Last month United Air Lines moved a step closer to becoming the first U.S. air carrier to shut down one of its pension plans in midflight. As an alternative to the existing plan, the airline's parent, UAL Corp., which filed for bankruptcy protection in December 2002, struck a deal to provide its pilots with a $550 million note convertible to company stock if and when the carrier emerges from bankruptcy.
The Pension Benefit Guaranty Corp., the quasigovernment agency that supervises the pension industry, opposes the deal, which it says provides pilots relief "at the expense of the federal government, its other employees and creditors." The PBGC filed a motion in U.S. District Court asking for permission to take over the pilots' retirement plans immediately. The airline and its pilots hope not to terminate the plan before May. Although the details have yet to be resolved, one way or another it looks like UAL Corp. will mothball its pension plan like an old Boeing 707.
The airline industry may be in especially dire straits, but United has plenty of company in its pension woes -- in corporate boardrooms, city halls and state capitols. Pension managers are still cleaning up the debris from the perfect storm that struck retirement plans between 2000 and 2003. They suffered a nasty convergence of declining stock prices, which depressed their assets, and falling interest rates, which simultaneously increased the present value of their liabilities. Although 2003's strong equity markets bolstered pension assets -- they increased by 19.6 percent at the average large corporate plan surveyed by Seattle-based consultant Milliman USA and 22.7 percent at the median large public plan, according to Santa Monica, Californiabased pension consultant Wilshire Associates -- falling interest rates meant that liabilities continued to swell.
Last year's more modest stock market gains and the persistent flatness of key interest rates did little to alleviate a widespread pension funding crisis (although data on its extent won't be available for several months). The Federal Reserve Board increased the federal funds rate five times between June and December, yet fixed-income investor skittishness about the gaping U.S. budget and current-
account deficits left the yield on ten-year Treasury notes at about 4.2 percent on December 31 -- about where it was at the start of the year.
Says John Ehrhardt, a principal at Milliman's New York office, "Many companies have taken pension contribution holidays for ten or 15 years, and now cash requirements for pension plans are going to be the norm."
In the bubble years "corporate management got lulled into a false sense of security that they were at zero costs for funding their pension benefits," says Roz Hewsenian, a senior consultant with Wilshire Associates. "Then the music stopped." John Myers, CEO of GE Asset Management, the investment arm of General Electric Co. and overseer of the company's $79 billion retirement plan, puts it bluntly: "In many ways the industry confused brains with a bull market."
As a result of this commonplace mistake, the key measure of pension health, the funding ratio -- current assets divided by the present value of liabilities -- stood at 88.5 percent on average for corporate plans as of the end of 2003 (the most recent figure available), according to Milliman. That's up from 82.3 percent at the end of 2002 but a far cry from the 1999 high of 129.9 percent and perilously short of the 95 percent or so that analysts and consultants consider comfortable. Wilshire reports that among public plans, the average funding ratio was 82 percent at the end of 2003, down from 91 percent in 2002.
Indeed, the situation may be worse than many suppose. To determine the present value of their pension liabilities, corporate plans rely on a discount rate that is based on prevailing corporate bond yields. This formula can understate those liabilities and thereby mask dangerous underfunding, argue Institutional Investor's Journal of Portfolio Management editor Frank Fabozzi and money manager and consultant Ronald Ryan (see page 84).
Adding to the pension industry's current sense of vulnerability, the Securities and Exchange Commission said in October that it had launched a wide-ranging investigation into corporate pension accounting, examining whether companies have been understating their pension liabilities to manipulate their earnings. The commission has requested information from Boeing Corp., Ford Motor Corp., General Motors Corp. and Northwest Airlines, among others.
"The airline industry is an extreme case," says John Ilkiw, director of research and strategy at Russell Investment Group. "Yet you can go across a number of sectors of the economy and you'll hear the same pension issues being discussed."
"These are hard times for pension funds," says Robert Hunkeler, director of investments at International Paper Co.'s $6.5 billion pension fund. "You are faced with a funding deficit. You are dealing with the potential of a low-return environment going out many years in the future."
These difficult conditions pose an extraordinary challenge for the country's pension fund managers, who are increasingly hard-pressed to deliver on the promises made to their plan beneficiaries. Yet many are doing a fine job, earning well-deserved praise for their efforts. This year for the first time, Institutional Investor recognizes their achievements in its inaugural awards for investment excellence, saluting leaders of corporate pension funds, public pension funds, foundations and endowments (see boxes).
