UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
)
JAMES C. STEPHENS, et al., )
)
Plaintiffs, )
)
v. ) Civil Action No. 07-1264 (RMC)
)
US AIRWAYS GROUP, et al., )
)
Defendants. )
)
MEMORANDUM OPINION
Plaintiffs James C. Stephens and Richard Mahoney,1 retired pilots for US Airways,
sue the Pension Benefit Guaranty Corporation (“PBGC”)2 as successor-in-interest to the Retirement
Income Plan for Pilots of U.S. Air, Inc. (“Plan”). They allege that US Airways violated the Plan by
not paying lump sum benefits on their benefit commencement dates and that US Airways violated
the “actuarial equivalent” provision of the Employee Retirement Income Security Act of 1974,
(“ERISA”), 29 U.S.C. § 1054(c)(3), by not paying interest for the period between their benefit
commencement dates and the dates the lump sum benefits were actually paid.3 Pending before the
Court are PBGC’s motion for summary judgment and Plaintiffs’ motion for partial summary
judgment. See Dkt. ## 23 & 24. For the reasons explained herein, the Court will grant PBGC’s
motion and deny Plaintiffs’ motion.
1
The claims of Plaintiffs Floyd G. Stephens and Donald V. Nippert were dismissed without
prejudice. See Minute Orders dated September 8, 2009 and November 2, 2009.
2
The caption of the Third Amended Complaint names US Airways Group, Inc., as the lead
Defendant but this lawsuit is only against PBGC.
3
The Court dismissed Plaintiffs’ breach of fiduciary duty claim. See May 20, 2008 Order
[Dkt. # 9].
I. FACTS
US Airways was the contributing sponsor and plan administrator of the Plan until
March 31, 2003, when, pursuant to Title IV of ERISA4 and an agreement between US Airways and
PBCG, the Plan was terminated because its assets were inadequate to pay its liabilities. On that same
date, PBGC became the statutory trustee of the Plan and is now paying its benefits, within the limits
of Title IV. PBGC is also acting as the guarantor of Title IV benefits that the terminated Plan owes
and will owe to Plan beneficiaries.
Two such participants are Plaintiffs James C. Stephens and Richard Mahoney. On
their sixtieth birthdays, Messrs. Stephens and Mahoney retired as pilots for US Airways.5 Mr.
Stephens retired on November 25, 1996. Mr. Mahoney did so on March 2, 1999. Upon retirement,
both elected to receive their accrued retired benefits under the Plan as a single lump sum payment,
rather than as an annuity paid monthly. Mr. Stephens received a lump sum payment in the amount
of $488,477.22 on January 14, 1997, 45 days after his December 1, 2006 benefit commencement
date. Mr. Mahoney received a lump sum payment in the amount of $672,162.79 on May 14, 1999,
45 days after his April 1, 1999 benefit commencement date.
After learning that this 45-day delay was being applied to all lump sum payments
under the Plan, Mr. Stephens initiated administrative proceedings to challenge the actions of US
Airways and the Plan. These administrative proceedings continued for approximately two years,
4
See ERISA § 4002, codified at 29 U.S.C. § 1302. Title IV of ERISA, 29 U.S.C. §§ 1301-
1461, governs the federal pension insurance program administered by PBGC. When a plan
terminates without sufficient assets to pay its liabilities to Plan beneficiaries, PBGC typically
becomes statutory trustee of the terminated plan. Title I of ERISA, 29 U.S.C. §§ 1001-1191c, covers
employee benefit rights and the administration of ongoing pension plans.
5
Federal law required pilots to retire on their sixtieth birthday.
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culminating in a decision by the US Airways Retirement Board6 denying Mr. Stephens’
administrative challenge.
Plaintiffs allege that US Airways violated the Plan by not paying lump sum benefits
on their benefit commencement dates and that US Airways violated ERISA’s “actuarial equivalent”
rule, 29 U.S.C. § 1054(c)(3), by not paying interest for the 45-day period between their benefit
commencement dates and the dates the lump sum benefits were paid.
