Torres v. American Airlines, Inc.

416 F.Supp.3d 640

Olga Martinez TORRES, Linda Davis, Angel Alberio and Fernando Posso, on Behalf of Themselves and All Others Similarly Situated, Plaintiffs,

v.AMERICAN AIRLINES, INC., the Employee Benefits Committee and John/Jane Does 1-5, Defendants.

Civil Action No. 4:18-cv-00983-O

United States District Court, N.D. Texas, Fort Worth Division.

Signed August 7, 2019

Joe Kendall, Kendall Law Group PLLC, Dallas, TX, Alexandra Langley Serber, Gregory Yann Porter, Washington, DC, Mark George Boyko, Bailey & Glasser LLP, St Louis, MO, Jamie Jean Gilmore, Tanner and Associates, Fort Worth, TX, Mark Peter Kindall, Robert A. Izard, Seth R Klein, Douglas P Needham, Izard Kindall & Raabe LLP, West Hartford, CT, for Plaintiffs.

Dee J Kelly, Jr, Lars L Berg, Kelly Hart & Hallman LLP, Fort Worth, TX, Karen Gillen, Mark W Robertson, New York, NY, Shannon Barrett, Washington, DC, Wayne Jacobsen, O'Melveny & Myers LLP, Newport Beach, CA, for Defendants.

ORDER

Reed O'Connor, UNITED STATES DISTRICT JUDGE Before the Court are Defendants American Airlines, Inc. and the Employee Benefits Committee's Motion to Dismiss the Complaint and Memorandum of Law in Support (ECF No. 14), filed February 12, 2019; Plaintiffs' Response to Defendants' Motion to Dismiss (ECF No. 20) and Appendix in Support of Response (ECF No. 21), filed April 4, 2019; and Defendants' Reply Memorandum of Law in Support of Their Motion to Dismiss Plaintiffs' Complaint (ECF No. 24), filed May 6, 2019. Having considered the motion, briefing, pleadings, and applicable law, and for the reasons that follow, the Court DENIES Defendants American Airlines, Inc. and The Employee Benefits Committee's Motion to Dismiss the Complaint (ECF No. 14).

I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

This is a putative class action under the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001 et seq. ("ERISA"). Plaintiffs allege they are participants and beneficiaries of various defined benefit retirement plans sponsored by Defendant American Airlines, Inc. ("American") and administered by American and Defendant Employee Benefits Committee ("Committee") (collectively, "Defendants"). Plaintiffs contend Defendants failed to pay benefits under certain of American's defined benefit plans in amounts that are actuarially equivalent to a single life annuity for the life of a plan participant, as required by ERISA § 205, 29 U.S.C. § 1055. Plaintiffs further allege that by not offering actuarially equivalent pension benefits, Defendants are causing retirees to lose part of their vested retirement benefits in violation of the anti-forfeiture provisions of ERISA § 203(a), 29 U.S.C. § 1053(a).

In recounting the facts, the Court accepts as true all well-pleaded facts in Plaintiffs' Complaint ("Complaint") and views them in the light most favorable to Plaintiffs.

A. The Plans

American sponsors several plans, including the Retirement Benefit Plan of American Airlines, Inc. for Employees Represented by the Transport Workers Union of America, AFL-CIO ("Transport Workers Plan"); the Retirement Benefit Plan of American Airlines, Inc. for Agent, Management, Specialist, Support Personnel and Officers (the "Management Plan"); the Retirement Benefit Plan of American Airlines, Inc. for Flight Attendants (the "Flight Attendants' Plan"); and the American Airlines, Inc. Pilot Retirement Benefit Program Fixed Income Plan (the "Pilots' Plan") (collectively, the "Plans"). Compl. ¶ 9. Each of the Plans is an "employee pension benefit plan" and a "defined benefit plan" governed by ERISA. Id. ¶¶ 32, 33.

Under the terms of the Plans, eligible employees accrue retirement benefits in the form of a single life annuity ("SLA"), a monthly pension that begins at the normal retirement benefit date of age 65 and ends at death. The amount of the SLA is based on a percentage of an employee's compensation during his or her final five years of service and total years of service for American. Id. ¶ 2.

Each of the Plans provides that the normal form of retirement benefits for unmarried participants is an SLA. Id. ¶ 36. Married participants who choose a joint and survivor annuity upon retirement receive lower monthly pension payments than if they had chosen an SLA, in exchange for their spouses receiving payments after their death. Id. ¶ 4. ERISA requires that joint and survivor annuities be "actuarially equivalent" to an SLA, ERISA §§ 205(d)(1)(B) and (d)(2)(A)(ii), 29 U.S.C. §§ 1055(d)(1)(B) and (d)(2)(A)(ii), meaning the present value of the payment streams should be the same. Id.

