Davis v. Pension Benefit Guar. Corp.

Decision Date01 November 2013
Docket NumberNo. 12–5274.,12–5274.
Citation734 F.3d 1161
PartiesThomas G. DAVIS, et al., Appellants v. PENSION BENEFIT GUARANTY CORPORATION, Appellee.
CourtU.S. Court of Appeals — District of Columbia Circuit

OPINION TEXT STARTS HERE

Anthony F. Shelley argued the cause for appellants. With him on the briefs were Timothy P. O'Toole and Michael N. Khalil.

James J. Armbruster, Assistant Chief Counsel, Pension Benefit Guaranty Corporation, argued the cause for appellee. With him on the briefs were Judith R. Starr, General Counsel, Kenneth J. Cooper, Assistant General Counsel, Kimberly J. Duplechain, Attorney, Israel Goldowitz, Chief Counsel, Charles L. Finke, Deputy Chief Counsel, Paula J. Connelly and Garth D. Wilson, Assistant Chief Counsel, and Joseph Krettek, Attorney.

Before: GARLAND, Chief Judge, ROGERS, Circuit Judge, and WILLIAMS, Senior Circuit Judge.

Opinion for the Court by Circuit Judge ROGERS.

ROGERS, Circuit Judge:

Appellants are approximately 1,700 retired U.S. Airways pilots and their beneficiaries (“the Pilots”). They appeal the grant of summary judgment to the Pension Benefit Guaranty Corporation (PBGC) on their claims regarding pension benefits payable under the terminated Retirement Income Plan for U.S. Airways Pilots (“the Plan”). Of the Pilots' twelve claims, three claims are not appealed and four claims that are appealed but were not briefed are forfeited. For the following reasons, upon de novo review, see Stephens v. U.S. Airways Grp., Inc., 644 F.3d 437, 439 (D.C.Cir.2011), we affirm as to the five remaining claims.

I.

We begin with an overview of the statutory and regulatory scheme and then summarize the factual background and procedural history before turning, in Part II, to the merits of the Pilots' five claims.

A.

Congress enacted the Employee Retirement Income Security Act of 1974 (ERISA) to establish “minimum standards ... assuring the equitable character of [employee benefit] plans and their financial soundness.” Pub.L. No. 93–406, § 2(a), 88 Stat. 829, 833 (codified at 29 U.S.C. § 1001(a)). Title IV of ERISA created the PBGC, a “U.S. government corporation within the Department of Labor that insures private-sector defined-benefit pension plans.” Boivin v. U.S. Airways, 446 F.3d 148, 150 (D.C.Cir.2006); 29 U.S.C. § 1302. This “mandatory Government insurance program ... protects the pension benefits” of participants in or beneficiaries of qualified plans. PBGC v. LTV Corp., 496 U.S. 633, 637, 110 S.Ct. 2668, 110 L.Ed.2d 579 (1990) (LTV Corp.). It does so by guaranteeing a class of “nonforfeitable benefits,” 29 U.S.C. § 1322(a), reimbursing eligible participants or beneficiaries when a guaranteed plan terminates without sufficient funds.

If a qualified plan has insufficient assets to satisfy its pension obligations the employer can terminate the plan voluntarily or the PBGC can terminate it involuntarily. See LTV Corp., 496 U.S. at 638, 110 S.Ct. 2668; 29 U.S.C. §§ 1341(c), 1342(a). When termination proceedings have begun, as occurred here, the PBGC can request that the district court appoint it as trustee of the plan. See Boivin, 446 F.3d at 150; 29 U.S.C. § 1342(b). When a district court grants the request, the PBGC remains the guarantor of the plan, see Boivin, 446 F.3d at 150, and therefore has two roles: As guarantor, the PBGC is responsible for covering the gap between the assets of the plan and the amount guaranteed to the plan's beneficiaries, see LTV Corp., 496 U.S. at 637–38, 110 S.Ct. 2668; 29 U.S.C. §§ 1301(a)(8), 1322(a). As trustee, the PBGC administers the plan—i.e., determines who is entitled to benefits, see29 U.S.C. § 1342(d), and acts as a fiduciary with respect to the plan, see id. §§ 1342(d)(3), 1002(21).

The administrator of a terminated plan distributes assets in accordance with the six tier priority scheme set forth in 29 U.S.C. § 1344. The Pilots' claims relate to priority category three, which includes allocations

in the case of benefits payable as an annuity—

(A) in the case of the benefit of a participant or beneficiary which was in pay status as of the beginning of the 3–year period ending on the termination date of the plan, to each such benefit, based on the provisions of the plan (as in effect during the 5–year period ending on such date) under which such benefit would be the least,

(B) in the case of a participant's or beneficiary's benefit (other than a benefit described in subparagraph (A)) which would have been in pay status as of the beginning of such 3–year period if the participant had retired prior to the beginning of the 3–year period and if his benefits had commenced (in the normal form of annuity under the plan) as of the beginning of such period, to each such benefit based on the provisions of the plan (as in effect during the 5–year period ending on such date) under which such benefit would be the least.