II. LEGAL STANDARD
Under Rule 56 of the Federal Rules of Civil Procedure, summary judgment must be
granted when “the pleadings, depositions, answers to interrogatories, and admissions on file, together
with the affidavits, if any, show that there is no genuine issue as to any material fact and that the
moving party is entitled to a judgment as a matter of law.” Fed. R. Civ. P. 56 (c); Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 247 (1986); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322
(1986); Diamond v. Atwood, 43 F.3d 1538, 1540 (D.C. Cir. 1995). Moreover, summary judgment
is properly granted against a party that “after adequate time for discovery and upon motion . . . fails
to make a showing sufficient to establish the existence of an element essential to that party’s case,
and on which that party will bear the burden of proof at trial.” Celotex, 477 U.S. at 322. To
determine which facts are “material,” a court must look to the substantive law on which each claim
rests. Anderson, 477 U.S. at 248 (1986). A “genuine issue” is one whose resolution could establish
an element of a claim or defense and, therefore, affect the outcome of the action. Celotex, 477 U.S.
at 322; Anderson, 477 U.S. at 248.
6
The Retirement Board was created by US Airways and the Pilots Association pursuant to
45 U.S.C. § 184 of the Railway Labor Act, 45 U.S.C. § 151, et seq.
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In ruling on a motion for summary judgment, the court must draw all justifiable
inferences in the nonmoving party’s favor and accept the nonmoving party’s evidence as true.
Anderson, 477 U.S. at 255. A nonmoving party, however, must establish more than “the mere
existence of a scintilla of evidence” in support of its position. Id. at 252. To prevail on a motion for
summary judgment, the moving party must show that the nonmoving party “fail[ed] to make a
showing sufficient to establish the existence of an element essential to that party’s case, and on
which that party will bear the burden of proof at trial.” Celotex, 477 U.S. at 322. By pointing to the
absence of evidence proffered by the nonmoving party, a moving party may succeed on summary
judgment. Id. In addition, the nonmoving party may not rely solely on allegations or conclusory
statements. Greene v. Dalton, 164 F.3d 671, 675 (D.C. Cir. 1999). Rather, the nonmoving party
must present specific facts that would enable a reasonable jury to find in its favor. Greene, 164 F.3d
at 675. If the evidence “is merely colorable, or is not significantly probative, summary judgment
may be granted.” Anderson, 477 U.S. at 249-50 (citations omitted).
III. ANALYSIS
A. Failure to Pay Lump Sum Benefits on Benefit Commencement Dates
Count I of the Third Amended Complaint alleges that the Plan required US Airways
to pay lump sum benefits to Plaintiffs on their benefit commencement dates and that US Airways
breached that requirement by paying Plaintiffs their lump sum benefits 45 days after their benefit
commencement dates. 3d Am. Compl. ¶¶ 65-70. The Plan defines “Benefit Commencement Date”
as “the date as of which payment of a Participant’s retirement income is to commence, as determined
in accordance with the further terms of the Plan.” Pls.’ Mot. for Partial Summ. J. [Dkt. # 24], Ex.
A (“Plan Document”) § 2.1(G). The “further terms of the Plan” provide that “[e]ach Participant who
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retires from the employ of the Employer on his Normal Retirement Date . . . will receive a normal
retirement income commencing on the first day of the month coinciding with or next following his
Normal Retirement Date.” Id. § 4.3 (emphasis added). “Normal Retirement Date” is defined as “the
date on which the Participant attains his 60th birthday.” Id. § 2.1(V). The Plan provides that “[a]
Participant’s retirement income will be payable monthly, with each payment equal to 1/12th of the
yearly amount” and that “[t]he first of such monthly payments will be made at the Participant’s
Benefit Commencement Date, with subsequent monthly payments being made at the first of each
month thereafter until the Participant’s death.” Id. § 9.5. The Plan also provides for “optional forms
of payment,” including a “lump sum option.” See id. §§ 10 & 10.4. However, the Plan is silent as
to when lump sums must be paid.
Plaintiffs argue that the Plan required US Airways to pay their lump sums on their
Benefit Commencement Dates. They construe “the date as of which payment of a Participant’s
retirement income is to commence” as the date on which lump sum payments must be made.
