Pilot Pensions Update

• Current Environment
• Retirement Plan Comparisons
• Airline Summaries
• Pension Legislation

3
The Current Environment

• Attacks on Health Care
• Erosion of Benefits
• Cost Sharing
• Decline in Defined Benefits
• Growth in Defined Contributions
• Pension Plans Under Duress
• Restructuring, Waivers, Terminations, etc.
• Legislative Changes Required

4
US-ALPA Response and Strategy

• US-ALPA Pursuing Legislative Remedies
• Bargaining After Educating Membership
• Reviewing Plan Design Changes
• Protesting Waiver Applications

5
Update Pension Plan Comparables
DB Plan (w/25 yrs credited svc) DC Plan 1 DC Plan 2
NWA 60 FAE 3.00 In Negotiations
CAL 45 FAE (TA Hard Freeze) .75 6.75 12.75 TA
DAL Frozen (accrued benefit as of 12-31-04, up to 60 FAE, but allowing for future increase in FAE, if any) 2.00 Target DC plan Current pilots - 0 to 19.2 New hires - 10
UAL DB Plan termination likely 9.00 6 additional
AMR 31.25 FAE 11.00
AAA Distress termination 3-31-03 (benefits per PBGC allocation) 10.00
ALA 47.5 FAE 3.0 In Arbitration
HAL 60 FAE (1/2012 freeze per TA) 0.0 15 for new hires under age 50 on 3/31/05 per TA
6
Pension Update - AAA

• USAirways Retirement Plan has now gone to its
  fourth iteration
• Modified pay first
• Modified benefit formula (65 to 50 FAE)
• Targeted DC Approach (avg 38 DC rate)
• Now _at_ flat 10 DC Plan
• Plus remains of DB Plan paid by PBGC

7
Pension Update - DAL

• Delta Pilot Defined Benefit Plan soft frozen
  ( FAE component can increase but not decrease)
• Associated DC Plan frozen, no further 5 Company
  Contribution
• Company Contribution to 401(k) Plan reduced from
  3 to 2
• New DC Plan established, 9 of pay spread on a
  targeted basis, 0 19.2 is the range of
  contributions, new hire DC rate is 10

8
Pension Update - UAL

• Pilots agree not to contest termination of the
  Defined Benefit Plan and replace it with
  additional 6 DC contribution (existing B Plan is
  now 9 of pay)
• Company agrees to 90 day period to explore
  alternative solution to the A Plan termination
  (including legislative solutions)
• PBGC filed for involuntary termination of Pilot
  Plan in December 2004
• Judge reverses Company attempt to stop paying
  non-qualified payments

9
Pension Update - CAL

• Agreement will hard freeze DB Plan and provide
  DC Plan contributions to a new DC Plan and
  Variable contributions based on profits to the
  401(k) Plan
• 7/05 -- 6.75 of pay, 7/06 -- 10 of pay, 6/07
  --12.75 of pay
• Based on Profit 9/06 -- 0 to 6 of pay, 9/07 --
  0 to 2.75 of pay, 9/08-- 0 to 2 of pay

10
Pension Update - Legislation

• Permanent solution required
• Legislative Outlook (current relief for 2004 and
  2005 only). Passenger airlines only.
• Depends on your perspective (funding relief vs
  tougher funding requirements)
• ALPA/NWA/DAL legislative outlook
• AMR aligned with US ALPA

11
Pension Update Legislation

• US ALPA proposed legislation would provide
  funding relief for single employer plans
  maintained by commercial passenger airlines if
  plan were frozen (hard or soft)
• Relief would come in the form of
• Use of higher interest rate used in valuing
  plans unfunded past service liability
• Use of a longer amortization period to fund the
  plans unfunded past service accrued liability
  (up to 25 yrs)

12
Pension Update Legislative

• PBGC liability limited to amount as if Plan was
  terminated as of the first day of plan year where
  relief is given
• Any benefit increases would need to be funded
  immediately
• Allows follow on DC Plans not DB Plans