Northwest Airlines, Inc. v. Phillips

114 Fair Empl.Prac.Cas. (BNA) 1215

162 Lab.Cas. P 10,469

52 Employee Benefits Cas. 2665

675 F.3d 1126

NORTHWEST AIRLINES, INC., Plaintiff–Appellee,Air Line Pilots Association, Intervenor below-Appellee,

v.Raymond B. PHILLIPS; Michael Tanksley; Belmont Beck; Platt Hubbell; Timothy I. Meldahl; George S. Novotny; William J. Riley; Ralph C. Taylor, Individually, and as Representatives of Persons Similarly Situated, Defendants–Appellants.

No. 11–1730.

United States Court of Appeals, Eighth Circuit.

Submitted: Dec. 15, 2011.Filed: April 9, 2012.

Nina Rachel Wasow, argued and on the brief, Oakland, CA, Douglas Micko, Lawrence P. Schaefer, Darren Sharp, Minneapolis, MN, Jeffrey Greg Lewis, Margaret Hasselman, Oakland, CA, on the brief, for Appellant.

Stephen P. Lucke, argued and on the brief, Thomas Tinkham, Andrew T. Holly, on the brief, Minneapolis, MN, for the Appellee Northwest Airlines, Inc.

Richard M. Seltzer, argued and on the brief, Thomas N. Ciantra, Evan Hudson–Plush, New York, NY, on the brief, for Appellee Air Line Pilots Association.

Before LOKEN, BRIGHT, and SHEPHERD, Circuit Judges.

BRIGHT, Circuit Judge.

Appellees Northwest Airlines, Inc. (Northwest) and the Air Line Pilots Association (Pilots Association) filed a complaint seeking a declaratory judgment that their post-bankruptcy retirement benefit plan, the Money Purchase Plan for Pilot Employees (MP3), complied with the Employment Retirement Income Security Act (ERISA), 29 U.S.C. §§ 1001–1461 (2000). Appellants, a group of older Northwest pilots (older Pilots),¹ counterclaimed arguing that the MP3 retirement benefit plan violated ERISA, the Age Discrimination in Employment Act (ADEA), 29 U.S.C. §§ 621– 634 (2000), and several state laws prohibiting age discrimination. The district court ² granted Northwest's and the Pilots Association's motions for summary judgment. On appeal, the older Pilots argue that the MP3 illegally reduces or eliminates their retirement benefit payments because of age and that the district court improperly disregarded the declaration of one of their experts. We affirm.

I. Background

In September 2005, Northwest declared bankruptcy. Prior to that point, Northwest provided retirement benefits to its pilots through a defined benefit plan—the Northwest Airlines Pension Plan for Pilot Employees (Pension Plan). ³ Under the Pension Plan, pilots received retirement benefits up to 60% of their final average earnings depending on the pilot's years of service. In addition, pilots had the ability to contribute on their own to a defined contribution plan.⁴

After declaring bankruptcy, the airline and Pilots Association obtained passage of legislation permitting Northwest to spread funding of the Pension Plan over an additional number of years instead of terminating the plan. See Pension Protection Act of 2006, Pub.L. No. 109–280, § 402, 120 Stat. 780 (codified in scattered sections of 26 and 29 U.S.C.). Termination of the Pension Plan would have significantly reduced the pilots' retirement benefits. ⁵ Instead, Northwest and the Pilots Association froze the Pension Plan—fixing each pilot's benefits under the plan as of January 31, 2006. No future years of service or earnings after that date could be used to calculate benefits.

To replace the Pension Plan, Northwest and the Pilots Association initially reached an agreement for Northwest to contribute a defined percentage of a pilot's earnings to a retirement savings account for each pilot (pro rata to pay). The percentage of Northwest's contributions would increase through 2011 and then remain constant at 8% of the pilot's earnings. The letter agreement also provided the option for the Pilots Association to determine an alternate method for Northwest to allocate contributions to retirement savings accounts “subject to [Northwest's] agreement that it is legal, complies with applicable regulations, and is administratively feasible.”

However, the Pilots Association calculated that the combination of the frozen Pension Plan and the pro rata to pay contributions would have led to significant disparity in retirement income between more senior pilots, who had accrued substantial benefits under the frozen Pension Plan, and pilots with less years of service under the frozen plan.⁶ To address this disparity, the Pilots Association proposed changing the method for allocating Northwest's contributions to a target benefit plan.⁷ The goal was to allocate contributions so that all pilots, in combination with the frozen Pension Plan, would receive “an aggregate replacement income equal to approximately 50% of their final average earnings as an active pilot (or frozen [Pension Plan] benefit if higher).” The majority of the pilots voted in favor of the Pilots Association's proposed restructuring agreement, which included the targeted methodology for allocating retirement benefits. Northwest and the Pilots Association subsequently negotiated the specifics of what became the challenged MP3 and executed a letter agreement implementing the plan on December 11, 2007.

