United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 11-1730
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Northwest Airlines, Inc., *
*
Plaintiff-Appellee, *
*
Air Line Pilots Association, *
*
Intervenor below-Appellee, *
*
v. * Appeal from the United States
* District Court for the
Raymond B. Phillips; Michael * District of Minnesota.
Tanksley; Belmont Beck; Platt *
Hubbell; Timothy I. Meldahl; *
George S. Novotny; William J. *
Riley; Ralph C. Taylor, Individually, *
and as Representatives of Persons *
Similarly Situated, *
*
Defendants-Appellants. *
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Submitted: December 15, 2011
Filed: April 9, 2012
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Before LOKEN, BRIGHT, and SHEPHERD, Circuit Judges.
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BRIGHT, Circuit Judge.
Appellees Northwest Airlines, Inc. (Northwest) and the Air Line Pilots
Association (Pilots Association) filed a complaint seeking a declaratory judgment that
their post-bankruptcy retirement benefit plan, the Money Purchase Plan for Pilot
Employees (MP3), complied with the Employment Retirement Income Security Act
(ERISA), 29 U.S.C. §§ 1001–1461 (2000). Appellants, a group of older Northwest
pilots (older Pilots),1 counterclaimed arguing that the MP3 retirement benefit plan
violated ERISA, the Age Discrimination in Employment Act (ADEA), 29 U.S.C.
§§ 621–634 (2000), and several state laws prohibiting age discrimination. The district
court2 granted Northwest’s and the Pilots Association’s motions for summary
judgment. On appeal, the older Pilots argue that the MP3 illegally reduces or
eliminates their retirement benefit payments because of age and that the district court
improperly disregarded the declaration of one of their experts. We affirm.
I. Background
In September 2005, Northwest declared bankruptcy. Prior to that point,
Northwest provided retirement benefits to its pilots through a defined benefit
plan—the Northwest Airlines Pension Plan for Pilot Employees (Pension Plan).3
1
For the purposes of the ERISA claim, appellants represent a class of pilots who
are covered by the MP3, are age 40 or over, and who receive no contributions under
the MP3, or receive smaller contributions under the MP3 than under the pro rata to
pay claim. For the purposes of the ADEA claim, appellants bring their claim as a
collective action under 29 U.S.C. § 626(b) (incorporating 29 U.S.C. § 216(b)) on
behalf of pilots in the same situation.
2
The Honorable Joan N. Ericksen, United States District Judge for the District
of Minnesota.
3
As the district court helpfully noted, 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 Emps.,
Managers, & Agents, 533 F.3d 102, 104–05 (2d Cir. 2008), cited in Nw. Airlines, Inc.
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Under the Pension Plan, pilots received retirement benefits up to 60% of their final
average earnings depending on the pilot’s years of service. In addition, pilots had the
ability to contribute on their own to a defined contribution plan.4
After declaring bankruptcy, the airline and Pilots Association obtained passage
of legislation permitting Northwest to spread funding of the Pension Plan over an
additional number of years instead of terminating the plan. 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.). Termination of the Pension Plan would have significantly
reduced the pilots’ retirement benefits.5 Instead, Northwest and the Pilots Association
froze the Pension Plan—fixing each pilot’s benefits under the plan as of January 31,
2006. No future years of service or earnings after that date could be used to calculate
benefits.
To replace the Pension Plan, Northwest and the Pilots Association initially
reached an agreement for Northwest to contribute a defined percentage of a pilot’s
earnings to a retirement savings account for each pilot (pro rata to pay). The
percentage of Northwest’s contributions would increase through 2011 and then remain
v. Phillips, 594 F. Supp. 2d 1075, 1080 n.2 (D. Minn. 2009).
4
In a defined contribution plan, the employee bears the risk of investment
performance and receives a benefit based on the amount contributed to an individual
account, along with any income, expenses, gains, and losses. See Hirt, 533 F.3d at
104–05, cited in Nw. Airlines, 594 F. Supp. 2d at 1080 n.3.
