11. 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 (11 percent) of participant compensation. Certain non-contract employees (including all new non-contract employees) participate in a defined contribution plan 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. The effect of the Chapter 11 Cases on the Company's obligations for retirement benefits cannot be predicted at this time.

In addition to pension benefits, retiree medical and 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. Certain 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.

The following table provides a reconciliation of the changes in the pension and retiree medical and other benefit obligations and fair value of assets for the years ended December 31, 2011 and 2010, and a statement of funded status as of December 31, 2011 and 2010 (in millions):


	Pension Benefits						Retiree Medical and Other Benefits
	2011			2010			2011			2010
Reconciliation of benefit obligation
Obligation at January 1	$	12,968		$	12,003		$	3,097		$	2,827
Service cost		386			366			61			60
Interest cost		757			737			174			165
Actuarial (gain) loss		1,237			442			(63	)		263
Plan amendments		-			1			(3	)		(78	)
Benefit payments		(780	)		(581	)		(144	)		(140	)


Obligation at December 31	$	14,568		$	12,968		$	3,122		$	3,097


Reconciliation of fair value of plan assets
Fair value of plan assets at January 1	$	7,773		$	7,051		$	234		$	206
Actual return on plan assets		614			837			(6	)		17
Employer contributions		525			466			121			151
Benefit payments		(780	)		(581	)		(144	)		(140	)


Fair value of plan assets at December 31	$	8,132		$	7,773		$	205		$	234


Funded status at December 31	$	(6,436	)	$	(5,195	)	$	(2,917	)	$	(2,863	)



Amounts recognized in the consolidated balance sheets
Current liability	$	2	$	8	$	147	$	173
Noncurrent liability		6,434		5,187		2,770		2,690

	$	6,436	$	5,195	$	2,917	$	2,863



Amounts recognized in other comprehensive loss
Net actuarial loss (gain)	$	4,179	$	3,052	$	(181	)	$	(128	)
Prior service cost (credit)		68		81		(179	)		(205	)


	$	4,247	$	3,133	$	(360	)	$	(333	)


For plans with accumulated benefit obligations exceeding the fair value of plan assets	Pension Benefits				Retiree Medical and Other Benefits

	2011		2010		2011		2010
Projected benefit obligation (PBO)	$	14,568	$	12,968	$	-	$	-
Accumulated benefit obligation (ABO)		12,935		11,508		-		-
Accumulated postretirement benefit obligation (APBO)		-		-		3,123		3,097
Fair value of plan assets		8,132		7,773		205		234
ABO less fair value of plan assets		4,803		3,735		-		-

At December 31, 2011 and 2010, pension benefit plan assets of $143 million and $264 million, respectively, and retiree medical and other benefit plan assets of $203 million and $232 million, respectively, were invested in shares of certain mutual funds.

The following tables provide the components of net periodic benefit cost for the years ended December 31, 2011, 2010 and 2009 (in millions):


	Pension Benefits
	2011			2010			2009
Components of net periodic benefit cost
Defined benefit plans:
Service cost	$	386		$	366		$	333
Interest cost		757			737			712
Expected return on assets		(657	)		(593	)		(566	)
Amortization of:
Prior service cost		13			13			13
Settlement		-			-			-
Unrecognized net loss		154			154			145


Net periodic benefit cost for defined benefit plans		653			677			637
Defined contribution plans		179			168			168


	$	832		$	845		$	805


	Retiree Medical and Other Benefits
	2011			2010			2009
Components of net periodic benefit cost
Service cost	$	61		$	60		$	59
Interest cost		174			165			179
Expected return on assets		(20	)		(18	)		(14	)
Amortization of:
Prior service cost		(28	)		(19	)		(8	)
Unrecognized net loss (gain)		(9	)		(10	)		(14	)


Net periodic benefit cost	$	178		$	178		$	202

The estimated net loss and prior service cost for the defined benefit pension plans that will be amortized from Accumulated other comprehensive income into net periodic benefit cost over the next fiscal year are $250 million and $13 million, respectively. The estimated net gain and prior service credit for the retiree medical and other postretirement plans that will be amortized from Accumulated other comprehensive income into net periodic benefit cost over the next fiscal year are $9 million and $29 million, respectively.