Consistent with ERISA's requirements, a married participant's accrued benefit is automatically paid in the form of a 50% qualified joint survivor annuity ("QJSA") unless the participant's spouse consents to another form of benefit. Id. (citing ERISA § 205(a) and (b), 29 U.S.C. § 1055(a) and (b) ). Each of the Plans provides that the 50% joint and survivor annuity form of benefit shall be actuarially equivalent to an SLA. Id.

The Plans also provide other qualified optional survivor annuities ("QOSAs"), including joint and survivor annuities that provide payments to the surviving spouse that are 75% or 100% of the benefit amount payable to the participant during the joint lives of the participant and the spouse. Id. ¶ 37. The Plans offer QOSAs in the form of "certain and life" annuities where participants can receive pension benefits for at least a specified minimum number of years, regardless of how long the participant lives. Id. As with the QJSA, the Plans provide that all such benefits must be actuarially equivalent to an SLA. Id.

Finally, the Plan provides a qualified preretirement survivor annuity ("QPSA") to a surviving spouse if a vested participant dies before age 65. Id. ¶ 39. The QPSA is the survivor annuity portion of the Plans' QJSA—a 50% joint and survivor annuity—payable as if the member had retired on the date of his or her death. Id.

B. Actuarial Assumptions (Converting an SLA into Other Forms of Benefits)

Participants in the Plans accrue benefits in the form of an SLA. To convert an SLA into a QJSA, QOSA, and QPSA, the present value of the future benefits that the participant (and, if applicable, the beneficiary) is expected to receive under both the SLA and the alternative form of benefit must be determined. Id. ¶ 40. The present values are then compared to determine the amount of the optional benefit that will be the equivalent of the SLA. "There are two main components of this conversion: an interest rate and a mortality table." Id. "An interest rate is used to determine the present value of each future payment." Id. ¶ 41. "A mortality table is a series of rates which predict how many people at a given age will die before attaining the next highest age." Id. ¶ 42. The Society of Actuaries, an independent actuarial group, publishes the mortality tables that are most widely-used by defined benefit plans when doing these conversions. Id. ¶ 43. New mortality tables were published in 1983, 1984 (the "UP-1984"), 1994 (the "1994 GAR"), 2000 (the "RP-2000"), and 2014 (the "RP-2014"), "to account for changes to a population's mortality experience." Id.

Mortality rates have improved over time with advances in medicine and better collective lifestyle habits. Id. ¶ 6. Since the 1980s, the life expectancies in mortality tables have steadily improved. Id. ¶ 44. "[T]here have been ‘increasing life expectancies over time’ and just moving from the RP-2000 mortality table to the RP-2014 table would increase pension liabilities by 7%." Id. (quoting Aon Hewitt, Society of Actuaries Finalizes New Mortality Assumptions: The Financial and Strategic Implication for Pension Plan Sponsors (Nov. 2014) at 1). Using older mortality tables with accelerated death rates decreases the present value of the joint and survivor annuity and, ultimately, the monthly payment that retirees receive under a joint and several annuity. Id. ¶ 48. In addition to mortality rates, interest rates used in calculating the present value of benefits affects the amount of the joint and survivor annuity. Id. ¶ 47.

As previously stated, each of the Plans offers joint and survivor annuities to participants, and each Plan specifies the use of the same actuarial assumptions when calculating those benefits. Each Plan uses a 5% interest rate and specifies the use of the UP-1984 mortality table, developed over thirty years ago when people had shorter life expectancies, to calculate the QJSAs, QOSAs, and QPSAs, as well as other optional forms of benefits. Id. ¶ 49.

Plaintiffs contend that Defendants' use of a mortality assumption that is based on a 1984 mortality table is inherently unreasonable because of its outdated accelerated mortality rates. Specifically, Plaintiffs allege:

By using the UP 1984 table, the Plans are decreasing the value of the QJSA, QOSA and QPSA relative to the SLA under the Plans, thereby reducing the monthly benefits that participants and beneficiaries would receive if updated, current mortality assumptions were used. Using the UP 1984 table instead of a mortality table with current data reduces the monthly benefit by over 6% for a 50% joint and survivor annuity and by over 11% for a 100% joint and survivor annuity. Using the UP 1984 table similarly reduces the monthly payment of a "certain and life" annuity from what it should be if current, reasonable assumptions are used. For example, the value of the Plans' 120 month "certain and life" option is reduced by over 7% because the Plans' outdated actuarial assumptions.

Id. ¶ 54. With respect to the 5% interest rate, Plaintiffs allege that while the rate, on its own, is not unreasonable, when combined with the Plans' use of the UP-1984 to calculate equivalent benefits, it yields an unreasonable result. Id. ¶ 52.

Plaintiffs also allege that Defendants "use very different mortality assumptions when they are not paying benefits to participants and beneficiaries but are instead calculating the amounts American must contribute...