Northwest Airlines, Inc. v. Phillips
| Decision Date | 26 January 2009 |
| Docket Number | No. 07-4803 (JNE/JJG).,07-4803 (JNE/JJG). |
| Citation | 594 F.Supp.2d 1075 |
| Parties | NORTHWEST AIRLINES, INC., Plaintiff/Counterdefendant, and Air Line Pilots Association, Intervenor-Plaintiff/Counterdefendant, v. Raymond B. PHILLIPS, Michael Tanksley, Belmont Beck, Platt Hubbell, Timothy I. Meldahl, Gregory S. Novotny, William J. Riley, and Ralph C. Taylor, Individually, and as Representatives of Persons Similarly Situated, Defendants/Counterclaimants. |
| Court | U.S. District Court — District of Minnesota |
Thomas W. Tinkham, Esq., Stephen P. Lucke, Esq., and Andrew J. Holly, Esq., Dorsey & Whitney LLP, appeared for Plaintiff and Counterdefendant Northwest Airlines, Inc.
Richard M. Seltzer, Esq., Thomas N. Ciantra, Esq., and Evan Hudson-Plush, Esq., Cohen, Weiss and Simon LLP, appeared for Intervenor-Plaintiff and Counterdefendant Air Line Pilots Association.
Jeffrey Lewis, Esq., and Nina Wasow, Esq., Lewis, Feinberg, Lee, Renaker & Jackson, P.C., and Lawrence P. Schaefer, Esq., Schaefer Law Firm, LLC, appeared for Defendants and Counterclaimants Raymond B. Phillips, Michael Tanksley, Belmont Beck, Platt Hubbell, Timothy I. Meldahl, Gregory S. Novotny, William J. Riley, and Ralph C. Taylor, Individually, and as Representatives of Persons Similarly Situated.
Northwest Airlines, Inc. (Northwest), and the Air Line Pilots Association (ALPA) seek a declaratory judgment against a defendant class of pilots (Pilots) that Northwest's Money Purchase Plan for Pilot Employees (MP3) complies with section 204(b) of the Employment Retirement Income Security Act (ERISA), 29 U.S.C. §§ 1001-1461 (2000). The Pilots bring counterclaims alleging that the MP3 violates ERISA, the Age Discrimination in Employment Act (ADEA), 29 U.S.C. §§ 621-634 (2000), and California, Minnesota, and Washington laws prohibiting age discrimination. The Pilots also claim ALPA breached its duty of fair representation by negotiating and enforcing the MP3. The case is before the Court on Northwest's and ALPA's motions for judgment on the pleadings and for summary judgment. Northwest and ALPA contend that the MP3 does not violate ERISA § 204(b)(2)(A) and ADEA § 4(i)(1)(B); that ADEA § 4(i)(4) precludes the Pilots' claims under ADEA § 4(a), (c)1; that if ADEA § 4(i)(4) does not preclude the Pilots' claims under ADEA § 4(a), (c), the MP3 does not violate ADEA § 4(a), (c); and that ERISA preempts the Pilots' state-law claims. ALPA also contends that it did not breach its duty of fair representation. The Pilots moved for a continuance as to whether the MP3 violates ADEA § 4(a), (c) and whether ALPA breached its duty of fair representation, and the Court granted the continuance. For the reasons set forth below, the Court grants the non-continued portions of Northwest's and ALPA's motions.
Before declaring bankruptcy on September 14, 2005, Northwest provided retirement benefits to its pilots through the Northwest Airlines Pension Plan for Pilot Employees (Pension Plan), which was a defined benefit plan established and maintained under ERISA.2 Under the Pension Plan, participants received retirement benefits in the form of a monthly annuity. The amount of the annuity was based on the participant's years of service and final average earnings. For example, a pilot who worked 25 years or more at Northwest and retired at age 60 would receive a monthly income equal to 60% of the pilot's final average earnings. In addition, pilots could contribute to a defined contribution plan, the Retirement Savings Plan (RSP).3
After Northwest declared bankruptcy, Northwest and ALPA sought passage of the Pension Protection Act of 2006 (PPA), which permitted Northwest to spread its funding payments for the Pension Plan over an additional number of years. See Pension Protection Act of 2006, Pub.L. No. 109-280, § 402, 120 Stat. 780 (). Northwest and ALPA agreed that if the PPA passed, they would "freeze" the Pension Plan as of January 31, 2006. Northwest and ALPA maintain that passage of the PPA prevented termination of the Pension Plan and a consequent reduction in pilots' retirement benefits similar to that experienced by pilots at U.S. Airways and United Airlines after those airlines declared bankruptcy. The PPA passed, and Northwest and ALPA froze the Pension Plan, fixing each pilot's pension benefit at a monthly amount as of January 31, 2006. No future service or earnings after January 31, 2006, is used to calculate benefits under the Pension Plan.
