The U.S. District Court for the District of Columbia has found that former Delta Air Lines pilots have plausibly alleged that the Pension Benefit Guaranty Corporation (PBGC), in its capacity as trustee, engaged in various conduct that resulted in it “earn[ing] massive investment returns off of assets that should have been timely allocated” to the plaintiffs.
The agency told PLANSPONSOR it has no comment about the court opinion.
The PBGC assumed roughly $2 billion in assets from the Delta Pilots Pension Plan (DPPP) in 2006 following Delta Air Lines’ bankruptcy filing and the bankruptcy court approved termination of its pilot pension plan. In addition to plan assets, the PBGC also recovered at least $1.28 billion from Delta during the airline’s bankruptcy proceedings.
Approximately 1,700 former airline pilots allege that they should have received a portion of the $1.28 billion recovery before active pilots, but represent that this did not occur because by placing the benefits of active pilots (not yet in pay status) ahead of retirees (already in pay status), the PBGC was able to corrupt the statutory recovery ratio by ensuring that hundreds of millions of dollars remained, undiluted, within the agency’s trust fund in order to maximize its investment returns.
The plaintiffs assert claims of breach of fiduciary duty under the Employee Retirement Income Security Act (ERISA), denial of benefits, and violations of the Administrative Procedure Act (APA), and seek certain declaratory and injunctive relief.
According to the court’s opinion, although the plaintiffs in May 2010 requested all information relied upon by the Corporation in reaching its final benefit determinations, only a “fraction” of that information had been produced by October 2011, prompting a group of 1,784 participants, most of whom are the plaintiffs in the lawsuit, to file a consolidated appeal of the PBGC’s benefit determinations under the plan. That appeal was resolved by a September 2013 decision issued by the Corporation’s Appeals Board that largely upheld the Corporation’s final determinations. The Appeals Board decision constituted final agency action, and the lawsuit was then initiated.NEXT: Rejection of PBGC’s arguments
The plaintiffs’ breach of fiduciary duty claim alleges that, as a result of the Corporation’s alleged breaches, it earned investment returns from plan assets that should have been distributed to the plaintiffs, and that the Corporation should be required to disgorge those proceeds.
Consistent with the Supreme Court’s holding in CIGNA Corp. v. Amara, U.S. District Judge Reggie B. Walton concluded that the relief sought by the plaintiffs is fairly characterized as “appropriate equitable relief” under ERISA.
Walton rejected the PBGC’s assertion that ERISA precludes the disgorgement sought by the plaintiffs, because the plaintiffs “seek the purported increase in the value of the Plan’s assets after termination,” a result it claims is prohibited by statute which states that “[a]ny increase or decrease in the value of the assets of a single-employer plan occurring after the date on which the plan is terminated shall be credited to, or suffered by, the [C]orporation.” Walton said the plaintiffs’ fiduciary breach claim does nothing of the sort. Rather, it seeks to recoup the alleged ill-gotten investment returns on plan benefits that the plaintiffs claim should have been distributed to them, not to divert from the Corporation any gains (or losses) from assets properly held in the plan.
Walton also rejected the PBGC’s assertion that any recovery inuring to the plaintiffs individually, as opposed to recoveries going to the plan at large, is impermissible relief under the ERISA. He looked to the Supreme Court decision in Harris Trust & Savings Bank v. Salomon Smith Barney, Inc. in which the high court observed at the outset that nothing in ERISA suggests that the appropriate equitable relief allowed must inure only to the plan as a whole. It states, in relevant part that, “any person who is a . . . participant or beneficiary, and is adversely affected by any action of the corporation with respect to a plan in which such person has an interest, . . . may bring an action against the [C]orporation for appropriate equitable relief in the appropriate court.” Walton said he discerns nothing in this language suggesting that any equitable relief awarded by a court should not inure to the person “with an interest in the plan,” who is authorized to bring suit against the Corporation, and the Corporation has cited no authority that supports its proposition.
The opinion in Lewis v. Pension Benefit Guaranty Corporation is here.