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Northwest Airlines, Inc. v. Phillips et al.: US District Court :EMPLOYMENT | ADEA | ERISA - using factors correlated with age not necessarily age discrimination; summary judgment regarding airline plan

1
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Northwest Airlines, Inc.,
Plaintiff/Counterdefendant,
and
Air Line Pilots Association,
Intervenor-Plaintiff/Counterdefendant,
v. Civil No. 07-4803 (JNE/JJG)
ORDER
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.
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 Northwests 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
2
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
Northwests and ALPAs 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 Northwests and ALPAs motions.
I. BACKGROUND
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
1 ADEA 4(a) applies to employers such as Northwest, while ADEA 4(c) applies to
labor organizations such as ALPA. See 29 U.S.C. 623(a) (It shall be unlawful for an
employer); id. 623(c) (It shall be unlawful for a labor organization). Although the Pilots do
not refer to ADEA 4(c) in their motion papers, the Court references the Pilots claims under
both subsections.
2 In a defined benefit plan, the employer bears the risk of investment performance because
the benefit is generally guaranteed regardless of how the market performs. See Hirt v. Equitable
Ret. Plan for Employees, Managers, & Agents, 533 F.3d 102, 104-05 (2d Cir. 2008).
3
amount of the annuity was based on the participants 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 pilots 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 (codified in scattered sections of 26 and 29
U.S.C.). 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
pilots 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,
3 In a defined contribution plan, each employee has an individual account and receives a
benefit based on the amount contributed to the account and any income, expenses, gains, and
losses. See Hirt, 533 F.3d at 104-05. The employee bears the investment risk. See id. at 105.
4
that [ALPA] shall have the right to determine an alternate method for allocating the [Northwest]
contribution to Participants [RSP accounts] subject to [Northwests] 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 Northwests 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
pilots 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 pilots
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,
4 A post-bankruptcy reduction in pilots salaries contributed to the disparity.
5 A target benefit plan is a type of defined contribution plan designed to emulate a defined
benefit plan in that employer contributions are actuarially determined as those necessary to
achieve a targeted benefit for the employee based on various reasonable assumptions. Dan M.
McGill et al., Fundamentals of Private Pensions 283 (8th ed. 2005).
6 Northwests contributions to the RSP are insufficient to achieve a target of 60%.
5
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 pilots hypothetical career. It does not take into account any deviation between its
projections and a pilots actual experience after the effective date of the MP3.
Next, each pilots target percentage is determined based on the pilots age and number
of points. The target percentage is the percentage of a pilots projected final average earnings
the MP3 is designed to provide as a retirement benefit. Each pilots 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 pilots gross target benefit, expressed as
7 When the MP3 became effective, the Federal Aviation Administration (FAA) imposed a
mandatory retirement age of 60 for pilots. On December 13, 2007, two days after adoption of
the MP3, Congress extended the mandatory retirement age for pilots from 60 to 65. 49 U.S.C.A.
44729(a) (West Supp. 2008). Congress expressly prohibited suits based on acts taken in
conformance with the FAA limitation of 60 prior to passage of that section. See id.
44729(e)(2).
6
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 pilots projected years of service at age 60 divided by 25. Projected years of service are
calculated as the sum of the pilots 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 pilots 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, however, these contributions will be lower than what the pilot
would have received under the pro-rata to pay plan. For the pilots who receive contributions
under the MP3, the net target benefit is converted to a lump sum value determined as of the date
the pilot will turn 60. This lump sum value is an estimate of the amount required to fund the
pilots net target benefit. The target contribution received by the pilot is a semi-monthly
contribution made until the earlier of the completion of 25 years of service or age 60, which,
8 ADEA permits a plan to limit, without regard to age, the years of service taken into
account for purposes of determining benefit accrual under the plan. See 29 U.S.C. 623(i)(2).
7
together with an assumed investment return of 8%, will achieve the lump sum value.9
For purposes of the Pilots ERISA and duty of fair representation claims, the named
defendants/counterclaimants represent a class of Northwest pilots who are participants in the
MP3, are age 40 and over, and who receive no contributions under the MP3 or smaller
contributions to their MP3 accounts than under the pro-rata to pay plan.10 For purposes of the
ADEA claims, they represent collective action members who are Northwest pilots, participants
in the MP3, are age 40 or over, and receive no contributions under the MP3 or smaller
contributions to their MP3 accounts than under the pro-rata to pay plan. Of the 4399 pilots
participating in the MP3, almost half will receive no contributions under the MP3 because their
frozen Pension Plan benefit exceeds their gross target benefit, and some will receive a smaller
contribution under the MP3 than their contribution under the pro-rata to pay plan.