	Pension Benefits						Retiree Medical and Other Benefits
	2011			2010			2011			2010
Weighted-average assumptions used to determine benefit obligations as of December 31
Discount rate		5.20	%		5.80	%		4.89	%		5.69	%
Salary scale (ultimate)		3.78			3.78			-			-


	Pension Benefits						Retiree Medical and Other Benefits
	2011			2010			2011			2010
Weighted-average assumptions used to determine net periodic benefit cost for the years ended December 31
Discount rate		5.80	%		6.10	%		5.69	%		5.90	%
Salary scale (ultimate)		3.78			3.78			-			-
Expected return on plan assets		8.50			8.50			8.50			8.50

As of December 31, 2011, the Company's estimate of the long-term rate of return on plan assets was 8.25 percent based on the target asset allocation. Expected returns on longer duration bonds are based on yields to maturity of the bonds held at year-end. Expected returns on other assets are based on a combination of long-term historical returns, actual returns on plan assets achieved over the last ten years, current and expected market conditions, and expected value to be generated through active management, currency overlay and securities lending programs. The Company's annualized ten-year rate of return on plan assets as of December 31, 2011, was approximately 8.58 percent.

The objectives of the Company's investment policies are to: maintain sufficient income and liquidity to pay retirement benefits; produce a long-term rate of return that meets or exceeds the assumed rate of return for plan assets; limit the volatility of asset performance and funded status; and diversify assets among asset classes and investment managers.

Based on these investment objectives, a long-term strategic asset allocation has been established. This strategic allocation seeks to balance the potential benefit of improving funded position with the potential risk that the funded position would decline. The current strategic target asset allocation is as follows:


Asset Class/Sub-Class	Allowed Range


Equity		60% - 70%
Public:
U.S. Value		18% - 33%
International Value		14% - 24%
Emerging Markets		5% - 11%
Alternative Investments		0% - 18%
Fixed Income		30% - 40%
U.S. Long Duration		30% - 40%

Other		0% - 5%
Cash Equivalents		0% - 5%

Each asset class is actively managed and, historically, the plans' assets have produced returns, net of management fees, in excess of the expected rate of return over the last ten years. Stocks and emerging market bonds are used to provide diversification and are expected to generate higher returns over the long-term than longer duration U.S. bonds. Public stocks are managed using a value investment approach in order to participate in the returns generated by stocks in the long-term, while reducing year-over-year volatility. Longer duration U.S. bonds are used to partially hedge the assets from declines in interest rates. Alternative (private) investments are used to provide expected returns in excess of the public markets over the long-term. Additionally, the Company engages currency overlay managers in an attempt to increase returns by protecting non-U.S. dollar denominated assets from a rise in the relative value of the U.S. dollar. The Company also participates in securities lending programs to generate additional income by loaning plan assets to borrowers on a fully collateralized basis. These programs are subject to market risk.

Investments in securities traded on recognized securities exchanges are valued at the last reported sales price on the last business day of the year. Securities traded in the over-the-counter market are valued at the last bid price. The money market fund is valued at fair value which represents the net asset value of the shares of such fund as of the close of business at the end of the period. Investments in limited partnerships are carried at estimated net asset value as determined by and reported by the general partners of the partnerships and represent the proportionate share of the estimated fair value of the underlying assets of the limited partnerships. Common/collective trusts are valued at net asset value based on the fair values of the underlying investments of the trusts as determined by the sponsor of the trusts. The 103-12 investment trust is valued at net asset value which is determined by the issuer at the end of each month and is based on the aggregate fair value of trust assets less liabilities, divided by the number of units outstanding. No changes in valuation techniques or inputs occurred during the period.

