In affirming a lower court ruling, the 8th U.S. Circuit Court of Appeals noted that under Northwest’s MP3 plan, the contributions of all of the pilots are based on their projected final average earnings, which cannot be calculated without the use of age. However, that does not mean that the older pilots’ contributions have been reduced because of their age.
The court found there are several factors in the MP3 that could reduce an older pilot’s projected final average earnings, including seniority and flight/seat position at the start of the calculation, the number of annual pay increases before retirement and benefits acquired under the frozen pension plan.
“[C]orrelation is not causation and …remaining years of service and final average earnings are analytically distinct from age under controlling Supreme Court precedent,” the appellate court’s opinion said.
Relying heavily on the legal reasoning in a long line of cash balance plan cases, U.S. District Judge Joan N. Ericksen of the U.S. District Court for the District of Minnesota ruled that Northwest’s post-bankruptcy defined contribution (DC) plan did not violate the Employee Retirement Income Security Act (ERISA) or the Age Discrimination in Employment Act (ADEA) (see “Northwest Target-Date DC Plan Escapes Legal Challenge”).
Ericksen rejected assertions by a group of pilots that the DC plan, agreed to by both the company and the Air Line Pilots Association (ALPA), was not permitted to use age factors such as the federally required pilot retirement age when determining an employee's benefit level.
While noting the plan design differences between cash balance and DC programs, Ericksen contended that it was nevertheless relevant that other federal courts had sanctioned the use of age as a benefits determination factor and that the reasoning used by the other jurists also applied in the Northwest case. In the pilots' challenge to the Northwest program, Ericksen said the plaintiffs would have to show that the allocations to their pensions ended or were reduced "because of" age.
"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 (Northwest plan)," the court said.The 8th Circuit’s opinion is here.
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