Lewis v. Pension Benefit Guaranty Corp.

• Decision Date: 11 June 2018
• Docket Number: Civil Action No. 15–1328 (RBW)
• Citation: 314 F.Supp.3d 135
• Parties: K. Wendell LEWIS, et al., Plaintiffs, v. PENSION BENEFIT GUARANTY CORPORATION, Defendant.
• Court: U.S. District Court — District of Columbia

314 F.Supp.3d 135

K. Wendell LEWIS, et al., Plaintiffs,

v.PENSION BENEFIT GUARANTY CORPORATION, Defendant.

Civil Action No. 15–1328 (RBW)

United States District Court, District of Columbia.

Signed June 11, 2018

Anthony F. Shelley, Michael N. Khalil, Timothy Patrick O'Toole, Miller & Chevalier, Chartered, Washington, DC, for Plaintiffs.

Joseph M. Krettek, Mark R. Snyder, Paula June Connelly, Pension Benefit Guaranty Corporation, Washington, DC, for Defendant.

MEMORANDUM OPINION

REGGIE B. WALTON, United States District Judge

The plaintiffs, approximately 1,700 former Delta Air Lines, Inc. ("Delta") pilots, initiated this action against the defendant, the Pension Benefit Guaranty Corporation (the "Corporation" or the "PBGC"), challenging the Corporation's benefits determinations regarding the Delta Pilots Retirement Plan (the "Pilots Plan" or "Plan") under the Employment Retirement Income Security Act (the "ERISA"), 29 U.S.C. § 1303(f) (2012). See First Amended Complaint ("Am. Compl.") ¶¶ 1–14, 73–150.¹ Currently pending before the Court are the Plaintiffs' Motion for Summary Judgment ("Pls.' Mot.") and the Pension Benefit Guaranty Corporation's Cross–Motion for Summary Judgment and Opposition to the Plaintiffs' Motion for Summary Judgment ("Def.'s Mot."). Upon careful consideration of the parties' submissions,² the Court concludes for the reasons that follow that it must deny the plaintiffs' motion and grant the Corporation's motion.

I. BACKGROUND

A. Statutory Background

The ERISA, a "comprehensive and reticulated statute," Nachman Corp. v. PBGC, 446 U.S. 359, 361, 100 S.Ct. 1723, 64 L.Ed.2d 354 (1980), was enacted in part to "ensure that employees and their beneficiaries would not be deprived of anticipated retirement benefits by the termination of pension plans before sufficient funds [had] been accumulated in the plans," PBGC v. R.A. Gray & Co., 467 U.S. 717, 720, 104 S.Ct. 2709, 81 L.Ed.2d 601 (1984). "The PBGC administers and enforces Title IV of [the] ERISA," PBGC v. LTV Corp., 496 U.S. 633, 637, 110 S.Ct. 2668, 110 L.Ed.2d 579 (1990), which "created the [PBGC] and a termination insurance program to protect employees against the loss of ‘nonforfeitable’ benefits upon termination of pension plans that lack sufficient funds to pay such benefits in full," Nachman, 446 U.S. at 361 n.1, 100 S.Ct. 1723 ; see also 29 U.S.C. § 1302(a)(2) (providing that the Corporation's purpose is to, inter alia, "provide for the timely and uninterrupted payment of pension benefits to participants and beneficiaries under plans to which [Title IV] applies"). As the Supreme Court has explained:

When a plan covered under Title IV terminates with insufficient assets to satisfy its pension obligations to the employees, the PBGC becomes trustee of the plan, taking over the plan's assets and liabilities. The PBGC then uses the plan's assets to cover what it can of the benefit obligations. The PBGC then must add its own funds to ensure payment of most of the remaining "nonforfeitable" benefits, i.e., those benefits to which participants have earned entitlement under the plan terms as of the date of termination. [The] ERISA does place limits on the benefits [the] PBGC may guarantee upon plan termination, however, even if an employee is entitled to greater benefits under the terms of the plan. In addition, benefit increases resulting from plan amendments adopted within five years of the termination are not paid in full.

LTV Corp., 496 U.S. at 637–38, 110 S.Ct. 2668 (internal citations omitted). When the Corporation becomes a plan trustee, it becomes a fiduciary of the plan, see 29 U.S.C. § 1342(d)(3), and must "discharge [its] duties ... solely in the interest of the participants and beneficiaries and ... for the exclusive purpose of: (i) providing benefits to participants and their beneficiaries; and (ii) defraying reasonable expenses of administering the plan," id. § 1104(a)(1)(A).