II. DISCUSSION
All parties presented matters outside the pleadings in support of their respective
positions. The Court therefore treats Northwests and ALPAs motions as motions for summary
judgment. See Fed. R. Civ. P. 12(d).
Summary judgment is proper if the pleadings, the discovery and disclosure materials on
file, and any affidavits show that there is no genuine issue as to any material fact and that the
movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). The movant bears the
initial responsibility of informing the district court of the basis for its motion, and must identify
9 According to a joint collective bargaining agreement negotiated as a result of the merger
between Northwest and Delta Air Lines, the MP3 terminates at the end of 2013 and will be
replaced by pro-rata to pay contributions of 14% in 2014. Under the terms of the agreement,
Northwest will contribute to the RSP an additional 1% in 2010, 2% in 2011, 3% in 2012, and 6%
in 2013, to be allocated on a pro-rata to pay basis.
10 Minnesota, California, and Washington subclasses exist for pilots who reside in one of
those three states.
8
those portions of [the record] which it believes demonstrate the absence of a genuine issue of
material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). If the movant satisfies its
burden, the nonmovant must respond by submitting evidentiary materials that set out specific
facts showing a genuine issue for trial. Fed. R. Civ. P. 56(e)(2); see Matsushita Elec. Indus. Co.
v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). In determining whether summary judgment is
appropriate, a court must look at the record and any inferences to be drawn from it in the light
most favorable to the nonmovant. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986).
A. Claims under ERISA 204(b)(2)(A) and ADEA 4(i)(1)(B)
The Pilots claim that the MP3 violates provisions in ADEA and ERISA prohibiting the
cessation of allocations or reduction of the rate of allocations to an employees defined
contribution account because of age. ADEA 4(i)(1)(B) proscribes the cessation of allocations
to an employees account, or the reduction of the rate at which amounts are allocated to an
employees account, because of age, 29 U.S.C. 623(i)(1)(B), and ERISA 204(b)(2)(A)
provides that a plan satisfies the requirements of [ERISA 204(b)(2)] if, under the plan,
allocations to the employees account are not ceased, and the rate at which amounts are allocated
to the employees account is not reduced, because of the attainment of any age, id.
1054(b)(2)(A). Congress intended these subsections to be interpreted in a consistent manner.
See H.R. Rep. No. 99-1012, at 378-79 (1986) (Conf. Rep.), as reprinted in 1986 U.S.C.C.A.N.
3868, 4023-24. Consequently, if the MP3 violates ERISA 204(b)(2)(A), it violates ADEA
4(i)(1)(B), and if the MP3 does not violate ERISA 204(b)(2)(A), it does not violate ADEA
4(i)(1)(B). See Hurlic v. S. Cal. Gas Go., 539 F.3d 1024, 1036 (9th Cir. 2008).
As originally enacted, ERISA permitted employers to stop benefit accruals or allocations
to an employees account if the employee worked beyond the normal retirement age under the
9
plan. See H.R. Rep. 99-1012, at 378, as reprinted in 1986 U.S.C.C.A.N. 3868, 4023. Congress
enacted ERISA 204(b)(2)(A) and ADEA 4(i)(1)(B) as part of the 1986 Omnibus Budget
Reconciliation Act (OBRA), 99 Pub. L. 509, 100 Stat. 1874, to prevent employers from reducing
or discontinuing allocations to an employees account on account of the attainment of a
specified age and to require a plan to provide for benefit accruals and contributions with
respect to an employees years of plan participation after normal retirement age.11 See H.R.
Rep. No. 99-1012, at 376, 378, as reprinted in 1986 U.S.C.C.A.N. 3868, 4021, 4023.
Courts analyze challenges made under OBRA based on the structure and terms of the
challenged plan. See, e.g., Hurlic, 539 F.3d at 1029-32; Hirt v. Equitable Ret. Plan for
Employees, Managers, & Agents, 533 F.3d 102, 107-10 (2d Cir. 2008); Register v. PNC Fin.
