AIGFP Employee Retention Plan
AIG is contractually obligated to pay a total of about $165 million of previously awarded
retention pay to AIGFP employees (in respect of 2008). This amount is due pursuant to a
retention plan entered into in early 2008. About $55 million of retention pay was
previously paid around December, and about $93 million of additional retention pay will
be eliminated because of losses at AIGFP (in accordance with the terms of the plan). AIG
is also obligated to pay about $6 million of guaranteed pay to AIGFP employees under
contractual obligations outside of the retention plan.
AIG is required to make these payments on or before March 15 by the terms of the
retention plan or individual contract guarantees, all of which pre-date TARP and AIG’s
current Chief Executive Officer. Outside counsel has advised that AIG is legally obligated
to pay and, under applicable law, risks a doubling of the amount owed as a penalty. In
addition to this and other legal obstacles, business requirements necessitate payment.
AIG has also attempted to develop acceptable alternatives to restructure guaranteed
amounts owed. However, efforts have not been successful for payments in respect of 2008
in light of the employees’ contractual rights to receive these payments combined with new
tax limits under Section 409A of the Internal Revenue Code that limit the ability of
employers and employees to alter payment dates for deferred compensation. However, AIG
has committed to use its best efforts to reduce the amounts AIG owes in respect of 2009.
This will be accomplished through voluntary acts such as salary reductions, through
negotiations when we sell businesses and through other arrangements over time. We
believe that guaranteed payments at AIGFP for 2009 can be reduced by at least 30%.
Details Regarding Retention Plan
In the first quarter of 2008, AIGFP adopted a retention plan for about 400 employees that
provided guaranteed payments to employees if they worked