The fair values of the Company's pension plan assets at December 31, 2011 and 2010, by asset category are as follows:


	Fair Value Measurements at December 31, 2011 (in millions)
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total

Asset Category
Cash and cash equivalents	$	160	$	–	$	–	$	160
Equity securities
International markets (a)(b)		1,939		–		–		1,939
Large-cap companies (b)		1,462		–		–		1,462
Mid-cap companies (b)		221		–		–		221
Small-cap companies(b)		17		–		–		17
Fixed Income
Corporate bonds (c)		–		1,866		–		1,866
Government securities (d)		–		1,205		–		1,205
U.S. municipal securities		–		52		–		52
Alternative investments
Private equity partnerships (e)		–		–		920		920
Common/collective and 103-12 investment trusts (f)		–		172		–		172
Insurance group annuity contracts		–		–		2		2
Dividend and interest receivable		42		–		–		42
Due to/from brokers for sale of securities - net		72		–		–		72
Other assets – net		2		–		–		2

Total	$	3,915	$	3,295	$	922	$	8,132

Holdings are diversified as follows: 22 percent United Kingdom, 10 percent Japan, 9 percent France, 7 percent Switzerland, 6 percent Germany, 5 percent Netherlanpercent in any one country. ds, 5 percent Republic of Korea, 13 percent emerging markets and the remaining 23 percent with no concentration greater than 5 percent in any one country.

There are no significant concentration of holdings by company or industry.

Includes approximately 83 percent investments in corporate debt with a Standard and Poor's (S&P) rating lower than A and 17 percent investments in corporate debt with an S&P rating A or higher. Holdings include 80 percent U.S. companies, 18 percent international companies and 2 percent emerging market companies.

Includes approximately 89 percent investments in domestic government securities and 11 percent in emerging market government securities. There are no significant foreign currency risks within this classification.

Includes limited partnerships that invest primarily in U.S. (92%) and European (8%) buyout opportunities of a range of privately held companies. The Master Trust does not have the right to redeem its limited partnership investment at its net asset value. Instead, the Master Trust receives distributions as the underlying assets are liquidated. It is estimated that the underlying assets of these funds will be gradually liquidated over the next 1 to 10 years. Additionally, the Master Trust has future funding commitments of approximately $335 million over the next 10 years.

Investment includes 71% in an emerging market 103-12 investment trust with investments in emerging country equity securities, 16% in Canadian segregated balanced value, income growth and diversified pooled funds and 13% in a common/collective trust investing in securities of smaller companies located outside the U.S., including developing markets. Requests for withdrawals must meet specific requirements with advance notice of redemption preferred.


	Fair Value Measurements at December 31, 2010 (in millions)
	Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Total

Asset Category
Cash and cash equivalents	$	269		$	–		$	–	$	269
Equity securities
International markets (a)(b)		2,025			–			–		2,025
Large-cap companies (b)		1,557			–			–		1,557
Mid-cap companies (b)		152			–			–		152
Small-cap companies(b)		37			–			–		37
Fixed Income
Corporate bonds (c)		–			1,593			–		1,593
Government securities (d)		–			1,194			–		1,194
U.S. municipal securities		–			39			–		39
Alternative investments
Private equity partnerships (e)		–			–			795		795
Common/collective and 103-12 investment trusts (f)		–			145			–		145
Interest rate swap contracts – net(g)		–			(74	)		–		(74)
Insurance group annuity contracts		–			–			3		3
Dividend and interest receivable		37			–			–		37
Due to/from brokers for sale of securities—net		(11	)		–			–		(11)
Swap income receivable		8			–			–		8
Other assets – net		4			–			–		4

Total	$	4,078		$	2,897		$	798	$	7,773

Holdings are diversified as follows: 20 percent United Kingdom, 14 percent Japan, 9 percent France, 8 percent Switzerland, 7 percent Germany, 5 percent Netherlands, 11 percent emerging markets and the remaining 26 percent with no concentration greater than 5 percent in any one country.

There are no significant concentration of holdings by company or industry.

Includes approximately 82 percent investments in corporate debt with a Standard and Poor's (S&P) rating lower than A and 18 percent investments in corporate debt with an S&P rating A or higher. Holdings include 81 percent U.S. companies, 16 percent international companies and 3 percent emerging market companies.

