In Northwest Airlines, Inc. v. Phillips, Case No. 11-1730, 2012 U.S. App. LEXIS 7072 (8th Cir. Apr. 9, 2012), the U.S. Court of Appeals for the Eighth Circuit recently issued an important decision for employers on the application of the Age Discrimination in Employment Act (ADEA) to employee pension benefit plans. In the current economic climate and on-going corporate belt-tightening, the issues in Phillips are apt to play out in workplace litigation in an increasing fashion.
Facts Of The Case
Prior to declaring bankruptcy in 2005, Northwest Airlines provided pension benefits through a defined benefit plan, under which pilots could receive up to 60% of their final average earnings. After declaring bankruptcy, Northwest froze the plan and established a new target benefit plan and made contributions to a retirement savings account for each pilot based on a defined percentage of pilot earnings, with the goal that benefits under the frozen plan and the new plan would approximate 50% of final average earnings. Benefits under the frozen plan served as off-sets to the target plan benefits. To arrive at the 50% goal, Northwest projected a pilot’s final average earnings, using age and years of service as considered factors. This caused older pilots with only a few years of service to have their contributions to the target plan significantly reduced. As older pilots with long service records had already accumulated significant benefits under the frozen plan, they sued (among other theories) for alleged ADEA violations. The U.S. District Court for the District of Minnesota granted summary judgment against the ADEA claims in 2009.
The Eighth Circuit’s Ruling
On appeal, the pilots argued that use of a pilot’s projected final average earnings to determine contribution levels is “inextricably linked to age,” and therefore a violation of the ADEA. Id. at 8. The Eighth Circuit rejected this argument. Relying on the Supreme Court decisions in Kentucky Retirement Systems v. EEOC, 554 U.S. 135 (2008), and Hazen Paper Co. v. Biggins, 507 U.S. 604 (1993), the Eighth Circuit determined that pension plans often include age as a factor that determines benefits, and that plaintiffs must show that age, as opposed to pension status, motivated that use in order to assert a valid ADEA claim. The Eight Circuit concluded that any reduction in target plan benefits was not because of age. In affirming summary judgment, it noted that Congress did not legislate against the fact that younger workers have more time left before retirement, and thus a greater opportunity to earn benefits than do older workers.
Implications For Employers
This is a pro-employer ruling. As a result of the Phillips case, it will be even tougher for employees to show that a pension plan’s consideration of age violates the ADEA, as long as other factors such as years of service also are considered.