To cope with what for some pension funds is a full-blown crisis and for many others is still a daunting challenge, plan managers are deploying tactics that range from the innovative to the desperate.
In meeting this challenge, many plans are reassessing their asset allocations, convinced as Hunkeler is that future returns in funds will lag the historic bull market run of the 1980s and '90s. In search of extra return, or alpha, many plans, including Hunkeler's, have made or are contemplating aggressive moves into hedge funds. They hope to obtain strong risk-adjusted returns that are uncorrelated with conventional equity indexes. IP has increased its targeted hedge fund allocation to 5 percent of total assets, up from 1 percent two years ago.
Darien, Connecticutbased consulting firm Casey, Quirk & Associates estimates that capital invested in hedge funds from institutions of all sorts will exceed $100 billion by the end of 2005, up from $66 billion at the end of 2003. By 2008, Casey Quirk projects, institutional capital in hedge funds could total $300 billion.
In their search for alpha, and in their growing sense that it is especially tough to outperform benchmarks in large-cap U.S. equity, more corporate and public pension funds are devoting upward of 10 percent of their assets to alternatives. In addition to hedge funds, that category includes private equity, distressed debt and venture capital. (Real estate is usually categorized as a separate asset class.)
Will this alpha hunt resolve the funding crisis? That's the $64 billion question. Kevin Quirk of Casey, Quirk argues that alpha strategies can be especially effective for small and medium-sized plans that are in reasonably solid shape. "With those funds," he says, "investments in these areas are going to have an impact."
Skeptics, however, are almost as common as hedge fund billionaires. "The hedge fund rush reflects the fact that pension plans are working their assets hard, harder than they should be worked," warns Barton Waring, head of the client advisory group at Barclays Global Investors, which manages a staggering $1.2 trillion in assets, the vast majority of it in index funds but a substantial $8.1 billion in hedge funds.
Other plans are trying to sidestep the whole deficit dilemma (though sometimes at the price of forgoing surpluses) by focusing more on liabilities -- and seeking to better match them with assets. It is not a new approach. The strategy goes back at least to the '80s, when pension funds used duration matching or immunization techniques, setting the duration of their bond holdings to match the expected duration of their liabilities. Now plans are trying to use the more sophisticated tactics to minimize the risk of a mismatch between assets and liabilities.
BGI's Waring points out that most corporate plan sponsors measure a liability's duration, or sensitivity to interest rate changes, as if it had a single, nominal duration. "But nominal duration is a very poor descriptor of liability duration," he notes. He argues that fund actuaries should separately calculate and measure the inflation duration and the real interest rate duration. "These numbers, which are the implicit components of nominal duration, are nearly identical for regular bonds, but they are quite different for nearly all pension liabilities," Waring says. "The plan actuaries could calculate these durations but seldom do."
Pension executives are also rethinking their plans' benefits. Companies are eliminating perks, such as fixed cost-of-living adjustments, or temporarily freezing benefit levels; in the universe of public plans, some state legislatures are cutting retiree benefit packages. Retirement plans are lowering the actuarial assumptions they use to project asset growth and reevaluating how they estimate their liabilities. They've been helped on the actuarial front by the Pension Funding Equity Act of 2004, which gave pension funds considerable relief in the form of a higher permissible discount rate, instantly lowering the present value of future liabilities. For every 50-basis-point increase in the discount rate, the present value of pension liabilities of a typical 15-year duration decreases by 6 to 7.5 percent.
Despite all these maneuvers many pension plans find that they have no choice but to increase contributions to bolster their funding ratios. Companies tap corporate coffers, and state plans often raise funds by issuing pension obligation bonds. According to a study by UBS, in the first 11 months of 2003, state and local governments issued $15 billion in pension obligation bonds; that's up from less than $3 billion in 2002.
Some companies are simply throwing in the towel and terminating their defined benefit plans, a last-ditch option unavailable to public plans. The PBGC reports 192 new terminations for the fiscal year ended September 30, 2004, compared with 155 terminations in fiscal 2003. The PBGC's net deficit grew from $7.6 billion to $12.07 billion during that period.