Servs. Group, Inc., 477 F.3d 56, 67-70 (3d Cir. 2007); Cooper v. IBM Pers. Pension Plan, 457
F.3d 636, 637-42 (7th Cir. 2006); Atkins v. Nw. Airlines, Inc., 967 F.2d 1197, 1199-1202 (8th
Cir. 1992). Here, the parties directed their arguments to the structure and terms of the MP3 and
stovepipe model. The Court therefore considers the Pilots challenge under ERISA
204(b)(2)(A) and ADEA 4(i)(1)(B) based on the structure and terms of the MP3, including
the stovepipe model, and does not consider disparate treatment or disparate impact in the context
of those claims. See Vaughn v. Air Line Pilots Assn, Intl, 395 B.R. 520, 541 n.14 (E.D.N.Y.
2008) (disparate impact and discriminatory treatment claims cannot be asserted under ADEA
4(i)); Eaton v. Onan Corp., 117 F. Supp. 2d 812, 823 (S.D. Ind. 2000) (whether ERISA
204(b) and ADEA 4(i) are violated does not depend on any question of intent).
11 ADEA and ERISA contain parallel subsections directed to defined benefit plans. See 29
U.S.C. 623(i)(1)(A), 1054(b)(1)(H)(i); see also Cooper v. IBM Pers. Pension Plan, 457 F.3d
636, 638 (7th Cir. 2006) (describing ERISA 204(b)(1)(H)(i), (b)(2)(A) as parallel provisions).
10
The Pilots do not allege that the MP3, on its face, discontinues or reduces allocations
when a pilot works beyond the age of 60.12 Rather, they base their challenge to the MP3 on its
use of the stovepipe model to predict each pilots final average earnings. Specifically, the Pilots
claim the stovepipe models use of age to calculate remaining years of service, its subsequent use
of remaining years of service to project final average earnings, and the MP3s reliance on the
projected final average earnings figure violate ERISA 204(b)(2)(A) and ADEA 4(i)(1)(B).
The stovepipe model used age to calculate remaining years of service by subtracting the
pilots age on December 31, 2007, from the then-mandatory retirement age of 60.13 It then used
remaining years of service in conjunction with the pilots flight/seat position and seniority as of
December 31, 2007, to predict whether he would be promoted to higher-paying positions before
his assumed retirement at age 60. The stovepipe model also used each pilots remaining years of
service when determining the number and amount of annual pay increases and cost of living
adjustments the pilot would receive before age 60. In other words, the stovepipe model took into
account the effect of a federally-mandated retirement age on opportunities for promotions and to
receive cost of living adjustments and annual pay increases when projecting a pilots final
average earnings.
12 The MP3 provides that for a pilot who continues working after 60, the net target benefit
will be re-determined on the January 1 following the pilots normal retirement date at age 60 and
each January 1 thereafter by increasing the numerator in the pilots service ratio to include
projected benefit service that could be earned by the end of the calendar year including the redetermination
date, subject to the restriction that the numerator will not exceed 25. The pilots
projected final average earnings will remain unchanged.
13 A plan may provide for a normal retirement age without violating ADEA 4(i)(1)(B).
See 29 U.S.C. 623(i)(8) (A plan shall not be treated as failing to meet the requirements of this
section solely because such plan provides a normal retirement age . . .).
11
As explained by several circuit courts of appeals when rejecting age discrimination
challenges to cash balance pension plans,14 nothing in the language or legislative history of
OBRA suggests that Congress set out to legislate against the fact that younger workers have
(statistically) more time left before retirement, and thus a greater opportunity to earn interest on
each years retirement savings. See, e.g., Hurlic, 539 F.3d at 1031; Register, 477 F.3d at 66;
Cooper, 457 F.3d at 639. The Pilots seek to distinguish the cash balance cases because all
participants in a cash balance plan receive the same allocations to their accounts, whereas all
MP3 participants do not receive the same allocations.15 Despite this difference, the Court finds
an underlying principle of the cash balance casesthat Congress did not intend age
discrimination under OBRA to include disparities resulting from the passage of timeequally
applicable to the Pilots challenge to the MP3. Treating a younger pilots increased earning
potential resulting from his greater remaining years of service as a form of age discrimination is
not sensible. Cf. Cooper, 457 F.3d at 639; U.S. Equal Employment Opportunity Commn v.
