,v.. 

PBGC

Protecting America's Pensions 

Pension Benefit Guaranty Corporation 

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

December 11, 20 13 

/ 

Re: Appeal 2012--Case Number 199627, United Airlines Inc.· Pilots Fixed 

Benefit Income Plan (the "Plan") 

We are responding to your appeal of PBGC's determination of your benefit under the 

Plan. PBGC determined that your monthly PBGC benefit, in the form of a Straight Life Annuity 

("SLA"), is 10.09 from January 1, 2005 through- 2009, and (2) $1,688.22 

starting 2009. · 

For the reasons explained in this decision, the Appeals Board changed an actuarial factor 

that PBGC had used when it calculated your benefit funded by the Plan's assets in "Priority 

Category 3." The change in this factor increased your monthly PBGC benefit from the amounts 

PBGC determined. The Board decided you are entitled to receive:. 734.95 from January 1, 

2005 through-2009, and (2) $1,839.46 starting on 2009. These amounts 

are before the deduction for PBGC's recoupment of benefit overpayments. In all other respects, 

your appeal is. denied. 

In Enclosure 1 to this decision, we provide a new Benefit Statement Worksheet prepared · 

by the Appeals Board (" AB Worksheet") that shows the data we used and how we calculated 

your PBGC benefit. '­

Background 

Procedural history 

Your appeal has a detailed procedural history, which is summarized below: 

• 	 PBGC issued its benefit determination letter to you on December 14, 2010. PBGC's 

letter and enclosed Benefit Statement showed that you are entitled to a monthly PBGC 

benefit of (1) $2,503.86 from January 1, 2005 to-2009, and (2) $1,684.03 

2009. PBGC also determined that your monthly payments must 

be to account $36,099.48 in overpayments that you received between January 

1, 2005 and February 1, 2006. 
• In December 2010, PBGC provided you with a Benefit Statement Worksheet dated 

December 27, 2010, which explained PBGC's benefit calculation in more detail. 

• 	 On January 7, 2011, you requested an extension of time to file an appeal. You stated that 

you were waiting for a PBGC representative to explain certain aspects of your benefit 

calculation. 

• 	 At the Appeals Board's request, a representative of PBGC's Benefits Administration and 

Payment Department sent you a letter dated February 16, 2011 (Enclosure 2), which 

responded to the inquiries you had made by telephone and in your January 7 letter. 

PBGC's letter stated that, if you still disagreed with PBGC's explanation, you may 

submit a written statement to the Appeals Board within 45 days. 

• 	 You filed an appeal on March 29,2011. 

• 	 On August 30, 2012, PBGC sent you aletter stating that your monthly benefit will 

increase to $1,688.22 based ona revised audit of the Plan's assets (Enclosure 3). PBGC 

also calculated your monthly benefit payable from January 1, 2005 to-2009 as 

$2,510.09 (although this increase is not mentioned in the August 30, 2012 letter). 1 We 

note: (1) _on September 1, 2012, PBGC increased your monthly payments to $1,688.22, 

and (2) PBGC has not yet adjusted your monthly payments for the recoupment of your 

overpayments. 

• 	 In a letter dated September 6, 2012, the Appeals Board provided you with an opportunity 

to respond to PBGC's August 30, 2012letter? 

• 	 You supplemented your appeal in a September 13, 2012letter to the Appeals Boarq. 

Issues raised in your appeal 

In your appeal letters dated March 29, 2011 and September 13, 2012, you raise the 

following issues and make the following requests: 

• 	 You contend that the Early Retirement Adjustment Factors that PBGC used are incorrect. 

These factors relate to PBGC's calculations of your Maximum Guaranteed Benefit 

("MGB") and your funded benefit in Priority Category 3 ("PC3"). 

• 	· You assert that the Final Average Earnings of $160,000.00, which PBGC used .in 

calculating your PC3 benefit, is incorrect. 

• 	 You contend that you· earned 20.0506 Years of Participation Service, rather than the 

19.5000 Years of Participation Service that PBGC used to calculate your PC3 benefit. 

1 We also include in Enclosure 3 a copy ofPBGC's BeJ?.efit _Statement Worksheet dated October I2, 2012 ("PBGC 

. Worksheet"), which shows PBGC's calculation of the $I,688.22 benefit amount stated in PBGC's August 30, 20I2 

letter and of the $2,5I0.09 monthly benefit payable from January I, 2005 to-2009. 

2 The Board's September 6, 20I2 letter also explained that, because a new PBGC benefit amount replaces the one 

you appealed, the Board administr~ closed your March 29, 20 II appeal (Appeal 20 II..and assigned you a· 

new appeal number (Appeal20I2­

2 

• 	 You claim that PBGC incorrectly calculated your monthly benefit based on a 1983 Group 

Annuity Mortality Table. 

• 	 You request that PBGC correct your monthly benefit amount. You further ask PBGC to 

of me." You state in your 

September 13, 2012 letter that you are a-military veteran and "any decrease of 

my monthly pension or having to repay monies owed from overpayment by the PBGC 

would be a huge burden on me and my family." 

"forgive the purported $36,099.48 payback that it is requiring 

The Plan's termination and trusteeship by PBGC 

·PBGC provides pension insurance in accordance with the Employee Retirement Income 

Security Act of 1974,. as amended ("ERISA"). If a plan sponsor of a tax-qualified defined 

benefit pension plan is unable to support its plan, PBGC becomes trustee of the plan and pays 

benefits pursuant to the terms ofthe plan, subject to limitations and requirements set by Congress 

under ERISA. 

