U 

! I Pension Benefit Guaranty Corporation &- \ 5430~ \ 

N 

h 

VI 

1200 K Street. N.W.. Washington, D.C. 20005-4026 

a 

Re: Appeal No. / Trans World Airlines, Inc. (TWA) 

Retirement Plan for Pilots (the Plan) 

The Appeals Board reviewed your appeal of PBGCts December 31, 

2002 determination of your PBGC benefit. For the reasons stated 

below, the Appeals Board changed PBGC's determination by increasing 

your monthly PBGC benefit starting on your Actual Retirement Date 

(May 1, 2001) from $1,506.36 to $1,640.66 payable as a Modified 

Cash Refund Life Annuity (MCRLA)'. 

Determination and Appeal 

PBGC determined that you were entitled to a PBGC benefit of 

$1,506.36 per month starting on your Actual Retirement Date (May 1, 

2001) payable as an MCRLA. PBGC included a Benefit Statement, 

which shows infonnation.the former Plan administrator (TWA) used to 

calculate your Plan benefit. The Statement also shows that PBGC 

used TWA1s Plan benefit amount to calculate your PBGC benefit. 

Your January 17, 2003 form-letter appeal said that (1) PBGC 

did not provide you with sufficient information on the analysis 

that underlies the determination, and (2) without such information, 

it is difficult for you to know whether errors not apparent to you 

were made. Our Discussion below addresses those issues, and the 

other issues you raised. 

Discussion 

1. Request for Additional Information 

Because your appeal requested more information about your 

benefit calculation, the Appeals Board sent your request to PBGC's 

Disclosure Officer and informed you in a letter dated February 12, 

2003 that you had the option of supplementing your appeal within 30 

days after his response. PBGC records show that the Disclosure 

Officer responded to your request on March 5, 2003 with copies of 

1 Your MCRLA provides a benefit for the rest of your life. Also, because the 

Plan's former sponsor made special contributions on your behalf, your beneficia~ 

will receive a benefit if you die before you receive pension payments equal to 

the special contributions balance. 
-2- % \sq30b( 

the documents in your personal PBGC file. One of those documents 

shows how your Plan-defined benefit was determined. See 

Enclosure 1. Your March 30, 2003 supplemental appeal specifically 

questioned the reduction in your benefit related to the Qualified 

Domestic Relations Order (QDRO) between you and your former spouse, 

I Our Discussion below also addresses your 

supplemental appeal issues. 

2. Calculation of Your Plan Benefit and Your PBGC Benefit 

After the Plan terminated on January 1, 2001, PBGC personnel 

conducted an audit of the procedures TWA used in administering the 

Plan and calculating participants' Plan-defined benefits. After 

calculating.benefits for a sampling of participants and comparing 

the results with the amounts that TWA calculated and stored in 

TWA's pension database, PBGC auditors concluded that the benefit 

amounts in TWAts database were reliable. So, for most 

participants, and in your case.in particular, PBGC accepted TWA's 

accrued benefit calculations. In your case, PBGC then interpreted 

your QDRO, and adjusted your benefit to account for limitations on 

benefits set by Congress under the Employee Retirement Income 

Security Act of 1974, amended (ERISA). 

Documents in PBGC, files reveal that the Plan did not have 

sufficient assets when it terminated on January 1, 2001 to provide 

all benefits that PBGC guarantees under ERISA. As a result, the 

provisions of the Plan, ERISA, and PBGC's regulations and policies 

determine the amount of: 

* your guaranteed benefit, 

your ERISA 5 4044 benefit, and 

your ERISA § 4022 (c) benefit. 

Enclosurg 2 shows how PBGC calculated these benefit amounts. 

3. Your QDRO 

Section 3 of the QDRO states that ". . . PBGC shall pay to the 

Alternate Payee as a separate interest equal to Three Hundred 

Dollars ($300.00) per month of the Participant's accrued benefit. . . ." Records available to the Appeals Board show that both you 

and the Alternate Payee began receiving monthly benefits from PBGC 

effective May 1, 2001. 

Your March 30, 2003 supplemental appeal stated: 

"The QDRO was specifically designed in order to comply with 

PBGC requirements. After discussions with PBGC personnel, it 

was drafted with the clear understanding that it would not 
decrease my monthly benefit by more than the $300.00 monthly 

payment to the Alternate Payee. 

The basis for that understanding was illustrated by your. own 

actuary who determined that the $300.00 monthly payments, if 

started immediately, would be equal toa stream of payments 

worth $542.93 if started at my normal age 60 retirement date. 

If my normal age 60 retirement benefit of $2,670.88 was 

reduced by that amount, the resulting figure of $2,127.95 

would still have been above the PBGC Maximum Insurance Limit 

at age 60." 