Baltimore County, __ F. Supp. 2d __, Civil No. L-07-2500, 2009 WL 139582, at *3 (D. Md. Jan.
21, 2009) (Baltimore Countys requirement that older new-hires pay higher contribution rates is
based on the number of years a new-hire has until reaching normal retirement age and how long
14 A cash balance plan is a defined benefit plan where pay credits, usually expressed as a
percentage of compensation, and interest credits, which are hypothetical earnings, are
deposited in a participants hypothetical account. Drutis v. Rand McNally & Co., 499 F.3d 608,
613 (6th Cir. 2007). A participant receives the right to future interest credits projected out to
normal retirement age when she receives a pay credit for a year of service. Id. In a cash balance
plan, the projected interest credits are larger for younger employees, who necessarily have a
longer period of time before they reach age 65. Id.
15 The Pilots also seek to distinguish the cases on the ground that they involve defined
benefit rather than defined contribution plans. This distinction is not persuasive because, as
explained by the Seventh Circuit in Cooper, the ERISA subsections governing defined benefit
and defined contribution plans provide similar treatment with respect to claims of age
discrimination. 457 F.3d at 641.
12
it will take to accumulate a sufficient reserve to fund the new-hires life annuity. This is an
economicnot age-basedconsideration. It is of no legal consequence, therefore, that the
ERSs member contribution rates are correlated with age.).
Counsel for the Pilots at the hearing conceded that he could not think of a way for
employers to accurately project final average earnings without considering age. Counsel
suggested that employers avoid using age by just set[ting] a number for either projected final
average earnings or a desired monthly annuity. Nothing in OBRAs language or legislative
history suggests that Congress intended OBRAwhich was enacted to ensure that employees
received benefit accruals and contributions for employment after normal retirement ageto limit
employers to arbitrarily-selected targets or to prohibit employers from using projected future
average earnings as a target. See Atkins, 967 F.2d at 1199 (Congress enacted OBRA to require
employers to credit employees on their pensions for employment that continued after normal
retirement age); H.R. Rep. No. 99-1012, at 376, as reprinted in 1986 U.S.C.C.A.N. 3868, 4021
(OBRA requires a plan to provide for benefit accruals and contributions with respect to an
employees years of plan participation after normal retirement age.). The stovepipe models use
of age to project final average earnings and the MP3s reliance on that figure do not implicate the
policies behind the enactment of OBRA. The stovepipe models incorporation of a federallymandated
retirement age into its projection of final average earnings does not constitute age
discrimination under ADEA 4(i)(1)(B) and ERISA 204(b)(2)(A).
Moreover, showing age discrimination under ADEA 4(i)(1)(B) and ERISA
204(b)(2)(A) requires more than showing that allocations differ among employees. The Pilots
must show that the allocations are ceased or reduced because of age. See 29 U.S.C.
623(i)(1)(B), 1054(b)(2)(A). On its face, the MP3 does not use age when calculating
13
allocations. The Court therefore turns to whether the MP3s use of projected final average
earnings, which incorporates a pilots age, equates to cessation or reduction of allocations
because of age.
The Pilots offer the declarations of Ian Altman, an actuarial consultant, and Dr. Richard
Drogin, a professor in statistics, in support of their argument that the stovepipe models use of
age violates ERISA 204(b)(2)(A) and ADEA 4(i)(1)(B). These declarations do not aid the
Court because they do little more than show a negative correlation between age and allocations
under the MP3.16 See Cooper, 457 F.3d at 642 (explaining that it is essential to separate age
discrimination from other characteristics that may be correlated with age . . . a plaintiff alleging
age discrimination must demonstrate that the complained-of effect is actually on account of
age) (citations omitted)). Although the Pilots base their challenge on the effect age has on
projected final average earnings, they provide no data or information as to the actual effect of
age, isolated from other variables, on projected final average earnings or on allocations under the
MP3.
An understanding of the effect of age on projected final average earnings, and therefore
MP3 allocations, is essential to the Courts analysis because it is not age discrimination to base
allocations on a factor that is analytically distinct from, yet correlated with, age. See Hazen
Paper Co. v. Biggins, 507 U.S. 604, 611 (1993); Hurlic, 539 F.3d at 1031 (no age discrimination
under ERISA 204(b)(1)(H)(i) when difference in total accrued benefit resulted from time value
of money, which was analytically distinct from age); Cooper, 457 F.3d at 639 (same); EEOC v.