In October, Delta Airlines averted bankruptcy by striking a deal for big pay and benefits cuts with its pilots and freezing its pension plan. If United does terminate its plan, which posted liabilities at the end of 2003 of $4.8 billion, the PBGC would have to take it over, as it does all abandoned corporate retirement plans. The agency would manage the plan's portfolio and pay some proportion -- but not all -- of the benefits promised to retirees.
ONCE A WELCOME BOOST TO CORPORATE PROFITS and a boon to state budgets, retirement plans are now a drain. According to Milliman, the top 100 corporate plans reported a combined net pension "expense" of $12.3 billion for 2003; a year earlier they collectively realized pension "income" of $3.6 billion. (If a fund's returns exceed the amount stipulated as necessary to meet liabilities, the surplus can be counted toward profits; a shortfall is an expense that must be deducted from profits over time.) "The cumulative effect of the past three years -- even with the strong returns of 2003 -- means the days of pension income are over," says Milliman's Ehrhardt.
Of the 123 public funds covered in Wilshire's annual survey of state retirement systems, 93 percent were underfunded as of year-end 2003. That's up from 79 percent in 2002 and 51 percent in 2001. Fourteen states reported funding ratios below 70 percent.
The PBGC, which has its own deficit problems, is meant to serve as a backstop for ailing corporate plans, but there is no such protector of last resort for public pension funds. "That's why the real morass in retirement plans is in the public arena," contends Matthew Scanlan, head of business development at BGI. "Public plans look a lot better than they are, and they don't look good."
In many cases cities and states brazenly raided their public plan surpluses even after the bull market had ended (Institutional Investor, November 2001). Pennsylvania, for example, gave its legislators a 50 percent boost in their retirement packages, and teachers and other public workers got a 25 percent increase. New Jersey hiked benefits for state employees and teachers by 9 percent.
Pension accounting rules allow public and corporate plans to average their reported assets over several years, a tactic known as smoothing. And because they don't have to mark those assets to market, states, municipalities and corporations could draw on their retirement plan surpluses even after their portfolios had been socked by the bear market. Smoothing only postpones the inevitable, though, and eventually funding ratios reflect the depleted assets and swollen liabilities.
Faced with that sobering reality and the prospect of much more modest gains than during the bubble era, many corporate plans have lowered the returns they assume for assets -- often after being pressured by investors and analysts to do so. This should allow them to present a more realistic picture of their plans' health and enable funds to better prepare for future obligations by increasing corporate contributions and/or pursuing more alpha-generating investments. Of course, it will also lower expected corporate earnings.
Consulting firm Greenwich Associates says the median expected rate of return on assets for corporate plans fell to 8.55 percent at the end of 2003, down from 9.25 percent in 2002. Among public plans the average assumption has held steady for several years at 8 percent, reports Wilshire.
Even when they make conservative assumptions, some pension managers may have only the vaguest grasp of the extent of their liabilities. "When I meet with plan sponsors, I ask them if they understand what their liabilities are," comments BGI's Waring. "No one ever says yes."
To save money, some plan sponsors are rewriting benefit policies. The Arizona State Retirement System, which covers the retirements of all teachers and government workers in the state, has raised the cost of buying into a plan for those workers who transfer to Arizona from a public plan in another state. Before last August, Arizona allowed transferees to buy into its plan at a discount; by raising the cost of joining the plan, it expects to save $45 million a year. In addition, the Arizona plan was helped by a new state law requiring employers (counties, municipalities and school districts) to pay for any additional costs brought on by early retirement packages out of their own budgets: If, say, a school district raised a teacher's salary to entice him to retire early, it now has to pay into the pension fund. The Arizona plan figures this change could save it an additional $15 million a year.
The fund also cut the interest paid to former employees who leave their money in a plan from 8 percent to 4 percent, saving $20 million a year. At the same time, notes Paul Matson, executive director at ASRS, the plan has not reduced any member benefits. "While we have not engaged in benefits reduction," Matson says, "we have moved ahead with changes that will allow for reduced contribution rates and less volatility on the plan's funded status."