Plaintiffs conflate the date benefits commence with the date payments must be made. The Internal
Revenue Service distinguishes between the commencement or starting date of an annuity and the
date on which benefits actually are paid:
The annuity starting date is the first date of the first period for which
an amount is paid, not the actual date of payment. Thus, if participant
A is to receive annuity payments as of the first day of the first month
after retirement but does not receive any payments until three months
later, the annuity starting date is the first day of the first month. For
example, if an annuity is to commence on January 1, January 1 is the
annuity starting date even though the payment for January is not
actually made until a later date.
26 C.F.R. § 1.401(a)-20, Q&A-10(b)(2) (emphasis added). The regulation’s discussion of “annuity
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starting date”—“participant A is to receive annuity payments as of the first day of the first month
after retirement,” id., is analogous to the definition of “Benefit Commencement Date”—“the date
as of which payment of a Participant’s retirement income is to commence.” Plan Document
§ 2.1(G). As the regulation makes clear, the annuity starting date, that is, the Benefits
Commencement Date, is “not the actual date of payment.” 26 C.F.R. § 1.401(a)-20, Q&A-10(b)(2).
Plaintiffs err in construing payment “as of” a date to mean payment “on” that date.
Plaintiffs argue that the regulation is inapposite because “it deals not with delayed
payments or actuarial equivalence, but with ‘notification related to the joint and survivor annuity.’”
Pls.’ Opp’n [Dkt. # 29] at 9 (quoting deposition testimony of Colin England). Plaintiffs
misunderstand the import of the regulation. The regulation is part of the Internal Revenue Service’s
guidance of over thirty questions and answers on benefit distributions from qualified plans, and it
addresses more than just “notification” issues. Indeed, the regulation also provides that “[a] payment
shall not be considered to occur after the annuity starting date merely because actual payment is
reasonably delayed for calculation of the benefits amount if all payments are actually made.” 26
C.F.R. § 1.401(a)-20, Q&A-10(b)(3). The significance of the regulation is that it informs the
meaning of the term “Benefit Commencement Date” as used in the Plan and clarifies that the term
means “annuity starting date,” which is not necessarily the date on which benefits are payable.
Lest there be any doubt, Section 9.5 of the Plan provides that “[a] Participant’s
retirement income will be payable monthly, with each payment equal to 1/12th of the yearly amount”
and that “[t]he first of such monthly payments will be made at the Participant’s Benefit
Commencement Date, with subsequent monthly payments being made at the first of each month
thereafter until the Participant’s death.” Plan Document § 9.5. Tellingly, there is no similar
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provision in Section 10 of the Plan, which governs optional forms of payment, including lump sums.
See id. § 10. If “Benefit Commencement Date” were synonymous with date of payment, as Plaintiffs
assert, there would be no reason for Section 9.5 to specify when the first payment of the annuity must
be paid. Plaintiffs’ construction would render Section 9.5 superfluous.
Plaintiffs also argue that the Summary Plan Description “reiterates that payment of
retirement benefits will begin on the Benefit Commencement Date, regardless of the form.” Pls.’
Opp’n at 7. Plaintiffs mistakenly rely on the 1987 Summary Plan Description, which provided that
“[y]our payments will begin on the first of the month that falls on or follows your 60th birthday.”
Pls.’ Mot., Ex. G at 6. However, there was no lump sum option for pilots until May 1, 1990. The
relevant Summary Plan Description amended the prior language to read “[y]our Plan benefit will
begin on the first of the month that falls on or follows your retirement date.” Def.’s Opp’n [Dkt.
# 27], Ex. 1 (1991 Summary Plan Description) at 13 (emphasis added). As already discussed, the
date Plan benefits begin does not mean the date Plan benefits are paid.
