Plan terms permit benefit suspension during post-NRA employment

Adopting “the analysis and conclusions of the district court,” the U.S. Court of Appeals in Cincinnati (CA-6) held that plan terms permitted the administrator of an airline pilot’s pension plan to suspend benefits (with no subsequent actuarial adjustment) for pilots who choose to keep flying after age 60, the normal retirement age under the plan.
ERISA Sec. 203(a)(3)(B) permits pension plans to suspend the payment of accrued benefits during periods of continued qualifying employment. Under IRS Reg. Sec. 1.411(c)-1(f)(2), plans may forego making actuarial adjustments for employees who remain in so-called “Sec. 203(a)(3)(B) service.”

Plan terms

The question for the district court therefore was not whether the plan could legally suspend the benefits but whether plan terms provided for this suspension before the pilot began accruing benefits in 1989. The appellate court affirmed the district court’s conclusion that because plan terms had always prohibited participants from receiving pension benefits while actively employed at the airline, the plan provided for the “suspension” of benefits during Sec. 203(a)(3)(B) service, even if each restatement of the plan did not label its late-retirement provisions in so many words.

Standard of review

The appellate court rejected the pilot’s contention that the lower court erred when it applied the arbitrary and capricious standard of review. The district court acted properly when it factored the airline’s dual role (both funding the plan and making eligibility decisions) into its application of the arbitrary and capricious standard, instead of imposing a heightened standard of review.

The pilot argued that a heightened standard of review was warranted because the plan administrator offered a different justification for its benefits suspension at trial than it did when it made its original determination. Citing the Supreme Court’s rejection of a “”one-strike-and-you’re-out” approach to ERISA plan-administrator deference” in Conkwright v. Frommert, 559 U.S. 506 (2010), the court declined to “punish” the plan for its shifting rationales by imposing a less deferential standard of review. In any event, even using a stricter standard of review, the pilot’s claim for an actuarial adjustment would still be rejected.

Source: Canada v. American Airlines, Inc. Pilot Retirement Benefit Program (CA-6).

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