Some corporate plans, meanwhile, are slashing plan benefits and reducing cost-of-living adjustments. Sargent & Lundy, a private Chicago-based engineering and design firm for electric and nuclear power plants, froze its $175 million defined benefit plan nearly two years ago. The 1,500 employees in the plan became eligible for benefits based on their salaries at the time of the freeze; staffers could also participate in a 401(k). "We're certainly profitable," says Ken Davis, chairman of Sargent & Lundy's retirement plan committee. "But when you have a defined benefit plan, you can't control the amount of cash going in. By going with a 401(k), we can deliver a good benefit to our employees but have better control over our cash flow." Employees are content with the new regime, Davis reports, and though he won't reveal any specifics, he notes that after the defined benefit plan was frozen, the terms of the 401(k) were changed to make it more appealing to employees.
For Sargent & Lundy, as for many U.S. companies, providing retirement benefits to employees has become a much more complicated endeavor. Back in the bull market, corporate pension surpluses were the gift that kept on giving. But that seems a long time ago.
GRACE UNDER PRESSURE
These are the worst of times, and, it seems, the worst of times in the investment management business.
Hardly a day goes by that newspaper headlines don't proclaim an impending pension crisis; the Pension Benefit Guaranty Corp., created to protect companies' pension plans, itself might need a bailout. Regulatory pressures are mounting for money managers, as are calls by some market participants for greater openness and transparency. Market ructions have led many professionals to reexamine fundamental investment assumptions. Pension fund executives and chief investment officers of foundations and endowments are coping in a variety of ways. Many are overhauling their asset allocations, lowering their projections of future returns and embracing alternative investments, while focusing ever more intently on liability management and risk control.
To recognize the accomplishments of these executives, Institutional Investormagazine last month introduced its first awards for excellence in investment management. These awards, handed out at a gala dinner at New York's Plaza Hotel, are designed to honor the accomplishments of those who manage corporate and public pension plans, foundations and endowments. In selecting the finalists, the editors weighed, among other factors, nominees' innovativeness and their records of achievement in investment performance, asset allocation, liability management and risk control. The finalists, listed below, deserve praise for their achievements in especially trying times.
ENDOWMENTS: Andrew Golden, president,Princeton University Investment Co.; John (Jack) Meyer, president and CEO, Harvard Management Co.; David Swensen,CIO,Yale University; Mark Yusko, former president and CEOof UNC Management Co. (University of North Carolina at Chapel Hill endowment).
FOUNDATIONS: Timothy Crowe, CIO,John S. and James L. Knight Foundation; Laurance (Laurie) Hoagland Jr., CIO,William and Flora Hewlett Foundation; D. Ellen Shuman,CIO, Carnegie Corp. of New York; Linda Strumpf,CIO,Ford Foundation.
CORPORATE PENSION PLANS: T. Britton Harris, president,Verizon Investment Management Corp.; Robert Hunkeler, vice president of investments, International Paper Co.; John Myers, CEO,GE Asset Management; William Quinn, founding president,AMR Investment Services.
PUBLIC PENSION PLANS: Gary Findlay, executive director,Missouri State Employees Retirement System; Robert Maynard, CIO, Public Employee Retirement System of Idaho; Richard Moore,state treasurer,North Carolina Retirement System; Ronald Schmitz, director of investments, Oregon Public Employees Retirement System.
Strumpf: Arc of the diver
Linda Strumpf swims with sharks -- and not just the Wall Street kind. Since joining the Ford Foundation 23 years ago, the onetime technology research analyst has earned a reputation as a fearless scuba diver as well as an intrepid portfolio manager. Strumpf became chief investment officer in December 1992, when the foundation had $6.4 billion in assets; she now oversees $11 billion.
With 13 offices around the globe, the nonprofit provides financial support to institutions working to promote democratic values, reduce poverty and encourage international cooperation. Required by law to distribute 5 percent of its assets annually, the foundation has, over the 12 years of Strumpf's tenure as CIO, distributed $6.2 billion. (In fiscal 2004, ended September 30, it gave away $520 million.)
"Some people think that being an investment professional is a generic thing," says Strumpf, 57, who has an MBA from New York University and is also a chartered financial analyst. "But when I travel around the world and see the work our foundation does, it makes me very serious about my job. I'm not here just to get a bunch of performance numbers and move on."