16 The Court disregards Altmans conclusion that the stovepipe models projection of final
average earnings based on a pilots remaining years of service directly translates into providing
allocations that reduce or cease because of age because Altman does not explain why the
negative correlation between age and allocations under the MP3 requires this conclusion, show
the effect of age on allocations, or account for the effect of other variables such as projected
service ratio. See Jackson v. Anchor Packing Co., 994 F.2d 1295, 1304 (8th Cir. 1993).
14
McDonnell Douglas Corp., 191 F.3d 948, 951 (8th Cir. 1999) (holding that employment
decisions motivated by factors other than age (such as retirement eligibility, salary, or seniority),
even when such factors correlate with age, do not constitute age discrimination). If projected
final average earnings is analytically distinct from age, Northwest may base allocations under the
MP3 on projected final average earnings without running afoul of ERISA 204(b)(2)(A) and
ADEA 4(i)(1)(B).
A variable may be analytically distinct from age even though it depends in part on age.
See Ky. Ret. Sys. v. EEOC, 128 S. Ct. 2361, 2367 (2008). As explained in Kentucky Retirement,
age and pension status are analytically distinct because:
one can easily conceive of decisions that are actually made because of pension
status and not age, even where pension status is itself based on age. Suppose, for
example that an employer pays all retired workers a pension, retirement eligibility
turns on age, say 65, and a 70-year-old worker retires. Nothing in language or in
logic prevents one from concluding that the employer has begun to pay the
worker a pension, not because the worker is over 65, but simply because the
worker has retired.
128 S. Ct. at 2367. Here, a pilots allocation under the MP3 depends on his projected service
ratio, his frozen Pension Plan benefit, his points, and the amount of his projected final average
earnings, which is a function of his age, seniority, and flight/seat position as of December 31,
2007. Nothing prevents one from concluding that a pilot receives allocations under the MP3 not
because he is younger, but simply because he held a high-paying flight/seat position as of
December 31, 2007, or because his projected service ratio is 1 rather than 0.6.17 Projected final
average earnings and age are analytically distinct.
17 The Court notes that the MP3 uses projected remaining years of service, which is based
in part on age, to calculate each pilots projected service ratio. The Pilots do not challenge the
MP3s use of an age-based projected service ratio, which is directly related to the gross target
benefit, nor do they explain why using age when calculating projected final average earnings
violates ERISA 204(b)(2)(A) and ADEA 4(i)(1)(B) when the use of age to calculate a
projected service ratio does not.
15
The analytical distinction between projected final average earnings and age is illustrated
by the fact that some older pilots have higher projected final average earnings than younger
pilots. For example, the stovepipe model projected final average earnings of 1,414 for one
named defendant who was 56 years old on January 1, 2008, and of 8,385 for another named
defendant who was 52 years old on that date.18 Because projected final average earnings and age
are analytically distinct, Northwest may base MP3 allocations on projected final average
earnings without violating ERISA 204(b)(2)(A) or ADEA 4(i)(1)(B). See Hazen Paper, 507
U.S. at 611; Hurlic, 539 F.3d at 1031; Cooper, 457 F.3d at 639; McDonnell Douglas, 191 F.3d at
951.
Finally, the Court addresses three additional claims made in the Altman declaration.
According to Altman, adjusting the projected final average earnings figure to reflect actual
earnings and to factor in pay increases occurring after the age of 60 would benefit older pilots
most because it could convert them from receiving no contributions to receiving contributions
under the MP3. Altman also claims that making MP3 allocations as a level percent of pay rather
than a level dollar amount would cause a substantially greater percentage of the total Northwest
contribution to go to older pilots. The Pilots do not explain how these features of the MP3 and
stovepipe model amount to reducing or ceasing allocations because of the attainment of any
age, and the Court concludes that these features do not violate ERISA 204(b)(2)(A) and
ADEA 4(i)(1)(B). For these reasons, the Court grants Northwest and ALPA summary
judgment that the MP3 does not violate ADEA 4(i)(1)(B) or ERISA 204(b)(2)(A).