The Plan terminated, effective December 30, 2004, without sufficient assets to provide all 

benefits, and PBGC became the Plan trustee on October 26,2005. When PBGC becomes tlustee 

of a terminated plan, PBGC collects participant information and copies of the plan's governing 

documents from the plan's former administrator and audits that data. PBGC necessarily relies on 

the data it receives from a former plan administrator unless: (1) PBGC's audit of that data shows 

that it is wrong; or (2) a participant supplies PBGC with documents showing that the data is 

wrong. 

The benefits that PBGC pays 

Because of legal limits under ERISA and PBGC regulations, the benefits that PBGC 

guarantees may be less than the benefits a pension plan would otherwise pay. One of ERISA's 

limitations, the MGB (also referred to as the "maximum insurance limit"), affects the benefit 

amount that PBGC may pay you. A participant may receive a larger PBGC benefit, however, if 

the pension plan had sufficient assets when it terminated to pay more than PBGC's guaranteed 

amount. 

The six-tier asset allocation scheme under ERISA section 4044 determines how a pension 

plan's assets are distributed among various categories of benefits when the assets are insufficient 

to pay all promised benefits. The highest priority categories (Priority Categories 1 and 2) are 

reserved for benefits derived from a participant's own contributions. In this decision, we refer to 

these priority categories as PC1, PC2, PC3, etc. 

PC3, which is the most significant category with respect to the issues in your appeal, 

covers a participant's benefits that were "in pay status" (i.e., were being paid) three or more 

years before the plan's termination date, or that would have been in pay status three years before 

the termination date if the participant had retired. PC4 generally is for benefits guar3:fiteed by 

PBGC. PC5 is for other nonforfeitable benefits (generally, benefits that would be guaranteed but 

3 

for the limits described above).- ·PC6 covers all other benefits under the plan (i.e., non-vested 

benefits). 

Also, PBGC may pay an eligible participant an additional amount, known as the "ERISA 

§ 4022(c) benefit," based on PBGC's·recoveries from employers that maintained underfunded 

pension plans. 

The definition ofPC3 benefits in ERISA and PBGC regulations 

Several of the issues you raise involve PBGC' s calculation of your PC3 benefit. Under 

ERISA's definition of PC3, there are two requirements for a benefit to be in PC3.3 The first is 

that the participant must have either retired or been eligible to retire at least three years before 

the plan's termination date. 4 We refer to the termination date as '~DOPT," which is shorthand for 

"Date ofPlan Termination." The second requirement is that a benefit in PC3 is tlie benefit that is 

in pay status, or could have been in pay status, as of three years before DOPT based on the plan 

provisions "in effect" during the five years before DOPT ''under which such benefit would be the 

least."5 PBGC issued a regulation, published at 29 Code of Federal Regulations ("C.F.R.") 

section 4044.13; which further addresses how PC3 benefits are determined. 

As provided in ERISA and PBGC regulations, your benefit in PC3 is based on the 

assumption that you had retired as of the beginning of the three-year period ending on DOPT 

3 ERISA§ 4044(a) defmes PC3 as follows: 

In the case of the tennination of a single-employer plan, the plan administrator shall allocate the assets of 

the plan (available to provide benefits) among the participants and beneficiaries of the plan in the following 

order: 

* * * * 

(3) Third, in the case of benefits payable as an annuity­

(A) in the case of the benefit of a participant or beneficiary which was in pay status as of the beginning of 

the 3-year period ending on the tennination date of the plan, to each such benefit, based on the provisions 

of the plan (as in effect during the 5-year period ending on such date) under which such benefit would be 

the least, · 

(B) in the case of a participant's or beneficiary's benefit (other than a benefit described in subparagraph 

(A)) which would have been in pay status as of the beginning of such 3-year period if the participant had 

retired prior to the beginning ofthe 3-year period and ifhis benefits had commenced (in the normal form of 

annuity under the plan) as of the beginning of such period, to each such benefit based on the provisions of 

the plan (as in effect during the 5-year period ending on such date) under which such benefit would be the 

least. 

For purposes of subparagraph (A), the lowest benefit in pay status during a 3-year period shall be 

considered the benefit in pay status for such period. 

4 ERISA§ 4044(a)(3). 

5 Id 

4 

(i.e., as of December 30,,_2001). We refer to.the date three years before plan termination as­

"DOPT-3." PBGC therefore must determine your PC3 benefit based ori your age, your service, 

and your Final Average Earnings as ofDOPT-3. PBGC also must use the Plan's early retirement 

factor for a benefit starting on DOPT-3. 

Summary ofAppeals Board's Findings 

As stated at the beginning of this decision, the_ Appeals Board increased your PBGC 

benefit from the amount PBGC determined. Specifically, the Board decided: 

• 	 If the Plan had been fully funded when it terminated, your monthly benefit in the form 

you selected, a Straight Life Annuity with a Level Income Option ("SLA with LIO"), is 

$5,644.02 per month throug~2009, and $3,796.02 · 2009. 

These are the same amounts that were calculated by the Prior Plan Administrator. 

• 	 Due to the MGB limit, your benefit, when converted to an SLA with LIO, is 

$2,368.06 per month through- 2009 and $1,592.70 2009. 

• 	 As ofthe Plan's termination date, the Plan's assets covered only 82.0617% ofthe benefits 

in PC3. Your funded benefit in PC3 is $2,425.04 per month from the Plan's termination 

date through-2009 and $1,631.02 per month · 2009. Thus, 

because your funded PC3 benefit exceeds your MGB, PBGC pays the larger PC3 

amount. 

• 	 Your monthly PBGC benefit, which is the sum of your funded PC3 benefit and the 

additional amount provided under ERISA section 4022( c), is $2,734.95 through112009 and $1,839.46 · 2Q09. 