5
Only a portion of the pilots’ pension benefits would have been covered by the
Pension Benefit Guaranty Corporation under Title IV of ERISA. The rest would have
been lost, as happened when United Airlines and US Airways terminated their pension
plans during bankruptcy. See United Retired Pilots Benefit Prot. Ass’n v. United
Airlines, Inc. (In re UAL Corp.), 443 F.3d 565 (7th Cir. 2006); Retired Pilots Ass’n
of U.S. Airways, Inc. v. U.S. Airways Grp., Inc. (In re U.S. Airways Grp., Inc.), 369
F.3d 806 (4th Cir. 2004).
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constant at 8% of the pilot’s earnings. The letter agreement also provided the option
for the Pilots Association to determine an alternate method for Northwest to allocate
contributions to retirement savings accounts “subject to [Northwest’s] agreement that
it is legal, complies with applicable regulations, and is administratively feasible.”
However, the Pilots Association calculated that the combination of the frozen
Pension Plan and the pro rata to pay contributions would have led to significant
disparity in retirement income between more senior pilots, who had accrued
substantial benefits under the frozen Pension Plan, and pilots with less years of service
under the frozen plan.6 To address this disparity, the Pilots Association proposed
changing the method for allocating Northwest’s contributions to a target benefit plan.7
The goal was to allocate contributions so that all pilots, in combination with the
frozen Pension Plan, would receive “an aggregate replacement income equal to
approximately 50% of their final average earnings as an active pilot (or frozen
[Pension Plan] benefit if higher).” The majority of the pilots voted in favor of the
Pilots Association’s proposed restructuring agreement, which included the targeted
methodology for allocating retirement benefits. Northwest and the Pilots Association
subsequently negotiated the specifics of what became the challenged MP3 and
executed a letter agreement implementing the plan on December 11, 2007.
6
Actuaries for the Pilots Association estimated that under the flat pro rata to pay
plan some pilots would have received 70–75% of their projected final average
earnings, while others would receive as little as 30–35% due to the effects of the
frozen Pension Plan. Pilots’ salaries were also reduced after the bankruptcy, which
contributed to the disparity.
7
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 to
achieve a targeted benefit, but where the individual employee carries the risk of any
investment loss. Dan M. McGill et al., Fundamentals of Private Pensions 283 (8th ed.
2005), cited in Nw. Airlines, 594 F. Supp. 2d at 1081 n.5.
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To calculate retirement benefits, the MP3 starts by employing a “stovepipe
model” to project a hypothetical career with Northwest for each individual pilot in
order to estimate the pilot’s final average earnings at retirement. The stovepipe model
assumes that each pilot retires at 60—the mandatory retirement age for pilots in effect
at the time.8 When a pilot retires, the model assumes that the next pilot with the
highest seniority is promoted to replace the retired pilot, and that all other pilots are
then promoted in the same step-wise manner. The model also assumes that the fleet
size is static, openings are created solely by normal retirement, all pilots accept their
promotions, and rates of pay will be increased each year by 1.5% from 2008–2010 and
by 2.0% in 2011 and after. With these assumptions, the stovepipe model is able to
calculate the projected final average earnings for each pilot.9 The model was
implemented as of December 31, 2007, and does not take into account any deviations
from a pilot’s projected career as compared to the pilot’s actual experience.
Based on a pilot’s age and years of service, the MP3 then calculates a “target
percentage” of the pilot’s projected final average earnings to be provided as a
retirement benefit. A pilot’s age and years of service as of December 31, 2007 are
added together to determine a point value for that pilot, which corresponds to a table
that provides the pilot’s target percentage. The more points a pilot has, the higher the
target percentage. Therefore, an older pilot with the same years of service as a
younger pilot has a higher target percentage than the younger pilot.
8
Congress subsequently raised the mandatory retirement age for pilots from 60
to 65. 49 U.S.C.A. § 44729(a) (West Supp. 2008). In doing so, Congress also
expressly prohibited lawsuits based on actions taken before the enactment of the new
law that were in conformance with the previous mandatory retirement age. Id.
§ 44729(e)(2).
9
Projected final average earnings are calculated using the same averaging rules
as the frozen Pension Plan—the average monthly compensation of the highest 60
months of earnings of the last 120 months prior to retirement.