Having failed to show that the Plan or the relevant Summary Plan Description
required US Airways to pay lump sum benefits to Plaintiffs on their Benefit Commencement Dates,
Plaintiffs’ claim is reduced to a challenge to the reasonableness of the carrier’s policy to pay lump
sum benefits 45 days after the Benefit Commencement Date. As Plan administrator until 2003, US
Airways had broad discretion to interpret and construe the Plan. Section 14.1 of the Plan provides
that, as Plan administrator, US Airways “shall have all such powers and authorities as may be
necessary to carry out the provisions of the Plan, including the sole right to interpret and construe
the Plan, to make benefit determinations and to resolve any disputes arising thereunder, subject to
the provisions of Section 14.3.” Plan Document § 14.1. Section 14.3 provides that “[a] Retirement
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Board shall be established as provided in the Agreement, and shall have all of the powers, rights,
duties, and liabilities with respect to the Plan set forth in the Agreement.” Id. § 14.3. Given that the
Plan gave US Airways discretionary authority to construe the terms of the Plan, the standard of
review of its construction of those terms “is plainly deferential.” Wagener v. SBC Pension Benefit
Plan--Non Bargained Program, 407 F.3d 395, 402 (D.C. Cir. 2005).
In 1997, Mr. Stephens challenged US Airways’ policy of not paying interest on lump
sum benefits paid within 45 days after a participant’s Benefit Commencement Date. US Airways
explained “[b]ecause of the definition of ‘Final Average Earnings’ in the Plan which is required to
determine the final benefit, coupled with pay periods specified in the collective bargaining agreement
and the multiple calculations required under the terms of the Plan, it is administratively impossible
to make a [lump sum] payment on a pilot’s actual Benefit Commencement Date.” Def.’s Mem. in
Supp. of Mot. for Summ. J. [Dkt. # 23], Ex. 6 (October 9, 1997 letter from Jennifer C. McGarey,
Senior Counsel) at 1-2. US Airways explained that “[i]n total, the process takes 40 business days
to complete” and that “US Airways has adopted an administrative guideline of 45 days to allow for
any problems which may occur.” Id. at 2. Mr. Stephens appealed to the Retirement Board, which
ruled in favor of US Airways after an evidentiary hearing.
Plaintiffs have not shown US Airways’ 45-day lump sum payment policy was
unreasonable under the circumstances. See 26 C.F.R. § 1.401(a)-20, Q&A-10(b)(3) (“[a] payment
shall not be considered to occur after the annuity starting date merely because actual payment is
reasonably delayed for calculation of the benefits amount if all payments are actually made”). The
Court will grant PBGC summary judgment on Count I.
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B. Failure to Pay Interest Between Benefit Commencement Dates and
Payment Dates
Count II of the Third Amended Complaint alleges that US Airways “had a duty to
ensure that the defined benefit, when distributed as a lump-sum, was the actuarial equivalent of the
annual benefit under the Plan commencing at normal retirement age” and that US Airways “breached
this duty by failing to distribute the lump-sum payments for up to 45 days past the Actual Retirement
Date.” 3d Am. Compl. ¶¶ 72 & 73. Plaintiffs assert that “[t]he lump-sum payments are calculated
as the present value of the annuity as of the Actual Retirement Date” but “the lump-sum benefits
were not distributed on the Actual Retirement Date.” Id. ¶ 73. “Rather, the lump-sum benefits were
distributed 45 days later and thus, as distributed, the actual lump-sum payment was not the true
present value of the annuity. As such, the lump-sum payment, as distributed, was not the actuarial
equivalent to the annuity.” Id.
ERISA provides that “in the case of any defined benefit plan, if an employee’s
accrued benefit is to be determined as an amount other than an annual benefit commencing at normal
retirement age, . . . the employee’s accrued benefit . . . shall be the actuarial equivalent of such
benefit or amount . . . .” 29 U.S.C. § 1054(c)(3). The term “accrued benefit” is defined as “the
individual’s accrued benefit determined under the plan and . . . expressed in the form of an annual
benefit commencing at normal retirement age.” Id. § 1002(23). Accordingly, “ERISA requires that
any lump-sum substitute for an accrued pension benefit be the actuarial equivalent of that benefit.”
Berger v. Xerox Corp. Retirement Income Guarantee Plan, 338 F.3d 755, 759 (7th Cir. 2003). In
other words, optional forms of benefits, such as lump sums, must be the actuarial equivalent of the
accrued benefit expressed as an annual annuity. See Esden v. Bank of Boston, 229 F.3d 154, 163 (2d
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Cir. 2000) (“The rule that regardless of any option as to timing or form of distribution, a vested
participant in a defined benefit plan must receive a benefit that is the actuarial equivalent of her
normal retirement benefit (that is, the accrued benefit expressed as an annuity beginning at normal
retirement age) has been repeated and recognized by courts.”).
