Retired U.S. Airways pilots' lawsuit against the Pension Benefit Guaranty Corporation alleging errors in the calculation of estimated benefits under their terminated pension plan has been dismissed by the D.C. appellate court, which found that the retirees had not yet exhausted administrative remedies. [Boivin v. U.S. Airways, No. 03cv02373jr]
When the pension plan terminated in 2003, the PBGC began paying estimated benefits. Without waiting for the conclusion of final benefit determinations, retirees filed suit against U.S. Airways and the PBGC on the basis of the estimated benefit amounts, alleging four primary errors in the calculations and claiming that waiting through the usual 2-3 year formal benefit would cause irreparable harm. The PBGC has since changed its estimates on two of the contested issues in favor of the retirees, but argued against litigation of the remaining issues outside of the agency's established administrative remedies for individuals dissatisfied with its benefit determinations. Finding retirees' arguments for an exception unpersuasive, the appellate court sided with the PBGC without directly addressing the merits of the two remaining alleged errors.
Qualified termination administrators may wind up the affairs of abandoned individual account plans under final regulations and a class exemption published by the Department of Labor. [71 FR 20819 (regulations); 71 FR 20855 (class exemption); 06-717-NAT (press release); Fact Sheet; Abandoned Plan Program. See also the 11/8/2002 report of the ERISA Advisory Council's Working Group on Orphan Plans.] The regulations and class exemption are effective May 22, 2006.
- Qualified Termination Administrator (QTA)- To qualify as a QTA, an institution must meet two conditions: (1) the institution must be eligible to serve as a trustee or issuer of an individual retirement plan; and (2) the institution must be holding the assets of the plan for which it will serve as QTA. See the Model Notice of Plan Abandonment and Intent to Serve as Qualified Termination Administrator.Only one institution should serve as a plan's QTA. If more than one institution holds assets of the plan, then the other institutions are expected to cooperate with the QTA.
- Determination of Plan Abandonment- An individual account plan, such as a 401(k) plan, will generally be considered abandoned if no contributions to or distributions from the plan have been made for at least 12 consecutive months, and if the QTA has determined that the plan sponsor no longer exists, cannot be located, or is unable to maintain the plan.
- Deemed Termination- An abandoned plan will be deemed terminated on the 90th day following the DOL's acknowledgement of receipt of the notice of plan abandonment. The plan termination will not go through or will be delayed if either the plan sponsor or the DOL objects to the proposed termination. The DOL may waive some or all of the 90-day period, in which case the plan is deemed terminated when the DOL provides notice of the waiver to the QTA.
- Winding Up the Affairs of an Abandoned Plan- The regulations provide procedures for a QTA to conclude the affairs of an abandoned plan, including -
- Notification to the DOL before and after winding up the affairs of and terminating the plan;
- Locating and updating plan records;
- Calculating amounts payable to plan participants and beneficiaries;
- Notification to plan participants and beneficiaries regarding the plan termination and individuals' rights and options;
- Distribution of amounts to participants and beneficiaries; and
- Filing a summary terminal report.
Reasonable expenses incurred in the plan's winding-up and termination may be paid from plan assets. The regulation includes provisions addressing the allocation of expenses and unallocated assets (e.g., forfeitures or amounts in a suspense account), including rules for situations where a plan document is unavailable or ambiguous. The QTA must notify the DOL of any known delinquent employer contributions, but is not required to collect delinquent contributions on the plan's behalf.
The QTA is not required to amend the plan in order to proceed with the plan's winding-up and termination. Rather, the plan is deemed to have been amended to the extent necessary for the QTA to conduct its responsibilities.
- Limited Liability- If the QTA conducts its duties in accordance with the regulations, then it will be deemed to satisfy its responsibilities under ERISA §404(a), except with respect to selection and monitoring of service providers. If service providers are selected and monitored prudently, then the QTA will not be held liable for service provider acts or omissions about which the QTA has no knowledge.