18 Both pilots had a projected service ratio of 1.
16
B. Claims under ADEA 4(a), (c)
Northwest and ALPA argue that the Pilots may not bring claims under ADEA 4(a), (c)
because the MP3 does not violate ADEA 4(i). The Pilots contend that this argument is in
tension with the Supreme Courts decisions in Smith v. City of Jackson, 544 U.S. 228 (2005), and
Kentucky Retirement Systems v. EEOC, 128 S. Ct. 2361 (2008). Having concluded that the MP3
does not violate ADEA 4(i)(1)(B), the Court turns to whether the Pilots may bring claims
under ADEA 4(a), (c).
ADEA 4(i)(4) states [c]ompliance with the requirements of this subsection with
respect to an employee pension benefit plan shall constitute compliance with the requirements of
this section relating to benefit accrual under such plan. The Courts objective in interpreting a
federal statute is to give effect to the intent of Congress. United States v. McAllister, 225 F.3d
982, 986 (8th Cir. 2000) (quotation marks omitted). If the plain language of the statute is
unambiguous, that language is conclusive absent clear legislative intent to the contrary.
Therefore, if the intent of Congress can be clearly discerned from the statutes language, the
judicial inquiry must end. Id. (quoting United States v. S.A., 129 F.3d 995, 998 (8th Cir. 1997)).
The statutory language is unambiguousan employee pension benefit plan that complies with
ADEA 4(i) complies with the requirements of ADEA 4 with respect to benefit accrual. The
Pilots do not dispute that their challenge is directed to benefit accrual or to an employee pension
benefit plan, nor have they challenged the MP3 under any portion of ADEA 4(i) other than
ADEA 4(i)(1)(B). ADEA 4(i)(4) dictates that the MP3s compliance with ADEA
4(i)(1)(B) constitutes compliance with ADEA 4(a), (c).
The legislative history of ADEA 4(i) supports the conclusion that ADEA 4(i)(4)
precludes the Pilots claims under ADEA 4(a), (c). According to the Conference Report, [i]t
17
is the intention of the conferees [in adopting 4(i)] that the requirements contained in section
4(i) related to an employees rights to benefit accruals with respect to an employee benefit plan
. . . shall constitute the entire extent to which ADEA affects such benefit accrual and contribution
matters with respect to such plans. H.R. Rep. No. 99-1012, at 382, as reprinted in 1986
U.S.C.C.A.N. 3868, 4027. Therefore, the legislative history confirms that a plaintiff may not
proceed under ADEA 4(a), (c) if the challenged plan satisfies ADEA 4(i).
The Supreme Courts decisions in Smith and Kentucky Retirement do not require a
different conclusion. In Smith, the Supreme Court held that disparate impact claims were
cognizable under ADEA 4(a). See 544 U.S. at 232. The Pilots contend that interpreting
ADEA 4(i)(4) to preclude claims under ADEA 4(a) would significantly limit Smith because a
plan that does not violate ADEA 4(i) has a free pass from claims of age discrimination
related to benefit accruals. The Pilots further contend that the Supreme Courts analysis of a
challenge to a disability benefit plan under ADEA 4(a) in Kentucky Retirement, 128 S. Ct. at
2364, was an implicit recognition that claims of discriminatory pension accruals could proceed
under ADEA 4(a). There is no indication that ADEA 4(i)(4) was raised in Smith or Kentucky
Retirement, and the Supreme Court did not address the effect of this subsection on claims under
ADEA 4(a), (c) in either opinion. The Court therefore declines to draw any conclusion as to
the effect of ADEA 4(i)(4) on claims under ADEA 4(a), (c) from these decisions. Moreover,
while precluding challenges to a plan under ADEA 4(a), (c) if the plan complies with ADEA
4(i) may significantly limit Smith, this result follows from the unambiguous language of
ADEA 4(i)(4).
Several other cases cited by the Pilots either do not discuss ADEA 4(i)(4), see Jankovitz
v. Des Moines Independent Community School District, 421 F.3d 649 (8th Cir. 2005); Arnett v.
18
California Public Employees Retirement System (PERS), 179 F.3d 690 (9th Cir. 1999), or
support the conclusion that compliance with the requirements of ADEA 4(i) precludes claims
under ADEA 4(a), (c), see Engers v. AT&T, No. Civ. A. 98-3660, 2007 WL 958472, at *2
(D.N.J. Mar. 29, 2007) (The meaning of 4(i) is plain and unambiguous: if a plan complies
with 4(i), it complies with all benefit accrual requirements in 4.). Although the court in
George v. Duke Energy Retirement Cash Balance Plan permitted the plaintiffs to proceed with a
disparate impact claim under ADEA 4(a) after dismissing a claim under ADEA 4(i)(A)(1)
over the defendants objection that ADEA 4(i) is the sole ground for challenging allegedly
discriminatory benefit accruals under the ADEA, the court did not discuss the language of
ADEA 4(i)(4). See 560 F. Supp. 2d 444, 463-64 (D.S.C. 2008). The Court therefore finds
George unpersuasive.