Discussion 

We respond below to the specific issues and requests presented in your appeal. We also 

provide a more-detailed explanation ofthe Appeals Board's calculation of your PBGC benefit in 

the Appendix to this decision and in the AB Worksheet. 

A. 	 Early Retirement Factors for your MGB and your PC3 benefit 

Your appeal states that the Early Retirement Adjustment Factors ("ERFs") shown on the 

Benefit Statement Worksheets you received from PBGC are incorrect. These factors relate to 

PBGC's calculations of your MGB and your funded benefit in PC3. 

The age reduction in PBGC's MGB calculation. ERISA's MGB provision provides that 

PBGC's guarantee of a participant's benefit cannot exceed a specified dollar amount payable in 

the form of an SLA at age 65. 6 For pension plans with termination dates in 2004, such as the · 

-Plan, the MGB is $3,698.86 per month ($44,386.32 annually) for a participant who begins 

receiving PBGC benefits at age 65 in the form of an SLA. 

6 ERISA§ 4022(bX3). 

5 

A PBGC regulation establishes the MGB age reduction factors for benefits that start before age 

65. Based on this regulation, the MGB for a participant who begins receiving a benefit before 

age 65 must be. reduced to reflect the number of whole months between: (1) the later of the 

plan's termination date and the participant's retirement date, and (2) the date the participant 

attains age 65. In your case, the December 30, 2004 Plan termination date is later than your 

retirement date. PBGC's regulation provides that the age reduction to the MGB is 7/12 of 1% for 

each of the first 60 months before age 65. The monthly reduction of 7112 of 1% results in a -/oreduction from your age 65 amount (see calculation in Appendix). 

Your appeal contends that your MGB should not be adjusted for your age at retirement 

because your retirement atage 60 was mandatory. 7 ERISA expressly defines the MGB based on 

"the actu~al value of a monthly benefit in the form of a straight-life annuity commencing at age 

65 ...." ERISA section 4022(b)(3). Because of this language, the MGB is less for participants 

who begin receiving their PBGC benefit at ages younger than 65 years because the cost of 

providing a benefit for their expected life is larger. PBGC's regulation at 29 C.F.R. § 4022.23(c) 

implements this ERISA requirement. 

ERISA contains no special exemption to the MGB reduction for pilots or for any other 

occupational group. The Appeals Board does not have the authority to change the factors that 

were established by a PBGC regulation. Accordingly, even though you were required to retire 

from employment as a pilot at age 60 based on federal law, PBGC is unable to provide you with 

a more favorable MGB. 

The early retirement adjustment in P BGC 's PC3 calculation. The Plan provisions in 

effect at the beginning of the five-year period before the Plan terminated provided that the 

Normal Retirement benefit amount is reduced by 6.0% for each year of early retirement before 

age 60 (i.e., a reduction of 1/2 of 1~er month).8 On your PC3 calculation date of December 

30, 2001 (i.e., DOPT-3), you were-years old. Because DOPT-3 wasll 

months before you attained age 60, an ERF applies to the calculation of your· PC3 

benefit, as is shown by the folloWing computation: 

1.0- [0.5% (monthly reduction) xll(months before age 60)] (ERF) 

7 The Fair Treatment for Experienced Pilots Act, P.L. 110-135, signed on December 13, 2007, changed airline 

pilots' mandatory retirement age from 60 to 65. Unfortunately for you, th_is legislation was enacted after you 

attained age 60 and retired from UAL. 

8 The formal Plan documents that apply to your benefits are the 1999 Amendment and Restatement of the United · 

Airlines Pilot Defmed Benefit Pension Plan {"1999 Plan") and the amendments to the 1999 Plan that were in effect 

when you terminated UAL employment. Appendix B ofthe 1999 Plan shows that the early retirement reduction for 

retirement during the first 5 years before age 60 i~ 6% per year (0.500% per month). In Enclosure 4 we provide a 

copy of relevant 1999 Plan provisions. In Enclosure 5, we provide a table that shows the ERF's that PBGC used to 

calculate PC3 benefits. The First Amendment to the 1999 Plan ("First Amendment," which we provide as 

Enclosure 6) changed the early retirement reduction to 3% per year (0.25% per month) effective for retirements on 

or after April 11, 2000. · 

6 

Youcobject to PBGC's use of an-early retirement factor in its calculation ofyour PC3 

benefit for the same reasons that you object to the age reduction to your MGB. Under ERISA's 

priority scheme for allocating plan assets to benefits, participants (like you) who could have 

retired on DOPT-3 are treated for PC3 .purposes as if they actually had retired on that date and 

had their benefit computed under the Plan provision in effect at the beginning of the 5-year 

period before the Plan's DOPT. As is the case with the MGB factor, the Appeals Board is 

unable to change the early retirement factor PBGC used to compute your PC3 benefit. 

B. Final Average Earnings for your PC3 benefit 

The Plan document applicable to you defines "Final Earnings Period" as the "36 

consecutive Months of Participation, in the calendar order of occurrence, which are included in 

the Earnings Period and for which the Participant has been credited with the greatest total 

Earnings."9 Additionally, your "Eligible Earnings" for any Plan Year, which are used to 

calculate your Final Average Earnings ("F AE"), c~ot exceed the $150,000 limit stated under 

section 401(a)(17)(A) of the Internal Revenue Code ("IRC"), as increased by the applicable Cost 

of Living Adjustments ("COLAs") provided in IRC § 401(a)(17)(B). 10 

Due to the IRC § 401(a)(l7) limit COLAs, the IRC § 401(a)(l7) compensation cap 

increased during the 5-year period before DOPT. The increased IRC § 401(a)(l7) limits (which 

are shown in the table you provided as an exhibit to your appeal) are as follows: 

YEAR AMOUNT 

1999 $160,000 

2000 $170,000 

2001 $170,000 

2002 $200,000 

2003 $200,000 

2004 $205,000 

. 