Includes approximately 87 percent investments in domestic government securities and 13 percent in emerging market government securities. There are no significant foreign currency risks within this classification.

Investment includes 64% in an emerging market 103-12 investment trust with investments in emerging country equity securities, 19% in Canadian segregated balanced value, income growth and diversified pooled funds and 17% in a common/collective trust investing in securities of smaller companies located outside the U.S., including developing markets. Requests for withdrawals must meet specific requirements with advance notice of redemption preferred.

Includes four interest rate swap agreements with notional value of $760 million and fair value of $75 million representing 99% of the balance.

Not included in the above tables are receivables and payables for foreign currency forward contracts and futures contracts which net to approximately $2 million and collateral held on loaned securities and the obligation to return collateral on loaned securities which effectively net to zero.

Changes in fair value measurements of Level 3 investments during the year ended December 31, 2011, were as follows:


	Private Equity Partnerships			Insurance Group Annuity Contracts


Beginning balance at December 31, 2010		795		$	3
Actual return on plan assets:
Relating to assets still held at the reporting date		53			-
Relating to assets sold during the period		48			-
Purchases		146
Sales		(122	)		(1)

Ending balance at December 31, 2011	$	920		$	2

Changes in fair value measurements of Level 3 investments during the year ended December 31, 2010, were as follows:


	Private Equity Partnerships			Insurance Group Annuity Contracts


Beginning balance at December 31, 2009	$	744		$	3
Actual return on plan assets:
Relating to assets still held at the reporting date		1			-
Relating to assets sold during the period		69			-
Purchases, sales, settlements (net)		(19	)		-

Ending balance at December 31, 2010	$	795		$	3

The fair values of the Company's other postretirement benefit plan assets at December 31, 2011 by asset category were as follows:


	Fair Value Measurements at December 31, 2011 (in millions)

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total

Asset Category
Money market fund	$	4	$	–	$	–	$	4
Unitized mutual funds		–		201		–		201

Total	$	4	$	201	$	–	$	205

The fair values of the Company's other postretirement benefit plan assets at December 31, 2010 by asset category were as follows:


	Fair Value Measurements at December 31, 2010 (in millions)
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total

Asset Category
Money market fund	$	4	$	–	$	–	$	4
Unitized mutual funds		–		230		–		230

Total	$	4	$	230	$	–	$	234

Investments in the unitized mutual funds are carried at the per share net asset value and include approximately 27 percent of investments in non-U.S. common stocks in 2011 and approximately 27 percent of investments in non-U.S. common stocks in 2010. Net asset value is based on the fair market value of the funds' underlying assets and liabilities at the date of determination. Investments in the money market fund are valued at fair value which represents the net assets value of the shares of such fund as of the close of business at the end of the period.


	2011			2010

Assumed health care trend rates at December 31
Health care cost trend rate assumed for next year		7.50	%		8.0	%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)		4.5	%		4.5	%
Year that the rate reaches the ultimate trend rate		2018			2018

A one percentage point change in the assumed health care cost trend rates would have the following effects (in millions):


	One Percent Increase	One Percent Decrease

Impact on 2011 service and interest cost	20	(22)
Impact on postretirement benefit obligation as of December 31, 2011	248	(251)

The Company is required to make minimum contributions to its defined benefit pension plans under the minimum funding requirements of ERISA, the Pension Funding Equity Act of 2004 and the Pension Protection Act of 2006.

As a result of the Chapter 11 Cases, AMR contributed $6.5 million to its defined benefit pension plans on January 13, 2012 to cover the post-petition period of November 29, 2011 to December 31, 2011. As a result of only contributing the post-petition portion of the required contribution, the Pension Benefit Guaranty Corporation filed a lien against certain assets of the Company. The Company's 2012 contribution to its defined benefit pension plans is subject to the Chapter 11 proceedings.

The following benefit payments, which reflect expected future service as appropriate, are expected to be paid:


	Pension	Retiree Medical and Other


2012	$513	$147
2013	687	155
2014	733	162
2015	813	168
2016	823	178
2017 – 2021	5,337	1,071