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The target percentage is then multiplied by the projected final average earnings
and a “service ratio” to determine the pilot’s “gross target benefit.” The service ratio
is the pilot’s projected total years of service at age 60 divided by 25. The number of
years of service taken into account for the service ratio is also limited to 25.10
Therefore, pilots who have worked with Northwest for at least 25 years when they
retire will receive the full percentage of their final average earning—otherwise the
pilot will receive less. The gross target benefit is expressed as a monthly lifetime
payment beginning at age 60.
If a pilot accrued benefits under the frozen Pension Plan, those benefits are then
subtracted from the pilot’s gross target benefit to obtain the “net target benefit” (still
expressed as a monthly payment). If a pilot’s frozen Pension Plan benefits exceed the
gross target benefit under the MP3, the pilot does not receive any contributions from
the MP3, and will only have the frozen Pension Plan benefits. For pilots who do
receive contributions under the MP3, in some cases those contributions are still less
than they would have received under the pro rata to pay plan.
Finally, for pilots who receive contributions from the MP3, the net target
benefit is converted into a lump sum value that is the estimated amount the pilot needs
to have accumulated by the age of 60 to fund the net target benefit. The target
contribution received by the pilot is then a semi-monthly contribution made until the
earlier of the completion of 25 years of service or reaching age 60, which, together
with an assumed investment return of 8%, will achieve the lump sum value.
In December 2007, Northwest filed a declaratory judgment action, requesting
the district court to find that the MP3 complied with ERISA. The older Pilots, all of
whom either receive no contributions under the MP3 or receive smaller contributions
10
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).
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than under the pro rata to pay plan, counterclaimed, arguing that the plan violated the
ADEA, the parallel provisions of ERISA § 204(b)(2)(A) and ADEA § 4(i)(1)(B), and
several state laws prohibiting age discrimination.11 In November 2008, Northwest and
the Pilots Association filed motions for judgment on the pleadings and summary
judgment, arguing that the MP3 does not violate the parallel provisions of ERISA
§ 204(b)(2)(A) and ADEA § 4(i)(1)(B), that ADEA § 4(i)(4) precludes claims under
ADEA § 4(a), (c), and that ERISA preempts the state-law claims. The district court
granted Northwest’s and the Pilots Association’s motions for summary judgment. On
appeal, the older Pilots argue that the MP3 improperly reduces or eliminates their
retirement benefit payments because of age and that the district court improperly
disregarded the declaration of one of their experts.12
II. Discussion
This court reviews the grant of a motion for summary judgment de novo, and
views all evidence most favorable to, and makes all reasonable inferences for, the
nonmoving party. Country Life Ins. Co. v. Marks, 592 F.3d 896, 898 (8th Cir. 2010);
Fed. R. Civ. P. 56(c). Summary judgment should be affirmed when there is no
genuine issue of material fact and the appellee is entitled to judgment as a matter of
law. Coates v. Powell, 639 F.3d 471, 475 (8th Cir. 2011).
11
The older Pilots also argued that the Pilots Association breached its duty of
fair representation. The district court subsequently granted the Pilots Association’s
motion to dismiss the duty of fair representation claim and it is not at issue in this
appeal. See Nw. Airlines, Inc. v. Phillips, 758 F. Supp. 2d 786, 788 (D. Minn. 2010).
12
The older Pilots do not challenge the district court’s conclusion that
compliance with ADEA § 4(i)(4) (noting that compliance with subsection 4(i) “shall
constitute compliance with the requirements of this section relating to benefit accrual
under such plan.”) precludes their claims under ADEA § 4(a), (c) and, therefore, that
argument is also not at issue in this appeal. See Nw. Airlines, 594 F. Supp. 2d at 1088.
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A. ADEA and ERISA
The older Pilots argue that the use of a pilot’s projected final average earnings
to determine contribution levels is “inextricably linked to age” and therefore violates
the parallel provisions of ADEA and ERISA. ADEA § 4(i)(1)(B) makes it unlawful
to maintain an employee pension benefit plan that permits “the cessation of allocations
to an employee’s account, or the reduction of the rate at which amounts are allocated
to an employee’s account, because of age.” 29 U.S.C. § 623(i)(1)(B). ERISA
§ 204(b)(2)(A) states that a “defined contribution plan satisfies the requirements of
this paragraph if, under the plan, allocations to the employee’s account are not ceased,
and the rate at which amounts are allocated to the employee’s account is not reduced,
because of the attainment of any age.” Id. § 1054(b)(2)(A).