9 This provision (provided in Enclosure 4) is located in section 1.4 of the 1999 Plan, which is titled "Defined 

Terms." Section 1.4 also includes a special rule that applies ifthere are fewer than 36 Months of Participation in the 

Final Earnings Period. 

10 The defmition of"Eligible Earnings" in Section 1.4 ofthe I999 Plan states: 

"Eligible Earnings" means that pot:tion of a Participant's Earnings for any Plan Year that do not exceed (i) 

$200,000 for Plan Years beginning after December 3 I, I988 and before January I, I995, (ii) $I50,000 for 

Plan Years beginning after December 3 I, I 994, or (iii) in either case (i) or (ii), such larger amounts as are 

in effect as ofthe first day of any such Plan Year under Code Sec. 40I(a)(I7). If Earnings for a period of 

less than 12 months is used for a Plan Year, then the otherwise applicable annual compensation limit is 

reduced in the same proportion as the reduction in the I2-month period. 

See also defmition of"Final Average Eligible Earnings" in Section 1.4. 

IRC § 40I(a)(17) provides, generally, that a trust which is part of a pension plan shall not constitute a qualified 

trust unless the annual compensation of each employee taken into account under the plan for any year does not 

exceed a specified amount. . · 

7 

As provided in the Plan's definition of "Eligible Earnings," the Plan's compensation cap 

increases whenever an IRC § 40l(a)(17) limit COLA goes into effect. Accordingly, each of the 

COLA increases to the IRC § 401(a)(17) limit is a separate benefit increase under the Plan's 

provisions. 

ERISA limits a participant's benefit in PC3 to the benefit "based on the provisions of the 

plan (as in effect during the 5-year period ending on such date) under which such benefit would 

be the least." 11 The PBGC regulation that implements this statutory provision provides that the 

benefit assigned to PC3 is limited to "the lowest annuity ben~fit payable under the plan 

provisions, including any reduction for early retirement, at any time during the 5-year period 

ending on the termination date."12 Based on this regulation, PBGC applied the lower 

IRC § 401(a)(17) limit that was in effect five years before the Plan's termination when it 

calculated your benefit in PC3. We refer to the. date five years before plan termination as 

"DOPT-5." 

As shown in the above table, the annual IRC § 401(a)(17) compensation limit in effect at 

DOPT-5 was $160,000. Although the annual limit increased to $170,000 effective January 1, 

2000 due to a COLA, PBGC cannot use the $170,000 limit in your PC3 benefit calculation 

because this ·increase was not in effect at DOPT-5. Instead, PBGC used a Final Average 

Earnings limit of$160,000 for your earnings in 1999,2000, and 2001, since that limit produces 

the lowest benefit payable to you as ofDOPT-3. 

You claim your F AE for purposes of calculating your PC3 benefit should be 

$166,666.66, which is the average of the IRC § 401(a)(17) limits for 1999 ($160,000), 2000 

($170,000), and 2001 ($170,000). You enclosed a benefits worksheet, which you state was 

prepared by UAL. You view this document as supporting "an average cap of$166,666.66." 

If PBGC applied the IRC § 401(a)(17) limits in effect at DOPT-3, yotir FAE would be 

$166,666.66, as you claim. Based on ERISA and PBGC's regulation, however, PBGC must 

calculate your PC3 benefit using the lower IRC § 401(a)(17) limit that was in effect at DOPT-5, 

which results in an FAE of $160,000. For this reason, we are unable to increase the FAE that 

PBGC used to calculate your PC3 benefit. · 

C. Participation Service for your PC3 benefit 

Based on the Plan's provisions, you began accruing Participation Service on1980. Thus, if your UAL employment had been continuous, you would have earn~ 

and 11 months (21.~167 years) of Participation Service as ofDOPT-3 (December 30, 2001). 

11 ERISA § 4044(a)(3). In this provision, the words "such date" refer to the pension pi!I:D 's termination date. 

12 29 C.F.R § 4044.13(b)(3)(ii) (emphasis added). PBGC's regulation further states that "[b]enefit increases that 

were effective throughout the 5-year period" are included in PC3. 29 C.F.R. ·§ 4044.13(b)(2)(i). 

8 

For your PC3 benefit calculation, however, your P~rvice must be adjusted 

for your period of furlough between-1980 and -1984. Under the Plan 

provision that applies to your PC3 benefit: (1) a-pilot with a furlough greater than 12 months is 

credited with Participation Service for only one-third of the months he was on furlough; ~d (2) 

if this calculation results in a partial month, the Participation Service is rounded up to the next 

full number. 13 

You were on furlough for 3 years and 8 months (3.6667 years, which is 44 months). If 

your furlough period is not included in your Participation Service at all, you would have earned 

18.25 Years ofParticipation Service at DOPT-3 [21.9167 (Participation Service if employment 

was continuous)- 3.6667 (furlough period)= 18.25 Years of Participation Service]. Under the 

"1/3 rule" discussed above, you ate entitled to credit for 15 of the 44 months you were on 

furlough, which equals 1.25 years. This additional 1.25 years of Participation Service provided 

by the "113 rule" increases your Participation Service at DOPT-3 from 18.25 years to 19.5 years. 