- Plan Qualification- Although not directly within the scope of the DOL's own enforcement authority, the preamble to its regulations state that the IRS will not challenge the qualified status of any plan terminated under the regulation or initiate any adverse action against the QTA, the plan, or any participant or beneficiary, provided the QTA satisfies three conditions -
- Survivor Annuity Requirements – The QTA must reasonably determine the extent to which the survivor annuity requirements apply to benefits payable under the plan and take reasonable steps to comply with those requirements if applicable.
- Vesting – Each participant and beneficiary must have full nonforfeitable rights to accrued benefits as of the date of deemed termination, subject to income, expenses, gains and losses between that date and the date of distribution.
- 402(f) Notice – Participants and beneficiaries must receive notice of their rights under IRC §402(f).
Since no feasible remedy remains, the 7th Circuit has affirmed district court approval of decisions of the bankruptcy court permitting United Airlines to terminate its pilots pension plan without a hearing to determine whether retired pilots should receive replacement benefits. [United Retired Pilots Benefit Protection Association v. United Airlines, No. 05-3121]
An agreement (the "Letter Agreement") to modify the collective bargaining agreement negotiated between United and the pilots' union gave the active pilots compensation in exchange for a union promise not to oppose voluntary termination of the pension plan. The bankruptcy judge approved that agreement under 11 U.S.C. §363(b)(1), which requires bankruptcy court approval for contracts made by the debtor during the bankruptcy that are outside the ordinary course of business. Retired pilots had no representation in those negotiations, and they received no replacement compensation under the agreement.
The question presented by the retired pilots' appeal boils down to whether the bankruptcy judge could approve that agreement without giving any consideration to the retired pilots' interests.
United argued that retired pilots had no stake in the Letter Agreement negotiations, since the retirees had no right to enforce the collective bargaining agreement. While correct, the appellate court pointed out that retirees retained the right to oppose the termination of the pension plan, a right which the active pilots had exchanged for compensation. "But what is true," further observed the court, "is that the already daunting complexity of major corporate bankruptcies would be multiplied if anyone with some potential blocking power, yet whom the trustee or debtor in possession had not thought it worthwhile trying to buy peace with, could insist on negotiating rights as a condition of the bankruptcy judge's approving a transaction out of the ordinary course." Accordingly, to avoid unraveling the §1342 proceeding, perhaps reversing the entire bankruptcy proceedings, the appellate court declined to vacate the Letter Agreement.
Earlier in the course of the bankruptcy, United had sought to terminate the pilots pension plan through a proceeding under §1113 of the Bankruptcy Code, which permits rejection of the executory portion of a collective bargaining agreement only with approval of the bankruptcy judge. The bankruptcy court refused to appoint a representative to those negotiations for retired pilots. United withdrew its §1113 application upon receiving approval of the Letter Agreement. As the §1113 process was aborted, the appellate court reviewed exclusion of the retired pilots from that process only as interlocutory to the order relating to the Letter Agreement.
Although United then proceeded toward voluntary termination of the pilots plan, the PBGC intervened with an involuntary plan termination. The bankruptcy court's approval of the PBGC action currently remains on appeal.
The Pension Benefit Guaranty Corporation did not violate ERISA and other applicable laws when it terminated United Airlines flight attendants’ pension plan, according to a district court ruling handed down yesterday. Although the court considered it improper for the PBGC to rely on its Settlement Agreement with United to justify the plan termination, the court recognized that the agency had other valid justifications on which it relied. [MEC President Letter, Master Executive Council, Association of Flight Attendants-CWA; Press Release (1/13/06)]
Two previous challenges mounted by the flight attendants against the plan termination – one in bankruptcy court and one on appeal to the 7th U.S. Circuit Court of Appeals – had also failed. The flight attendants continue to negotiate with United regarding terms of a replacement 401(k) plan, hoping to improve on the current 4% contribution offer. AFA-CWA has also challenged executive compensation provisions included in United’s Plan of Reorganization, as well as United’s reservation of rights to reject the Flight Attendant Collective Bargaining Agreement after the airline’s emergence from bankruptcy.