Stated a little more precisely, your accrued benefit of 

$2,670.88 is the monthly amount of your accrued benefit payable as 

an MCRLA beginning at your normal retirement age (age 60) and 

payable for your lifetime. Because Section 6 of the QDRO specifies 

that the $300 monthly benefit is to be paid to the Alfernate Payee 

for her lifetime, the monthly $300.00 amount must be adjusted 

actuarially to account for the difference in your ages before being 

subtracted from your accrued benefit amount. Based on your age, 

the Alternate Payee's age, and the Plan's definition of actuarial 

equivalence2, a $300 monthly benefit starting on May 1, 2001 

payable for the Alternate Payee's lifetime is actuarially 

equivalent to a monthly benefit of $542.93 starting at your age 60 

payable for your lifetime. Thus, PBGC determined that before 

application of PBGC limitations, you; benefit payable under the 

QDRO was equal to $2,127.95 ($2,670.88 minus $542.93). 

The Appeals Board found, however, that PBGC missed one step in 

the calculation of your benefit under the QDRO. That is, because 

your full retirement benefit of $2,670.88 was not only payable at 

age 60 but also fully payable at your ARD (May 1, 2001), PBGC 

failed to credit you with the full subsidy that you earned by 

working more than thirty years for TWA. PBGC's calculations 

reflect the fact that the subsidy payable on the $542.93 portion of 

your accrued benefit is not payable to the Alternate Payee under 

the terms of the QDRO, and therefore, you retained the subsidy you 

earned on the portion payable to the Alternate Payee. 

The calculations required to restore the subsidy are 

simplified by the fact that you and the Alternate Payee began 

receiving your benefits on the same day. Based again on the Plan's 

definition of actuarial equivalence, the value of your full 

a Based on the Plan's definition of actuarial equivalence, the present value 

factor (PVF) of an immediate annuity for a 49-year-old spouse is 147.4798, while 

the PVF of an annuity deferred to age 60 for a 55-year-and-7-month-old 

participant is 81.4917. Therefore, $300.00 per month payable immediately to the 

Alternate Payee starting on May 1, 2001 for her lifetime is actuarially 

equivalent to a deferred annuity of $542.93 ($300.00 x 147.4798 i 81.4917) per 

month starting at your age 60 and payable for your lifetime thereafter. 
retirement benefit starting on May 1, 2001 was $339,762, while the 

value of the Alternate Payee's benefit was $44,244 .' Therefore, 

the value of your retained interest was $295,518 ($339,762 - 

$44,244), which provides you with a monthly benefit of $2,317.67~ 

payable as an MCRLA under the QDRO.. 

The Maximum Guaranteed Benefit (MGB) limit applies to the 

entire retirement benefit payable on your behalf under the Plan. 

Enclosure 2 explains that the monthly MGB limit that applies to 

your full retirement benefit is $1,581.38, and that the ERISA 

5 4022(c) benefit that applies to your full retirement benefit is 

$309.31 per month, which means that PBGC is allowed to pay 

$1,890.69 ($1,581.38 + $309.311, or 70.7890% ($1,890.69 + 

$2,670.88) of your full retirement benefit of $2,670.88. 

Applying this percentage to your corrected benefit under the 

QDRO, the Appeals Board found that your PBGC benefit is $1,640.66 

($2,317.67 x 70.7890%) per month payable as an MCRLA. 

4. Federal Litigation 

Your form-letter appeal includes claims that are being 

litigated against PBGC and other parties in two federal courts. 

The plaintiffs in the court cases allege among other things that 

the Plan was improperly terminated under ERISA. The form letter 

says that you are raising these issues in order "to ensure that all 

my rights with respect to the issues in contention in those 

litigations are Eully preserved." 

By way of background, Carl Icahn was the former controlling 

shareholder of TWA. TWA filed a bankruptcy petition in 1992 in the 

Bankruptcy Division of United States District Court for the 

District of Delaware. One of the issues involved in the bankruptcy 

3 The Plan's factor for changing your $2,670.88 benefit payable as MCRM to 

a benefit payable as a Straight Life Annuity with no death benefit (SLA) is 

1.006914. SO, your full accrued benefit is equivalent to $2,689.35 payable as 

an SLA. Based on the Plan's definition of actuarial equivalence, the present 

value factor (PVF) of an SLA starting immediately for a 55-year-and-7-month old 

participant is 126.336, and 126.336 x $2,689.35 = $339,762. 

4 As noted in an earlier footnote, the PVF of an immediate annuity for a 49- 

year-old spouse is 147.4798, and 147.4798 x $300.00 = $44,244. 