In contrast, the Ninth Circuits discussion of ADEA 4(i)(4) in Hurlic is helpful. The
Ninth Circuit affirmed the dismissal of a claim under the ERISA provision prohibiting, for
defined benefit plans, the cessation of benefit accrual or reduction of the rate of benefit accrual
because of the attainment of any age. Hurlic, 539 F.3d at 1029-32. The court of appeals then
found that ERISA preempted the plaintiffs age discrimination claims under state law. Id. at
1035-37. In doing so, the Ninth Circuit interpreted ADEA 4(i)(4) to mean that a pension plan
provision relating to benefit accrual need satisfy only the requirements of ADEA 4(i). Id. at
1036-37. The Pilots contend that Hurlic is in error because it did not discuss Smith, but as
previously explained, nothing in Smith suggests that ADEA 4(i)(4) does not mean what it
saysthat a plan that complies with ADEA 4(i) complies with the entirety of ADEA 4.
Consequently, the Court finds the discussion of ADEA 4(i)(4) in Hurlic persuasive as to its
effect on the Pilots claims under ADEA 4(a), (c).
19
The Pilots argue that it is doubtful that Congress intended ADEA 4(i)(4) to deprive
employees of an opportunity to challenge pension plans that were adopted due to discriminatory
animus. The Pilots did not give any examples of a pension plan adopted due to discriminatory
animus that could pass the strictures of ADEA 4(i), and the Court is not persuaded that such a
plana plan in which discriminatory animus is made manifestis possible. This argument
therefore carries little weight. Regardless of whether such a pension plan is possible, the Court
cannot disregard the clear language of ADEA 4(i)(4) stating that compliance with ADEA 4(i)
constitutes compliance with all of ADEA 4. Therefore, the Court grants summary judgment to
Northwest and ALPA on the Pilots claims under ADEA 4(a), (c).19
C. State Law Claims
Northwest and ALPA contend that ERISA preempts the Pilots state-law age
discrimination claims. ERISA preempts any and all State laws insofar as they may now or
hereafter relate to any employee benefit plan regulated by ERISA. 29 U.S.C. 1144(a). State
laws that prohibit employment practices that are lawful under ADEA are preempted by ERISA.
See Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 102-03 (1983). The Pilots concede that if ADEA
4(i)(4) precludes their claims under ADEA 4(a), (c), ERISA preempts their state-law age
discrimination under the principles set forth in Shaw. The Court has concluded that compliance
with ADEA 4(i) precludes the Pilots claims under ADEA 4(a), (c). The Court therefore
concludes that ERISA preempts the Pilots state-law age discrimination claims, and grants
19 Northwest and ALPA contend, as the Engers defendants did, that ADEA 4(i)
exclusively governs any claim of age discrimination in benefit accrual or allocations under a
pension plan. The question before the Court is whether the MP3s compliance with ADEA 4(i)
precludes the Pilots claims under ADEA 4(a), (c), not whether ADEA 4(i) is an exclusive
remedy for age discrimination challenges to benefit accrual or allocations under a pension plan.
The Court therefore declines to decide whether ADEA 4(i) provides the exclusive remedy for
such challenges.
20
Northwest and ALPA summary judgment on the Pilots claims under Minnesota, California, and
Washington law.
III. CONCLUSION
Based on the files, records, and proceedings herein, and for the reasons stated above, IT
IS ORDERED THAT:
1. Northwests motion for summary judgment [Docket No. 133] is
GRANTED IN PART.
2. ALPAs motion for summary judgment [Docket No. 140] is GRANTED
IN PART.
3. Counts II-VI of Defendants Amended Counterclaim [Docket No. 110] are
DISMISSED WITH PREJUDICE.
Dated: January 26, 2009
s/ Joan N. Ericksen
JOAN N. ERICKSEN
United States District Judge
 

 
 
 

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