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"A" PLAN COMMITTEE REPORT

As you know, at the 1996 convention meeting in Orlando, the Board formed an ad hoc committee in response to the concerns expressed by the members in attendance. As chairman of that committee I accepted the responsibility to review the status of the pilots "A" plan as it was being handled by the PBGC and to perform some sort of evaluation of the quality of ALPA's representation. My involvement in this process began in late October, 1996 and is just now winding up.

The attached SCHEDULE A provides sme insight into how we got into the situation we currently face. As of 10/05/90 the plan funded at 88.6% of the amount necessary to pay each of us 100% of our earned pension benefit. However, the unusual nature of the contract with Prudential that provided "certificates of annuity" to those pilots retiring on or before 7/31/87 contained terms that resulted in the conversion of the contract to a non-participating annuity contract. This required an expenditure of $375.4 million. The resulting reduction in plan assets when compared to the PBC's valuation of remaining liabilities reduces the plan funding level to 77.5%.

In an attempt to isolate the causes of this shortage, we focused on whether or not EAL was up-to-date on contributions to the plan. SCHEDULE B shows that Plan's annual IRS report (Form 5500) for the plan year 1989 contained a reconciliation of payments made vs. contributions due that confirmed the satisfaction of the 1982, 1985, and 1987 Waivers as well as payment in full for the 1988/89 annual payments due (a total of $111,671,000).

Why is there a shortage if the plan was up-to-date on contributions? The simple answer is that there are at least three complex factors that contribute to the situation. First, the methodology used to determine the annual minimum funding contributions assumes that the company will exist forever and permits amortizing the costs of plan movements and adverse actuarial experiences on assets substantially greater than the plan's interest assumptions over an extended period of time. Second, the liabilities of a plan change when they are calculated on a plan termination basis. Finally,