Strumpf has certainly posted some impressive numbers. As of September 30, 2004, the ten-year annualized return on the foundation's assets was 11.4 percent, which compares favorably to the Northern Trust Universe performance results for plans over $1 billion, which delivered 9.8 percent . The portfolio's trailing 12-month return was 13.7 percent. Strumpf and her team of 18 investment professionals manage about half of the foundation's assets in-house. Currently, about 40 percent of the portfolio is allocated to U.S. equities, 17 percent is in international equities, and 10 percent is in private equity, Approximately 26 percent of the portfolio is dedicated to U.S. fixed-income investments, about 2 percent is in international fixed income, and 5 percent is in cash. Strumpf has been leery of incorporating hedge funds into the mix; she worries about transparency issues and reputational risk to the foundation (an issue she takes very seriously, as the organization does so much work in developing countries).
Strumpf says she made her most lucrative decision in 1993, when she decided to completely revamp and relaunch the foundation's private equity portfolio -- at the moment when the technological revolution was catching fire. She focused on early-stage venture funds investing in semiconductor and software technology, which led the organization to take stakes in such winners as Amazon.com, EBay, Google and Yahoo!.
Strumpf's scuba diving -- her best sighting so far has been a whale shark, the biggest fish on earth, off the coast of Zanzibar -- has prompted some concerns about succession among the foundation's board members. "Occasionally, they do worry," she says with a laugh. "But I tell them that I have such a wonderful staff here, they wouldn't miss a beat, even if I did get eaten by a shark. Any one of my senior staff could be a chief investment officer."
To Strumpf, that's just one way of mitigating risk. -- Loch Adamson
Swensen: Head of the class
As a long-term investor, David Swensen, chief investment officer at Yale University, has few peers among university giants. As a mentor to promising investment professionals, Swensen, 50, appears to be in a class by himself.
His ever-expanding list of protégés includes leading CIOs and finance executives: Andrew Golden, president of Princeton University Investment Co.; Paula Volent, vice president for investments at Bowdoin College; Ellen Shuman, CIO at Carnegie Corp. of New York; and Ben Inker, CIO of quantitative developed equities and director of asset allocation at Grantham Mayo Van Otterloo & Co.
"He is just a wonderful guy to learn from," says Inker, who as a Yale undergraduate worked with Swensen on his finance thesis. "He never thought we should take for granted that people who ostensibly know what they're talking about actually do."
After earning his Ph.D. in economics at Yale, Swensen spent six years on Wall Street: three as an associate in corporate finance for Salomon Brothers, where he focused on developing new financial technologies and structured one of the first currency swaps -- between IBM Corp. and World Bank Group -- and three as a senior vice president at Lehman Brothers, specializing in currency swap activities. He returned to Yale in 1985 at the urging of his former professor, Nobel Prizewinning economist James Tobin, who thought he should take charge of investments.
"Innovation matters to me," Swensen says. "Yale pioneered using absolute return as an asset class, and my colleagues and I initiated the move toward institutional adoption of equity-oriented, truly diversified portfolios."
He's delivered extraordinary returns. Yale's five- and ten-year annualized returns of 15.0 percent and 16.8 percent are among the very highest in the country, according to a survey by the National Association of College and University Business Officers. In fiscal 2004, though, arch-rival Harvard Management Co. and its president, Jack Meyer, edged out Yale, posting a return of 21.1 percent, compared with Yale's 19.4 percent.
Never one to miss a chance to impart practical investing wisdom, Swensen, a much-sought-after speaker, has also been known to lead the occasional beer-tasting seminar for qualified students at Yale. GMO's Inker fondly remembers Swensen expounding the finer points of foreign lagers and ales. Says Inker, "Dave thought that if we were going to drink beer -- and we were -- we really ought to be thoughtful consumers and not just buy Keystone Light." -- L.A.
Findlay: On the trail
Off-duty, Gary Findlay likes to hunt pheasant and quail in the woods near his home in Jefferson City, Missouri. On the job, as executive director of the $5.2 billion Missouri State Employees' Retirement System, Findlay, 59, has been bagging some impressive portfolio returns.
For the year ended June 30, 2004, the plan returned 17.1 percent, compared with 15.8 percent for the median public plan, as tracked by Santa Monica, Californiabased pension consultant Wilshire Associates. The three-year return was 5.5 percent, versus the 4.1 percent median, and the five-year return was 4.5 percent, versus 3.6 percent.
After earning his BA in business administration from the University of Missouri at Columbia in 1968, Findlay served as an infantry lieutenant in the U.S. Army; his tour included a year of combat duty in Vietnam. Says Findlay, "Leadership skills developed in the military can be applied elsewhere."