, Your appeal asserts that you should be credited with 20.0506 years of Participation 

Service. 14 Your calculation differs from the 19.5 years that PBGC computed for PC3 benefit 

purposes because: (1) you (incorrectly) counted Participation Service that you accrued after 

DOPT -3; and .(2) you did not include the 1.25 years of furlough service based on the "113 rule" 

discussed above. The Appeals Board decided that PBGC correctly used 19.5 years of 

Participation Service when it calculated your PC3 benefit. 

D. Your SLA with LIO amounts in PC3 

Your appeal disagrees with the "present value" actuarial assumptions that PBGC used in 

determining the MGB and PC3 amounts that PBGC may pay you as an SLA with LIO. In 

responding to this issue, we first explain the SLA with LIO amounts that UAL calculated. 

Afterwards, we discuss: (1) PBGC's calculations ofyour SLA with LIO amounts in PC3; and (2) 

the Appeals Board's changes to your SLA with LIO amounts in PC3. · 

13 This "1/3 rule" for credited service during a furlough is set forth in Letter 91-11, which is a letter of agreement 

between UAL and the Air Lines Pilot Association ("ALPA") dated May 9, 1991 (Enclosure 7). 

We note that, under the First Amendment (Enclosure 6), full credited service is given for time spent on furlough if 

the pilot returns to work. Because the First Amendment was adopted on December 21, 2001, which is within five 

years of DOPT, your PC3 benefit-must be calculated using the Plan's earlier provision, which results in a lower 

benefit. 

14 You calculated 20.0506 years of Participation Service as follows: 23.7 5 years of Participation Service if your 

employment with UAL was continuous less a "total furlough time" of3.6994 years. The 23.75 years you computed 

~eperiod between your Date ofParticipation-1980) and your employment termination date 

~003). . . 

Your furlo~alculation of 3.6994 years includes an adjustment for a "one-day" furlough you 

experienced o~1980. UAL's, PBGC's, and the Appeals Board's computations of"your service do not 

include this one-day furlough period. 

9 

Prior to 2003 retirement date, UAL calculated your Plan benefit under 

oer1ern: options. In Enclosure 8, we provide a copy ofUAL's benefit calculations dated 

2003. In Enclosure 9, we provide a copy of the benefit election form that you and 

your signed on-2003. 15 Enclosure 9 shows that you elected the "Single Life 

Annuity with Level Income Feature" (i.e., the SLA with LIO) starting on an actual retirement 

date ("ARD") (at age 60). 

The Plan's "Level Income Feature" is designed to provide a retiree with a "level income" 

through the combination of a pension plan benefit and an (estimated) Social Security benefit. 16 

Thus, imder the. SLA with LIO form you elected, your payments do not remain the same 

throughout your lifetime. payments: (1) are larger during the six-year 

period from your retirement date 2003) until your unreduced Social Security 

~e(at age 66); and (2) are reduced by an estimated Social Security amount starting 

-2009. Under the Plan's calculations, the sum of your post-age-66 Plan benefit and 

. your estimated Social Security benefit equals the (larger) pre-age-66 Plan benefit. In this 

decision, we use the term ''temporary period" to refer to the time period when the participant is 

entitled to larger payments under a LIO. 

When you retired effective 2003, UAL calculated a ·"qualified" SLA 

amount of $4,503.80. The $4,503.80 amount is after the deduction of $854.53 for your Partial 

Lump Sum Amount ("PLSA") distribution. UAL then made actuarial adjustments to yom 

$4,503.80 SLA amount to determine the monthly amounts you would receive as an SLA with 

LIO. For this calculation, UAL estima~ed yom monthly Social Security benefit (which we refer. 

to as the "SSA J\rnoun~O. UAL dete~ monthly SLA with LIO amounts 

as: $5,644.02 from- 2003 through- 2009; and (2) $3,796.02 starting 

2009. 17 UAL's calculation of your SLA with LIO amounts is explained in the 

Appendix. 

1. UAL's calculation of your SLA with LIO amounts 

The ove~all impact of UAL's calculations is: (1) your monthly pre-age-66 benefit is 

15 PBGC records do not contain page 2-3 of the benefit election form in Enclosure 9. Please also note that the 

benefit amounts shown on pages 6 and 7 of Enclosure 9 are somewhat greater than the benefit amounts in Enclosure 

8 because they include both the "qualified" benefits payable under the Plan and the "non-qualified" amounts payable · 

by a separate UAL pension plan that was not tax-qualified ("non~qualified plan"). PBGC does not guarantee 

benefits under the non-qualified plan because that plan was not covered by PBGC's insurance program. 

16 As provided in section 8.5 of the 1999 Plan, a participant may elect the LIO in combination with several annuity 

forms, including the SLA, a Joint and Survivor Annuity, and a Ten Year Certain Annuity. The participant may also 

select the date on which his benefit "steps down" to a smaller amount, so long as it is between age 62 and the 

participant's "Social Security Normal Retirement Age" (age 66 in your case). You selected the frrst of the month 

after you attained age 66 as your step-down date. 

17 Thus, under VAL's calculations, the $1,848.00 decrease in your monthly payments starting on-2009 

[i.e., $5,644.02- $3,796.02 = $1,848.00] equals your (estimated) SSA Amount. Your Plan benefit amounts do not 

increase or decrease, however, ifyour actual Social Security benefit is different. 