1. Compensation and Qualified Benefit Limits

A provision of the tax code limits the "annual compensation of each employee" that an ERISA-qualified pension plan may "take into account" in calculating that employee's benefits under the plan (the "compensation limit"). See I.R.C. § 401(a)(17) (2012) ; see also AR 15 ("The IRC § 401(a)(17) limit ... caps the amount of earnings a plan may use to calculate benefits under a tax-qualified plan ...."). On June 7, 2001, Congress increased the compensation limit to $200,000 in the Economic Growth and Tax Relief Reconciliation Act of 2001 (the "EGTRRA"). See Pub. L. No. 107–16, § 611(c)(1), 115 Stat. 38, 97 (2001); see also I.R.C. § 401(a)(17). Congress provided that the increased compensation limit applied to plan years beginning after December 31, 2001. See Pub. L. No. 107–16, § 611(i)(l), 115 Stat. at 100. An IRS notice setting effective dates for the increased compensation limit, issued September 17, 2001, further provided:

In the case of a plan that uses annual compensation for periods prior to the first plan year beginning on or after January 1, 2002, to determine accruals or allocations for a plan year beginning on or after January 1, 2002, the plan is permitted to provide that the $200,000 compensation limit applies to annual compensation for such prior periods in determining such accruals or allocations.

I.R.S. Notice 2001–56, 2001–2 C.B. 277.

Another provision of the tax code limits the annual benefit payments that a plan can make to a participant or beneficiary (the "qualified benefit limit"). See I.R.C. § 415(b). The EGTRRA increased the qualified benefit limit to $160,000. See Pub. L. No. 107–16, § 611(a)(l), 115 Stat. at 96; see also I.R.C. § 415(b).³ Congress provided that the increase to the qualified benefit limit applied to plan years ending after December 31, 2001. See Pub. L. No. 107–16, § 611(i)(l), 115 Stat. at 100.

2. Priority Categories

The ERISA establishes six categories, in descending order of priority, to which the Corporation must allocate a terminated plan's assets upon its termination. See 29 U.S.C. § 1344(a)(1)–(6). The first two priority categories ("PCs"), which concern benefits "derived from the participant[s'] mandatory contributions," id. § 1344(a)(2), are not relevant in this case because the Plan "never required mandatory employee contributions," AR 877. Therefore, the highest priority category relevant in this case is PC3, which includes benefits for pilots who were retired or eligible to retire "as of the beginning of the [three]-year period ending on the termination date of the plan, ... based on the provisions of the plan (as in effect during the [five]-year period ending on such date) under which such benefit would be the least." 29 U.S.C. § 1344(a)(3)(A), (B).

PC3 benefits are comprised of the following two categories:

(A) in the case of the benefit of a participant or beneficiary which was in pay status as of the beginning of the [three]-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 [five]-year period ending on such date) under which such benefit would be the least, [and]

(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 [three]-year period if the participant had retired prior to the beginning of the [three]-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 [five]-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 [three]-year period shall be considered the benefit in pay status for such period.

Id. § 1344(a)(3)(A)–(B). "These provisions exclude certain benefits from [PC3] 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 the plan termination and (2) the provisions of the plan creating them were ‘in effect’ within the five-year period prior to plan termination." Davis v. PBGC, 734 F.3d 1161, 1165 (D.C. Cir. 2013) (" Davis II").

The other PC relevant to this case is PC5, which includes "all other nonforfeitable benefits under the plan," 29 U.S.C. § 1344(a)(5), that are not guaranteed by the Corporation, see id. § 1344(a)(4)(A), and has two sub-categories. The first subcategory, PC5(a), constitutes vested benefits as of five years prior to the plan's termination. See id. § 1344(b)(4)(A) (defining PC5(a) benefits as those "under the plan as in effect at the beginning of the [five]-year period ending on the date of plan termination"). The second subcategory, PC5(b), constitutes all other vested benefits that went into effect on a later date, which cannot be funded unless all benefits in PC5(a) are funded, see id. § 1344(b)(4)(B) (stating that PC5(b) benefits "shall be determined" only "[i]f the assets available for allocation under [PC5(a) ] are sufficient to satisfy in full th[ose] benefits").

3. Recovery Benefits

Benefits that are neither funded by the terminated plan's assets nor guaranteed by the Corporation may be funded, to the extent possible, by funds recovered by the Corporation from a plan's contributing sponsor. See id. §§ 1322(c); 1362(a)–(b); see also Allied Pilots Ass'n v. PBGC, 334 F.3d 93, 95–96 (D.C. Cir. 2003) ("If the terminated plan lacks sufficient funds to satisfy existing obligations to employees, thus requiring the PBGC to use its own funds to pay benefits, the PBGC has authority to recover ‘the total amount of the unfunded benefit liabilities’ from the plan's sponsor and members of the sponsor's ‘controlled group,’ i.e., entities that belong to the same corporate family as the sponsor ...." (citation omitted) ). When the Corporation recovers unfunded benefit liabilities, see 29...