For purposes of subparagraph (A), the lowest benefit in pay status during a 3–year period shall be considered the benefit in pay status for such period.

29 U.S.C. § 1344(a)(3). These provisions exclude certain benefits from priority category three based on whether (1) they were in pay status (i.e., actually being paid) or could have been in pay status (if an individual had retired) within three years of the date of plan termination and (2) the provisions of the plan creating them were “in effect” within the five-year period prior to plan termination.

By regulation, 29 C.F.R. § 4044.13, the PBGC has interpreted the limitations on inclusion in priority category three. Section § 4044.13(a), “Definition,” provides that [b]enefit increases, as defined in [29 C.F.R.] § 4022.2, that were in effect throughout the 5–year period ending on the termination date, including automatic benefit increases during that period to the extent provided in paragraph (b)(5) of this section, shall be included in determining the priority category 3 benefit.” And § 4044.13(b)(5) provides that “automatic increases in the benefit formula” provided for in “plan provisions” that were “adopted and effective on or before the first day of the 5–year period ending on the termination date” will be included in priority category three if the increases were scheduled to occur during the fourth and fifth years preceding termination. The PBGC interprets “benefit increases” to include increases in benefits due to cost-of-living adjustments (“COLAs”) arising out of increases in the Internal Revenue Code's § 415(b) dollar limits on annual benefits, 26 U.S.C. § 415(b), which were incorporated into the Plan. As such, the PBGC honored such increases if they occurred in the fourth and fifth years prior to Plan termination but not those occurring within the three years prior to termination. The Pilots regard § 4044.13(b)(5) as irrelevant to the status of the COLAs, which they claim are not benefit increases but limitation adjustments. Instead they maintain that the Plan provisions recognized such COLAs more than five years before termination, and, under ERISA, the fact that the provision was in place more than five years prior to Plan termination is enough for the PBGC to honor all § 415(b) increases during the entire five-year period before termination. See infra Part II, Claim Two.

Section 4044.13(b), “Assigning benefits,” provides that “a plan or amendment is ‘in effect’ on the later of the date on which it is adopted or the date it becomes effective.” 29 C.F.R. § 4044.13(b)(6). As discussed in Part II, such a construction implies that an amendment could be effective before it has been adopted—e.g., when a benefit payment is made retroactive to a date prior to the adoption of the amendment that created it. The Pilots contend that the PBGC Appeals Board decision as to the effective date of a Plan amendment conflicts with this regulation. See infra Part II, Claim One.

The PBGC also has promulgated regulations regarding how it handles benefit determinations. The PBGC makes initial determinations “with respect to allocation of assets under section 4044 of ERISA [ (29 U.S.C. § 1344) ].” 29 C.F.R. § 4003.1(b)(4). They are issued in writing and must “state the reason for the determination.” Id. § 4003.21. “Any person aggrieved by an initial determination ... may file an appeal,” id. § 4003.51, to be considered by the PBGC Appeals Board, which is composed of three PBGC officials, id. § 4003.2. In a written appeal, appellants can request to appear before the Board and present witnesses to testify before the Board. Id. § 4003.54. The Board has discretion to reject such requests. Id. § 4003.55(b). A decision issued by the Appeals Board “constitutes the final agency action by the PBGC with respect to the determination which was the subject of the appeal.” Id. § 4003.59(b).

B.

In 2002, U.S. Airways filed for bankruptcy and requested that its pilots' benefits plan be terminated pursuant to ERISA's “distress” termination procedures. See29 U.S.C. § 1341(c). The Plan terminated on March 31, 2003. The PBGC became trustee and began making estimated payments to the retired pilots pending its initial determinations on proper asset allocation.

The Pilots first brought suit in November 2003, challenging the PBGC's calculation of estimated benefits. On appeal, this court rejected the Pilots' claims for failure to exhaust administrative remedies. See Boivin, 446 F.3d at 158–59. Later the PBGC issued initial determinations, and the Pilots appealed to the PBGC Appeals Board, which issued the first of several decisions on February 29, 2008. The Pilots challenged the PBGC's final determinations in the district court in June 2008 on the grounds that the PBGC has misapplied ERISA, misinterpreted the Plan itself, and breached its fiduciary duties to Plan participants and beneficiaries. The Pilots moved for a preliminary injunction in August 2008. In September 2008, the PBGC issued a decision related to some of the Pilots' disability claims. The district court denied the motion for a preliminary injunction in ...

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