Plaintiffs’ expert witness agrees that “the annuity payments and the lump sum
payment on Benefit Commencement Date were actuarially equivalent,” but opines that “a lump sum
payment made on any later date is less than the actuarial equivalent of the accrued benefit payable
under the Plan . . . because it does not account for the time value of money between Benefit
Commencement Date and the date the payment is actually made.” Def.’s Mot., Ex. 7 (Decl. of
Claude Poulin) at ¶ 8. According to Plaintiffs’ expert witness, “[i]n order for the later payment to
be the actuarially equivalent to the lump sum on Benefit Commencement Date and the annuity
option, interest should be added to the lump sum for the period between Benefit Commencement
Date and the date the lump sum was actually paid.” Id.
ERISA’s actuarial equivalence rule requires only that the value of the lump sum
benefit be the actuarial equivalent of the individual’s accrued benefit. See 29 U.S.C. § 1054(c)(3).
Plaintiffs’ own expert witness testified that “actuarial equivalence” means “the same value, the same
actuarial present value or lump sum value as the annuity payable at — as an accrued benefit payable
as an annuity at normal retirement age.” Pls.’ Mot., Ex. E (Dep. of Claude Poulin) at 56 (emphasis
added). Mr. Poulin also admitted that there is a difference between owing interest on a delayed
benefit payment and a failure to satisfy ERISA’s actuarial equivalence rule. See id. at 71. Plaintiffs
cite no legal authority supporting their argument that ERISA’s actuarial equivalence rule requires
the payment of interest to account for the time value of money resulting from reasonable delay to
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allow for payment calculation. The argument is contrary to the Internal Revenue Service regulations,
which provide that “[a] payment shall not be considered to occur after the annuity starting date
merely because actual payment is reasonably delayed for calculation of the benefits amount if all
payments are actually made.” 26 C.F.R. § 1.401(a)-20, Q&A-10(b)(3). Plaintiffs’ own expert
witness testified that there would be no violation of ERISA’s actuarial equivalence rule if the delay
in payment were not more than 30 days after the Benefit Commencement Date. See Poulin Dep. at
79. Given that the total lump sum calculation process took US Airways about 40 business days to
complete, the 45-day delay in paying Plaintiffs’ lump sum benefits was not unreasonable, and
Plaintiffs are not entitled to interest.
Plaintiffs rely on Contilli v. Local 705 International Brotherhood of Teamsters
Pension Fund, 559 F.3d 720 (7th Cir. 2009), but that case is distinguishable. There, the plaintiff
retired in October 1997, applied for retirement benefits in January 1998, and started receiving a
monthly pension in February 1998. However, the pension fund did not pay plaintiff “anything for
the post-retirement months of November and December 1997 and January 1998, nor did it increase
his monthly benefit so that the actuarial value of the pension starting in February 1998 was
equivalent to that of a pension starting in November 1997.” Id. at 722. Unlike the plaintiff in
Contilli, Plaintiffs here received the full amount of their accrued benefits as of their Benefit
Commencement Dates. Plaintiffs concede as much. See Pls.’ Statement of Facts ¶ 4 (“U.S.
[A]irways calculated the Plaintiffs’ lump sum benefits to be actuarially equivalent annuities using
the defined Benefit Commencement Date for both.”). Therefore, Contilli is inapposite.
Plaintiffs have not shown that US Airways’ 45-day lump sum payment policy violated
ERISA’s actuarial equivalence rule. The 45-day delay was reasonably necessary to allow US
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Airways to calculate the correct lump sum amounts. The Court will grant PBGC summary judgment
on Count II.
IV. CONCLUSION
For the foregoing reasons, the Court will grant PBGC’s motion for summary
judgment [Dkt. # 23], and will deny Plaintiffs’ motion for partial summary judgment [Dkt. # 24].
Plaintiffs’ request for oral hearing on their motion for partial summary judgment [Dkt. # 32] will be
denied as moot. A memorializing Order accompanies this Memorandum Opinion.
Date: March 17, 2010 /s/
ROSEMARY M. COLLYER
United States District Judge
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