To calculate retirement benefits, the MP3 starts by employing a “stovepipe model” to project a hypothetical career with Northwest for each individual pilot in order to estimate the pilot's final average earnings at retirement. The stovepipe model assumes that each pilot retires at 60—the mandatory retirement age for pilots in effect at the time.⁸ When a pilot retires, the model assumes that the next pilot with the highest seniority is promoted to replace the retired pilot, and that all other pilots are then promoted in the same step-wise manner. The model also assumes that the fleet size is static, openings are created solely by normal retirement, all pilots accept their promotions, and rates of pay will be increased each year by 1.5% from 2008–2010 and by 2.0% in 2011 and after. With these assumptions, the stovepipe model is able to calculate the projected final average earnings for each pilot.⁹ The model was implemented as of December 31, 2007, and does not take into account any deviations from a pilot's projected career as compared to the pilot's actual experience.

Based on a pilot's age and years of service, the MP3 then calculates a “target percentage” of the pilot's projected final average earnings to be provided as a retirement benefit. A pilot's age and years of service as of December 31, 2007 are added together to determine a point value for that pilot, which corresponds to a table that provides the pilot's target percentage. The more points a pilot has, the higher the target percentage. Therefore, an older pilot with the same years of service as a younger pilot has a higher target percentage than the younger pilot.

The target percentage is then multiplied by the projected final average earnings and a “service ratio” to determine the pilot's “gross target benefit.” The service ratio is the pilot's projected total years of service at age 60 divided by 25. The number of years of service taken into account for the service ratio is also limited to 25.¹⁰ Therefore, pilots who have worked with Northwest for at least 25 years when they retire will receive the full percentage of their final average earning—otherwise the pilot will receive less. The gross target benefit is expressed as a monthly lifetime payment beginning at age 60.

If a pilot accrued benefits under the frozen Pension Plan, those benefits are then subtracted from the pilot's gross target benefit to obtain the “net target benefit” (still expressed as a monthly payment). If a pilot's frozen Pension Plan benefits exceed the gross target benefit under the MP3, the pilot does not receive any contributions from the MP3, and will only have the frozen Pension Plan benefits. For pilots who do receive contributions under the MP3, in some cases those contributions are still less than they would have received under the pro rata to pay plan.

Finally, for pilots who receive contributions from the MP3, the net target benefit is converted into a lump sum value that is the estimated amount the pilot needs to have accumulated by the age of 60 to fund the net target benefit. The target contribution received by the pilot is then a semi-monthly contribution made until the earlier of the completion of 25 years of service or reaching age 60, which, together with an assumed investment return of 8%, will achieve the lump sum value.

In December 2007, Northwest filed a declaratory judgment action, requesting the district court to find that the MP3 complied with ERISA. The older Pilots, all of whom either receive no contributions under the MP3 or receive smaller contributions than under the pro rata to pay plan, counterclaimed, arguing that the plan violated the ADEA, the parallel provisions of ERISA § 204(b)(2)(A) and ADEA § 4(i)(1)(B), and several state laws prohibiting age discrimination.¹¹ In November 2008, Northwest and the Pilots Association filed motions for judgment on the pleadings and summary judgment, arguing that the MP3 does not violate the parallel provisions of ERISA § 204(b)(2)(A) and ADEA § 4(i)(1)(B), that ADEA § 4(i)(4) precludes claims under ADEA § 4(a), (c), and that ERISA preempts the state-law claims. The district court granted Northwest's and the Pilots Association's motions for summary judgment. On appeal, the older Pilots argue that the MP3 improperly reduces or eliminates their retirement benefit payments because of age and that the district court improperly disregarded the declaration of one of their experts.¹²

II. Discussion

This court reviews the grant of a motion for summary judgment de novo, and views all evidence most favorable to, and makes all reasonable inferences for, the nonmoving party. Country Life Ins. Co. v. Marks, 592 F.3d 896, 898 (8th Cir.2010); Fed.R.Civ.P. 56(c). Summary judgment should be affirmed when there is no genuine issue of material fact and the appellee is entitled to judgment as a matter of law. Coates v. Powell, 639 F.3d 471, 475 (...