5 As noted in an earlier footnote, the PVF of an immediate annuity for a 55- 

year-and-7-month old participant is 126.336. Dividing the value of your retained 

benefit by the PVF results in a monthly benefit of $2,339.14 ($295,518 i 126.336) 

payable as an SLA. 'be Plan's factor for changing the $2,339.14 benefit payable 

as SLA to a benefit payable as an MCRLA is 1/1.009265. So, your retained benefit 

under the QDRO is equal to $2,317.67 ($2,339.14 x 1/1.009265) per month.payable 

as an MCRLA. 
was the status of TWA's underfunded pension plans, and the extent 

of Carl Icahn's liability, if any, in the event the plans 

terminated. Among other things, Mr. Icahn conditioned his 

willingness to provide TWA with a $200 million loan (which was 

necessary for TWA to survive and emerge from bankruptcy) upon some 

provision that fixed the amount of liabi-lity that he might incur 

towards the pension plans. Throughout these proceedings, the 

interests of the retired and active pilots were represented by the 

Air Line Pilots Association (ALPA). 

On January 5, 1993, TWA, ALPA (and other unions that 

represented TWA employees), and PBGC signed a "Comprehensive 

Settlement Agreementn (CSA) under which: (1) Carl Icahn loaned TWA 

$200 million; (2) an Icahn-owned concern called Pichin Corp. took 

over sponsorship of the TWA pension plans, and agreed to become 

responsible for any minimum funding costs of the plans that were 

not covered by a $300 million payment guaranteed by TWA; (3) it was 

agreed that the plans would terminate if certain events occurred 

after 1993; and (4) if the plans were thereafter terminated by 

PBGC, it was agreed that Icahn would pay PBGC $240 million dollars. 

The Bankruptcy Court approved the CSA, and it was later 

incorporated in a Plan of Reorganization approved by the Bankruptcy 

Court. Neither ALPA nor any other party took an appeal from that 

decision, which became final and binding. 

The TWA pension plans terminated in 2001. Even though ALPA 

was one of the parties that negotiated and signed the CSA, it filed 

a suit to stop the Plan's termination and void the settlement 

agreement. Judge Ricardo Urbina of the United States District 

Court for the District of Columbia dismissed the case on March 29, 

2002.~ Following the merger of TWA and American Airlines, the 

Allied Pilots Association assumed representation of former TWA 

pilots and appealed Judge Urbina's ruling to the U.S. Court of 

Appeals for the D.C. Circuit. 

On July 11, 2003, the Court of Appeals issued its decision 

affirming Judge Urbina's decision. The Court of Appeals held that 

the termination was lawful under ERISA and that the CSA was a valid 

exercise of PBGC1s statutory settlement authority.' 

Between the two decisions, on May 15, 2002, eight former TWA 

pilots filed another lawsuit challenging the termination, also in 

Washington, D.C. The judge postponed litigation in the second case 

until the appeal of the first case was decided. On September 8, 

6 A copy of Judge Urbina's decision (http://mw.dcd.uscourts .govj00-3113 .pdf) 

is available on the court's website (http://www.dcd.uscourts.gov/). 

I The Court of Appeals decision is available on the court's website at 

~http://pacer.cadc.uscourts.gov/docs/common/opinions/200307/02-5144a.pdf). 
N 

r- 2003, the plaintiffs filed an amended complaint and a request for 

Y( a writ of mandamus. PBGC's response was due in November 2003. 

a 

While your form-letter appeal briefly summarizes the claims in 

these cases, it does not identify any errors in PBGC's 

determination of your PBGC benefit based on (1) your personal data, 

(2) the Plan's provisions, or (3) ERISA provisions, given the 

Plan's actual status as a terminated, PBGC-trusteed plan. Please 

note that the Appeals Board does not have the authority to decide 

whether the Plan's termination was proper, or to change the 

termination date. In any event, the Board declines to decide the 

claims that are in litigation. 

Decision 

Having applied the law and PBGC's rules to the facts in this 

case, the Appeals Board the Appeals Board increased your monthly 

PBGC benefit payable as a Modified Cash Refund Annuity starting on 

May 1, 2001 from $1,506.36 to $1,640.66. This decision is the 

agency's final action regarding your appeal. You may, if you wish, 

seek court review of this decision. 

We will forward a copy of this decision to PBGC's Insurance 

Operations Department,. the office charged with issuing benefit 

determinations, and they will adjust your monthly benefit, and 

recalculate the amount of any overpayments and underpayments. 

PLEIISB NOTE that PBGC will always, even after an appeal is 

closed, consider any - new, specific evidence that you present 

showing you may be entitled to a higher benefit. If you have or 

obtain any such evidence, please send it to PBGC, Attn: Insurance 

Operations Department, Trusteeship Processing Division #1, 

P.O. Box 151750, Alexandria, Virginia 22315-1750. If you need more 

information about your benefit, please call the Customer Contact 

Center at 1-800-400-7242. 

Sincerelv. 

Michel Louis 

Appeals Board Member 

Enclosures (3)