Congress enacted these two provisions as part of the 1986 Omnibus Budget
Reconciliation Act (OBRA). OBRA prevents employers from discontinuing or
reducing allocations to an employee’s retirement account “on account of the
attainment of a specified age” and “require[s] a plan to provide for benefit accruals
and contributions with respect to an employee’s years of plan participation after
normal retirement age.” H.R. Rep. No. 99-1012, at 276, 378 (1986), as reprinted in
1986 U.S.C.C.A.N. 3868, 4021, 4023. The two provisions are parallel and Congress
intended these subsections “to be interpreted in a consistent manner.” 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; see also Hurlic v. S. Cal. Gas Co., 539 F.3d 1024, 1036 (9th Cir. 2008).
Therefore, if the plan does not violate ADEA § 4(i)(1)(B), it does not violate ERISA
§ 204(b)(2)(A), and conversely, if it violates one, it violates them both. The court
analyzes challenges 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 Emps.,
Managers, & Agents, 533 F.3d 102, 107–10 (2d Cir. 2008).
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The Supreme Court considered the application of ADEA to part of the structure
of a retirement plan in Kentucky Retirement Systems v. Equal Employment
Opportunity Commission, 554 U.S. 135 (2008). In that case, the EEOC challenged
a portion of Kentucky’s retirement plan that applied to workers such as police officers
and firefighters. Id. at 139. Under the plan, employees were eligible for a pension
after either attaining 20 years of service, or attaining 5 years of service and reaching
the age of 55. Id. If a qualified worker became disabled before being eligible for
normal retirement, the worker would receive a certain number of “imputed” years
added to the employee’s actual years of service. Id. “The number of imputed years
equals the number of years that the disabled employee would have had to continue
working in order to become eligible for normal retirement benefits . . . .” Id.
However, if an employee became disabled after they had already reached the eligible
age for retirement, 55, they received no imputed years of service. Id. at 140. For a
subset of employees then, the retirement plan specifically took age into consideration.
For example, “a 61-year-old officer or firefighter who is disabled in the same heroic
action [as a younger officer] receives, in many instances, a lower payment and for one
reason alone: By explicit command of Kentucky’s disability plan age is an express
disadvantage in calculating the disability payment.” Id. at 152 (Kennedy, J.,
dissenting).
The Supreme Court still held that an employer who “adopts a pension plan that
includes age as a factor, and that employer then treats employees differently based on
pension status, a plaintiff, to state a disparate-treatment claim under the ADEA, must
adduce sufficient evidence to show that the differential treatment was ‘actually
motivated’ by age, not pension status.” Id. at 148. The Court relied, in part, on the
conclusion in a previous case that “as a matter of pure logic, age and pension status
remain ‘analytically distinct’ concepts.” Id. at 143 (quoting Hazen Paper Co. v.
Biggins, 507 U.S. 604, 611 (1993)).
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In Hazen Paper, the Supreme Court addressed a disparate-treatment claim
under the ADEA and examined the relationship between an employee’s age and years
of service. 507 U.S. at 606. A 62-year-old employee had over 9.5 years of service
when he was dismissed. The employee argued that he was unlawfully terminated by
his employer in order to avoid paying pension benefits that would have vested with
10 years of service. Id. at 606–08. The Court, noting that a younger employee could
easily have more years of service than a recently hired older employee, concluded that
“an employee’s age is analytically distinct from his years of service.” Id. at 611. And
because age and years of service are distinct, “an employer can take account of one
while ignoring the other, and thus it is incorrect to say that a decision based on years
of service is necessarily ‘age based.’” Id. Similarly, the difference in treatment under
the Kentucky plan turned on whether the employee had already qualified for a
pension, and not directly on the employee’s age.
In this case, the stovepipe model of the MP3 uses age to calculate a pilot’s
remaining years of service before the mandatory retirement age of 60. Given that
promotion is largely determined by seniority status, the stovepipe model is able to
estimate a pilot’s promotions as older pilots hit the mandatory retirement age and each
pilot moves up the ladder. This, in turn, produces an estimate of each pilot’s final
average earnings, calculated in the same manner as under the previous Pension Plan.