10 

$1,140.22 more than the benefit you would have received if you had elected an SLA without an 

LIO; and (2) your monthly benefit starting at age 66 is $707.78 less than if you had elected an 

SLA without an LIO. Those two amounts are "valent to a (level) Plan benefit of 

$4,503.80 in the SLA form starting on your ARD of 2003 (at age 60). PBGC 

accepted the Plan benefit amounts that UAL calculated 

2. PBGC's calculation ofyour SLA with LIO amounts in PC3 

PBGC determmes your PC3 amount as of DOPT-3 based on the Plan's provisions in 

effect on DOPT-5. See discussion on pages 4-5 above. For this reason, your monthly benefit in 

PC3 before the adjustment for the LIO ($2,408.21) is less than your monthly Plan benefit amount 

before the adjustment for the LIO ($4,503.80). The $2,408.21 amount in PC3 (before LIO 

· adjustment) is shown on line (16) ofPBGC's Benefit Statement in Enclosure 3. The calculation 

ofthe $2,408.21 amount, which the Appeals Board did not change, is explained in the Appendix. 

PBGC calculated your m~A with LIO amounts in PC3 as $3,189.55 

2003 through- 2009 and $1,476.08 per month starting 

2009. These monthly PC3 amounts are shown on lines (18) and (19) of the PBGC Worksheet 

(Enclosure 3). 

Please note that the amounts shown on lines (18) and (19) are not the PC3 amounts that 

are payable to you. Rather, PBGC adjusts the amounts in lines (18) and (19) to: (1) take into . 

account that the Plan's assets covered only 82.0617% of the Plan's benefit liabilities in PC3; and 

(2) change your monthly. PC3 amounts to "percentages" of your Plan benefit amounts. We 

discuss these two adjustments later in this decision. 

In calculating your PC3 amounts for an SLA with LIO, PBGC used the same LIO 

calculation method that UAL used. Essentially,-the Plan's LIO calculation method uses the SSA 

Amount (which is the participant's estimated Social Security benefit) and an actuarial adjustment 

factor for the LIO ("LIO Factor") to convert the benefit payable as an SLA to the benefit payable 

as an SLA with LIO. The LIO Factor ensures that the benefit amounts calculated in the LIO 

form are actuarially equivalent, as of the participant's benefit start date (i.e., ARD) and under the 

Plan's assumptions, to the benefit payable as an SLA. The LIO calculation method is explained 

in more detail in the Appendix. 

To adjust your monthly SLA amount to your monthly amounts in the SLA with LIO 

form, PBGC used a different benefit start date for your PC3 benefit than for your Plan benefit. 

PBGC concluded that your PC3 benefit payable as an SLA with LIO must be calculated based on 

the assumption that you started receiving payments under that option as of DOPT-3 (i.e., starting 

January 1, 2002), with a step down to a smaller monthly amount at age 66. Thus, PBGC 

calculated your PC3 benefit using the Plan's LIO Factor for a benefit starting at age ~d. 

months (your age at DOPT-3) and an (assumed) temporary period of seven years and~onths. 

PBGC use of a LIO Factor for an earlier start date and a longer assumed temporary period 

benefit resulted in materially lower PC3 amounts than if PBGC had used the Plan's LIO Factor 

11 

for your actual age 60 start date and the 6-year temporary period you elected.!B. 

For your PC3 calculation, PBGC also used the SSA Amount ($1,713.47) that the Plan 

would have used if you started your LIO benefit· on January 1, 2002, which impacted your PC3 

amounts slightly. PBGC's calculations of your monthly PC3 amounts are shown in the PBGC 

Worksheet (Enclosure 3). 

3. Appeals Board's calculation of your SLA with LIO amounts in PC3 

As previously stated, the Appeals Board changed PBGC's calculation of your LIO 

benefit amounts in PC3. Specifically, the Board decided that the SSA Amo~) !lfld 

LIO Factor that UAL used in calculating your LIO benefit as of yoirr ARD of-2003 

should also be used for your PC3 benefit calculation. 

These changes c~monthly benefit in PC3 to increase to: (1) $3,548.43 (rather 

189.55) through-2009; and (2) $1,700.43 (rather than $1,476.08) starting on 

2009. The $3,189.55 and $1,700.43 amounts are prior to the adjustments the Board 

made to: (1) take into account that the Plan's assets covered only 82.0617% ofthe,Plan's benefit 

liabilities in PC3; and ·(2) change your monthly PC3 amounts to "percentages" of your P~an 

benefit ainounts. See discussion on pages 15-16. 

The reason for the Appeals Board's change is explained below. 

a. Applicable provisions in ERISA and PBGC regulations 

In analyzing how to calculate your PC3 benefit in your SLA with LIO form, we start with 

the applicable statutory and regulatory provisions. For a participant, such as you, who was not in 

18 PBGC also concluded that ERISA § 4044 required it to compute your PC3 benefit based on the Plan's actuarial 

assumptions for LIO benefits that were in effect five years before the Plan's termination date (i.e., on December 30, 

1999). UAL had amended the assumptions, effective January· I, 2000, to provide that the Plan's LIO benefit would 

not be less than the amounts determined by using the interest rate and mortality factors required for lump sum 

distributions under Internal Revenue Code ("IRC") section 417(e). Compare 1999 Plan§ 16.1 (Enclosure 4) (Plan's 

earlier LIO actuarial assumptions) with First Amendment to the 1999 Plan '1J7 (Enclosure 6) (amended LIO 

assumptions). PBGC's use of the pre-2000 LIO actuarial assumptions had the effect of decreasing your PC3 benefit 

amounts. 

UAL's adoption of the amended assumptions ensured that the Plan's LIO would comply with ERISA § 205(g) 

and IRC § 417(e). See Treas. Reg. § 1.417(e)-l(d) (issued August 22, 1988); T.D. 9256, 71 Fed. Reg. 14,798, 

14,800 (March 24, 2006) (applicability of Treas. Reg. § 1.417(e)-l(d) to LIOs). Because the Plan's amended LIO 

assumptions ensured that the Plan complied with ERISA, the Appeals Board did not apply the earlier LIO 

assumptions in calculating your PC3 amounts. 