In 1978, following a five-year stint as executive state secretary for the Missouri Local Government Employees Retirement System, Findlay took a job as a benefits consultant with Gabriel, Roeder, Smith & Co., an actuarial and benefits consulting firm that focuses on the public pension market. He became CEO in 1986. Six years later he joined the Missouri pension fund, known as Mosers, as executive director.
In the first half of 2003, Findlay, working closely with CIO Rick Dahl, decided to make a major change in asset allocation, doubling to 20 percent his allocation to alternatives -- not including hedge funds, which are categorized as either equity or debt. To do that, he shaved 5 percentage points each from 2002's allocation of 55 percent equity and 35 percent fixed income and added it to that year's 10 percent in alternative assets, which include commodities, distressed debt, private equity, real estate and timber. Mosers has placed 12.8 percent of its total assets in hedge fund portfolios: 7.2 percent in long-short equity funds and 5.6 percent in market-neutral bond funds.
Betting against the crowd, Mosers was one of the first pension funds to buy Treasury inflation-protected securities. When the U.S. Treasury Department first offered the securities in 1997, Mosers allocated 10 percent of total plan assets to TIPS; that target remains in place. "When your liabilities are inflation-linked, it makes sense to have an inflation-linked asset,"
Two years ago, bullish on distressed debt, Findlay decided to invest $100 million in the asset class. Mosers made an 80 percent return in less than a year.
Findlay is an outspoken industry advocate of fee-only consultants, opposing firms that also run manager-of-manager operations or provide investment services. The Securities and Exchange Commission is currently investigating such potential conflicts of interest. For its consultant, Mosers uses fee-only Summit Strategies Group, although Summit is one of many investment consultants whose business practices are being investigated by the SEC. "Summit's sole source of revenue is fees from plan sponsors," Findlay says. "The SEC has taken a shotgun approach and made lots of inquiries of lots of firms. I have every confidence in Summit." -- Barbara Rudolph
Quinn: Come fly with me
Don't blame William Quinn. The airline industry may be in free fall; retirees may be fretting about their benefits; the quasigovernmental Pension Benefit Guaranty Corp. may be facing swelling deficits, but through it all Quinn has done a remarkable job of running American Airlines' $13 billion pension plan.
"Given market conditions and the state of the airline industry, these are trying times," acknowledges Quinn, 56. "We try to have a simple, disciplined approach, and it has paid off over time."
For the past three years, parent company AMR Corp. has kept roughly 40 percent of assets in corporate and Treasury bonds; the average duration of those securities stands at 18 years, which is quite high relative to other corporate pension funds. Explains Quinn, "We keep longer-duration bonds to hedge our liabilities against declines in interest rates." AMR keeps a modest 28 percent of assets in U.S. equities; an additional 20 percent is in EAFE stocks, with 5 percent going to emerging-markets equities. All stock portfolios are managed with a value bias. Private equity assets total 7 percent. To date, Quinn has avoided hedge funds. "We're still concerned about the high cost and the transparency issues," he says.
Quinn's strategy has kept American flying high. For the year ended December 31, 2003, American's portfolio, which is entirely actively managed, gained 24.8 percent, compared with 19.6 percent for the average corporate return as tracked by Seattle-based consulting firm Milliman USA. The portfolio returned 7.5 percent over three years, compared with the average return of 0.2 percent, and 7.4 percent over five years, compared with the median 3.6 percent. Year to date through November, the portfolio was up about 13 percent.
A notably disciplined value investor, Quinn made an especially smart call overweighting energy stocks for several years before paring back his position in the third quarter of 2004. He has also done well with financial services stocks during the past 18 months.
A 1969 graduate of Fordham University and a certified public accountant, Quinn joined Sky Chefs, American Airlines' former catering subsidiary, in 1974. Four years later he became comptroller. In 1987, when American Airlines established AMR Investment Services to manage the company's retirement plans, Quinn was tapped to become the founding president.
Some airlines have been compelled to cut contributions to their retirement plans. Bankrupt UAL Corp, parent of United Air Lines, has announced that it will terminate its pilots' pension fund, and the PBGC has filed a motion in court asking for permission to take over the plan. But at American, Quinn says, "We think pension obligations are important, and we're funding them."
He's quick to point out that AMR received a helping hand from a welcome source when its pilots agreed to a substantial pay cut last year. Their goal: to help preserve their retirement benefits. -- B.R.