PBGC’s handling of the US Airways pilots’ pension plan (May 27, 2015)
PBGC has received numerous inquiries in 2015 about our handling of the US Airways pilots’ pension plan (the “Plan”) after the Plan was terminated. The narrative below addresses the matters raised.
Termination of an underfunded pension plan often results in legally mandated benefit reductions for participants, which unfortunately can cause great personal difficulties. PBGC must administer the law as written, even when there are unfortunate resulting benefit cuts, as happened in the case of the Plan.
The Plan was terminated in 2003 under Title IV of ERISA. PBGC collected on its claims in US Airways’ bankruptcy as approved by the bankruptcy court. PBGC became the Plan’s trustee, applied the statutory provisions limiting the agency’s payment of benefits, and issued benefit determinations. Participant challenges to those benefit determinations ultimately resulted in the Davis lawsuit — the district court upheld PBGC’s benefit determinations, that decision was upheld on appeal, and the Supreme Court declined review.1 This court review served as a check and balance on PBGC’s discretion in determining benefits.
Benefit reductions in a terminated plan result from Title IV’s limitations on the benefits that PBGC may pay. Thus, PBGC did not rely on the Plan sponsor’s representations about the Plan’s funded status on an ongoing basis, but rather on the provisions in Title IV that dictate the limits of what PBGC may pay.
In addition to the assets available from the terminated Plan, PBGC will pay from its own insurance funds half a billion dollars in lifetime benefits to participants of the Plan. Temporary stock market advances and declines are of limited significance, and have not created a windfall for PBGC. Furthermore, the law provides that both gains and losses to a plan after trusteeship rest with PBGC.
The view that outside parties should be involved in the trusteeship role after a plan is terminated was rejected in a case brought by the US Airline Pilots Association (“USAPA”), where the court concluded that having an outside trustee would “greatly add to the cost and time necessary to administer the termination insurance program." 2 Benefit determination requires interpretation of, and adherence to, the complex governing statute. Even if a private entity were appointed as trustee, that entity would be bound by PBGC’s interpretation of the provisions governing Title IV benefits, which Congress entrusted PBGC to implement.
The report about a “fiduciary breach investigation” of the Plan, conducted by Benchmark Financial Services in 2012, criticized the conduct of US Airways (before Plan termination) and PBGC (afterward). Although USAPA commissioned that report, it made no mention of the report in its lawsuit. The assertions that USAPA did make to the court were tested during a trial and rejected by the court. That ruling was affirmed on appeal. 3
In sum, the concerns raised in these inquiries are not the result of any breaches on the part of PBGC, but rather the law itself.
1 Davis v. PBGC, 864 F. Supp. 2d 148, 172 (D.D.C. 2012), aff’d, 734 F.3d 1161 (D.C. Cir. 2013), cert. denied.
2 US Airline Pilots Association v. PBGC, 2014 WL 3537827, n.4 (D.D.C. Jun. 20, 2014).
3 US Airline Pilots Association v. PBGC, 2015 WL 2408778 (D.C. Cir. Apr. 28, 2015).