The Board decision to use the Plan's amended LIO assumptions to calculate your PC3 benefit is consistent with 

PBGC's decision, made in 2009, not to apply ERISA's phase-in limit to benefit increases resulting from the Plan's 

amended LIO assumptions. The phase-in limit applies to PBGC's guarantee of benefit increases under plan 

amendments that are adopted or become effective within five years of a pension plan's termination date. See ERISA 

§ 4022(b)(l), (7); 2~ C.F.R. § 4022.2, 4022.24, 4022.25. 

12 

pay status at DOPT-3, ERISA and ·PBGC regulations define the PC3 benefit in terms of the 

"normal form of annuity." 19 This definition is different from the definition of a PC3 benefit for a 

participant who is in pay status at DOPT-3. PBGC's PC3 regulation provides that, for a · 

participant in pay status at DOPT-3, ''the form of annuity elected by a retiree is considered the 

normal form of annuity for that participant."20 

ERISA does not address how to calculate the PC3 amount for a participant, such as you, 

who retires after DOPT-3 and elects an optional form of benefit (instead of receiving the benefit 

in the normal form)·. 

Although not directly on point, a subsection of PBGC's PC3 regulation addresses a 

situation that is analogous to your LIO issue. When PBGC issued its PC3 regulation, the agency 

was aware that differences could exist "between the normal form of annuity in effect at the 

beginning of the 3-year period and the normal form at that point in the 5"-year period when the 

lowest benefit was in effect."21 The PC3 regulation provides that, if the annuity form that 

appears to produce the lowest benefit in the 5-year period before DOPT differs from the normal 

form, ''the benefits shall be compared after the differing form is converted to the normal annuity 

form, using plan factors."22 29 C.P.R. § 4044.13(b)(3)(ii). 

This subsection of the regulation indicates that PBGC appropriately may use "plan 

factors" of actuarial equivalence to convert the PC3 amount payable in the normal annuity form 

to the PC3 amount payable in the optional annuity form elected by the participant. 

b. The Board's change to your LIO benefit in PC3 

As stated above, PBGC calculated your PC3 benefit based on the assumption that you 

started receiving payments under the SLA with LIO form as of DOPT-3 with a step down to a 

smaller monthly amount at age 66. PBGC, in calculating PC3 amounts under those assumptions, 

essentially concluded that your SSA Amount and LIO Factor should be treated similarly to the 

other "relevant facts" in your PC3 calculation, such as your age, service, and compensation. As 

19 ERISA states that, if the participant is not in pay status at DOPT-3, the PC3 benefit is the annuity that would be 

payable if the participant's "benefits had commenced (in the normal form of annuity under the plan) as of the 

beginning of the 3-year period." ERISA § 4044(a)(3)(B) (emphasis added). Similarly, PBGC's PC3 regulations 

· provide that, for a participant who is not in pay status at DOPT-3, "the priority category 3 benefit and the normal 

form of annuity shall be determined according to plan provisions in effect on the day before the beginning of the 

3-year period ending on the termination date as if the benefit had commenced at that time." 29 C.F.R. 

§ 4044.13(b)(2)(ii). 

20 29 C.F.R. § 4044.13(b)(2)(i). We do not address in this decision how LIO amounts should be determined for 


participants who retired before DOPT-3. 


21 See preamble to PBGC's fmal Allocation of Assets, 46 Fed. Reg. 9480, 9484 (Jan. 28, 1981). 

22 This subsection ofPBGC's PC3 regulation further provides that, in the absence of plan factors, the PBGC factors 

in 29 C.F.R. § 4022 shall be used. 

13 

stated above, PBGC uses your ·age, service, and compensation at DOPT-3 in computing your 

PC3 benefit in the normal form. 23 

The SSA Amount and LIO Factor, however, pertain only to the conversion of the Plan's 

normal annuity amount to the Plan's optional LIO amounts. As previously explained: (1) ERISA 

does not address how to calculate the PC3 amount for a participant who n::tires aft~r DOPT-3 and 

elects an optional form of benefit; and (2) PBGC's regulation at 29 C.F.R. § 4044.13(b)(3)(ii) 

indicates that PBGC appropriately may use "plan factors" of actuarial equivalence to convert the 

PC3 amount payable in the normal· annuity form to the PC3 amount payable in the optional 

annuity form that was elected by a participant who retired after DOPT-3. The Appeals Board 

accordingly concluded that the longer temporary period assumption that PBGC used to compute . 

your PC3 benefit - which does not maintain actuarial equivalence between the normal form PC3 

benefit and the LIO form PC3 benefit- is not required by ERISA or by PBGC regulations. 

The Appeals Board also concluded that PBGC's computation of your PC3 benefit must 

be changed because PBGC's temporary period assumption essentially changed the characteristics 

of your elected benefit form. When UAL presented you with the opportunity to choose an LIO, 

you could select the date when your benefit steps down to a smaller amount, so long as it is 

between age 62 and your Social Security Normal Retirement Age (age 66). Using the 6-year 

temporary period you elected, UAL calculated an SLA with LIO benefit that was actuarlally 

equivalent (under the Plan's factors) to the Plan's normal form of a level SLA. Under PBGC's 

calculation of your PC3 benefit as an SLA with LIO, however, this optional form became 

significantly less valuable than a level SLA because of the (larger) assumed temporary period. 