Northwest and ALPA then negotiated new retirement benefits for the pilots. Pursuant to a letter agreement executed in July 2006, they agreed that Northwest would contribute 5% of pilot earnings to the RSP in 2007, 6% in 2008, 6.5% in 2009, 7% in 2010, and 8% in 2011 and subsequent years. Under the letter agreement, each pilot would receive an individual contribution to his account proportional to his pay (pro-rata to pay). For example, each pilot received a contribution equal to 5% of his pay in 2007. The letter agreement provided, however, that "[ALPA] shall have the right to determine an alternate method for allocating the [Northwest] contribution to Participants' [RSP accounts] subject to [Northwest's] agreement that it is legal, complies with applicable regulations, and is administratively feasible."
ALPA predicted that the combination of the pro-rata to pay plan and the frozen Pension Plan benefit would have resulted in the retirement benefits received by active pilots ranging between 30% and 75% of their final average earnings. Senior pilots who had already accrued approximately 60% of their final average earnings as a frozen Pension Plan benefit would receive RSP contributions that would result in a combined retirement benefit of over 60%, while less senior pilots who had not accrued close to 60% of their final average earnings would never be able to reach 60% even with Northwest's contributions to their RSP accounts.4 To address this disparity, ALPA proposed that Northwest allocate its contributions to the RSP using a "targeting" methodology. Northwest agreed, and Northwest and ALPA executed a letter agreement implementing the challenged MP3 as a "target benefit plan" on December 11, 2007.5
The MP3, which became effective on January 1, 2008, targets approximately 50% of a pilot's projected final average earnings as retirement income according to the following methodology.6 First, a "stovepipe" model made a one-time calculation of each active pilot's projected final average earnings. The stovepipe model generated a hypothetical career for each pilot based on his seniority, years of service, age, and flight/seat position as of December 31, 2007. It assumed a static Northwest fleet, that all pilots retire at age 60,7 that openings in the fleet would be created by normal retirements and by the promotion of other pilots resulting from those retirements, that openings would be filled solely on the basis of seniority, and that pilots' pay would increase 1.5% annually for the years 2008 to 2010 and 2% annually after 2010. The stovepipe model calculated projected final average earnings as the average monthly compensation of the highest 60 months of earnings of the last 120 months prior to retirement based on the pilot's hypothetical career. It does not take into account any deviation between its projections and a pilot's actual experience after the effective date of the MP3.
Next, each pilot's "target percentage" is determined based on the pilot's age and number of "points." The target percentage is the percentage of a pilot's projected final average earnings the MP3 is designed to provide as a retirement benefit. Each pilot's points are calculated as the sum of his age and years of service under the Pension Plan as of December 31, 2007. The greater the points, the higher the target percentage, which means that an older pilot having the same years of service as a younger pilot has a higher target percentage than the younger pilot. For example, a pilot under the age of 50 on December 31, 2007, and having fewer than 50 points has a target percentage of 19%, a pilot under the age of 50 the same date and having 65 or more points has a target percentage of 43%, and a pilot aged 50 or over on the same date and having 65 or more points has a target percentage of 46%.
The target percentage is used to calculate each pilot's "gross target benefit," expressed as a monthly lifetime payment beginning at age 60, by multiplying his projected final average earnings by the target percentage and a projected service ratio. The projected service ratio equals a pilot's projected years of service at age 60 divided by 25. Projected years of service are calculated as the sum of the pilot's years of service on January 1, 2008, and the number of years between January 1, 2008, and the date the pilot will turn 60. A pilot projected to have 15 years of service at age 60 has a projected service ratio of 0.6. A pilot projected to have 25 years of service at age 60 has a projected service ratio of 1. Because Northwest limits the number of years of service taken into account for the projected service ratio to 25, a pilot projected to have 30 years of service at age 60 also has a projected service ratio of 1.8
The pilot's frozen Pension Plan benefit is then subtracted from the gross target benefit to obtain the "net target benefit," also expressed as a monthly lifetime payment beginning at age 60. A pilot whose frozen Pension Plan benefit exceeds his gross target benefit will receive no contributions under the MP3. Instead, the pilot will receive his frozen Pension Plan benefit as retirement income. The named defendants/counterclaimants fall into this category. A pilot whose gross target benefit exceeds his frozen Pension Plan benefit will receive contributions under the MP3. In some cases,...
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