The model also used the remaining years of service to estimate the number and
amount of annual pay increases a pilot would receive before turning 60.
Under the MP3, 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. 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 stovepipe calculation, the number of annual pay increases before retirement,
and benefits acquired under the frozen Pension Plan. A younger pilot who remains
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with Northwest until retirement will, by definition, receive more promotions and pay
increases than an older pilot who is hired at the same time. As courts have noted in
cases dealing with a different type of pension plan, nothing in OBRA indicates 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 year’s retirement savings.” Cooper v. IBM Pers. Pension Plan, 457 F.3d 636,
639 (7th Cir. 2006); see also Hurlic, 539 F.3d at 1031–32. “Treating the time value
of money as a form of discrimination is not sensible.” Cooper, 457 F.3d at 639.
While promotions and pay increases are correlated with age, they are analytically
distinct and, therefore, not reductions in contributions because of age.
Service ratio and the frozen Pension Plan offset also both contribute to potential
differences in contributions, and are analytically distinct from age. Older pilots with
only a few years of service will have their contributions significantly reduced by the
service ratio when their total years of service are divided by 25. An employee’s years
of service is analytically distinct from the employee’s age. Hazen Paper Co., 507
U.S. at 611. At the other end of the spectrum, older pilots with a long service record
have already accumulated significant benefits under the frozen Pension Plan. After
the projected final average earnings is calculated and adjusted for the target
percentage and service ratio, any monthly benefits accrued under the frozen Pension
Plan are subtracted. That offset results in significantly lower, or no contributions
under the MP3. However, in a very similar manner to Kentucky Retirement Systems,
the Pension Plan offset is “differential treatment based on pension status, where
pension status—with the explicit blessing of the ADEA—itself turns, in part, on age.”
554 U.S. at 148. The reductions due to the service ratio and offset are not reductions
“because of age.”
Finally, none of the rationale for the MP3 touches on any of the “sorts of
stereotypical assumptions that the ADEA sought to eradicate.” Ky. Ret. Sys., 554 U.S.
at 146. The MP3 was put in place to avoid an unwarranted discrepancy in the amount
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of employer paid benefits between older and younger employees that would have
resulted if the company had provided pilots contributions that were the same
percentage of their pay. Older employees would have received much more overall
because they retained a significant contribution from the frozen Pension Plan. As in
the Kentucky Plan, “[i]t does not rest on any stereotype about the work capacity of
‘older’ workers relative to ‘younger’ workers.” Id.
B. Expert Testimony
The older Pilots also argue that the district court improperly disregarded the
declaration of one of the older Pilots’ experts and should have applied the generally-
accepted test for the admissibility of expert testimony first articulated in Daubert v.
Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993). The district court
concluded that the older Pilots’ experts “do not aid the [district court] because they do
little more than show a negative correlation between age and allocations under the
MP3.”
First, the district court did not exclude the evidence provided by the expert;
therefore the Daubert test is not applicable. The district court considered the
declaration, but found it was conclusory and did not aid the court. Conclusory expert
testimony is not sufficient to defeat a motion for summary judgment. Herrero v. St.
Louis Univ. Hosp., 109 F.3d 481, 485 (8th Cir. 1997). Second, we review the grant
of motions for summary judgment de novo, and in reviewing the record anew we give
no deference to determinations made by the trial judge. See Country Life Ins. Co., 592
F.3d at 898 (summary judgment standard of review); Black’s Law Dictionary 924 (9th
ed. 2009).
The declaration notes a correlation between age and projected final average
earnings. However, correlation is not causation and, as discussed above, remaining
years of service and final average earnings are analytically distinct from age under
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controlling Supreme Court precedent. In addition, the declaration fails to explain how
several of the proffered arguments would actually have a greater impact on older
pilots, such as not including the increased mandatory retirement age of 65 and not
adjusting contributions for actual earnings. A careful consideration of the declaration,
along with the rest of the record, does not alter the above analysis.
III. Conclusion
For the foregoing reasons, we hold the MP3 does not reduce the older Pilots’
benefits because of age. Accordingly, we affirm the judgment of the district court.
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