The Appeals Board further calculated your monthly benefit in PC3 using the same 

''temporary benefit" and "reduced benefit" adjustments that UAL computed for your elected 

benefit form. 24 To compute the SLA with LIO benefit you elected, UAL actuarially adjusted 

your monthly SLA amount ($4,503.80 for your lifetime) by (1) paying an additional $1,140.22 

per month for 6 years starting at age 60 and (2) paying $707.78 per month less than your SLA 

after you attained age 66 (with the reduction continuing for your lifetime). These adjustmentsthat is, a temporary period increase of $1,140.22 and an age-66 reduction of $707.78- provided 

you with an SLA with LIO as of your ARD that"is equivalent to a level SLA as of your ARD 

based on the Plan's actuarial assumptions. 

· The Appeals Board, using the same LIO adjustments as UAL accordingly computed the 

following PC3 amounts: (1) your benefit payable until-2009 is $3,548.43, which 

23 PBGC's PC3 regulation provides for such treabnent, since it states that the PC3 benefit amount for a participant 

who is not in pay status on DOPT-3 generally is determined based on "the participant's age, service, actual or 

expected retirement age, and otherrelevantfacts" as ofDOPT-3. 29 C.F.R. § 4044.13(b)(2) (emphasis added). 

24 PBGC has not issued a formal policy that addresses how LIO benefits in PC3 are to be calculated for participants 

who retire after DOPT-3. In the absence of a formal policy, the Appeals Board calculated your PC3 benefit in a way 

that, in the Board's view, is consistent with ERISA and PBGC regulations. 

The Appeals Board does not establish generally-applicable rules concerning how PBGC benefits are calculated. 

Accordingly, PBGC could adopt a regulation or policy that establishes a different PC3 calculation method for 

participants who retire after DOPT-3 with LIO benefits. · 

14 

equals the sum of your SLA PC3 amount of $2,408.21 and an addition for your LIO of ...,. 

$1,'140.22; and (2) your benefit payable starting at age 66 equals $1,700.43, which is your SLA 

PC3 amount of $2,408.21 less the reduction for the LIO of $707.78. The Board found that its· 

calculation of these PC3 amounts maintains the actuarial equivalence between your PC3 benefit · 

as an SLA and your PC3 benefit as an SLA with LIO. See further discussion in the Appendix. 

E. Appeals Board's calculation of your PBGC-payable benefit amounts 

The PC3 amounts by the Appeals Board- $3,548.43 through- 2009 

and $1,700.43 2009- do not reflect the PBGC benefit amount that you are 

entitled to receive. three additional adjustments are required: (1) your monthly 

PC3 amounts must be reduced because the Plan's assets funded only 82.0617% of the benefit 

liabilities in PC3; (2). an actuarial adjustment must be made because PBGC pays non-level PC3 

amounts as a "percentage" of the participant's non-level Plan benefit amounts; and (3) your 

additional benefit under ERISA section 4022( c) must be added to your funded PC3 benefit 

amount. These three adjustments, which are complex, are explained in the Appendix. 

Your appeal challenges the second of the adjustments listed above, which is the actuarial 

calculation PBGC performs to determine the "percentage" of your Plan benefit amounts that 

PBGC may pay in PC3. As shown in lines (21) through (23) of the AB Worksheet, the Appeals 

Board concluded that your funded PC3 benefit equals 42.9665% of your Plan benefit amount. 

As discussed below, the 42.9665% is based on PBGC's actuarial assumptions. Your appeal 

claims that PBGC should u5e "more up-to~date" actuarial assumptions to determine the "present 

value" ofmonthly benefit amounts. · 

As PBGC informed you in its February 16, 2011 letter, the interest and mortality 

assumptions that PBGC used to calculate your PBGC-payable PC3 benefit are the same 

mortality and interest assumptions that PBGC uses to calculate the Plan's benefit liabilities under 

PBGC regulations. 25 Based on the Plan's termination date of December 30, 2004, the applicable 

actuarial assumptions under PBGC regulations are: (1) the 1983 Group Annuity Mortality Table 

for participants and the same table with a 6-year setback for beneficiaries; and (2) an interest rate 

of 3.8% for the first 20 years of payments and 5% thereafter. The Appeals Board concluded that 

PBGC appropriately applied the actuarial assumptions in its regulation when it calculated present 

values for purposes of determining your PC3 benefit. 

For the reasons stated above and as further explained in the Appendix, the Appeals Board 

decided that your PBGC-payable benefit in PC3 is $2,425.04 per month from January 1, 2005 

~nth after DOPT) through- 2009 and $1,631.02 per month starting 

-2009. The Board also computed your benefit under ERISA section 4022(c) as 

$309.91 per month throug~2009 and $208.44 per month starting 200~. 

See 29 C.F.R. § 4044.51-4044.53 and Appendices Band C. We note that, in December 2005, PBGC published 

a fiD.al valuation regulation under which a version of the GAM-83 Tables was replaced with a version of the 

GAM-94 Tables. 70 Federal Register 72,20\(December 2, 2005). The effective date ofthis change was January 1, 

2006, which was after the Plan terminated. 

15 


25 
Thus, your monthly -PBGC benefi.It, which is the .sum of your ~ble PC3 amoUnts -and,­

your ERISA section 4022(c) amounts, is $2,734.95 through- 2009 and $1,839.46 

2009. 


F. Recoupment of your benefit overpayments 

When PBGC becomes the trustee of a terminated plan, PBGC pays benefits on an 

estimated basis until PBGC can collect plan records, audit plan data, and determine guaranteed 

benefit amounts. If the estimated amounts are too high, PBGC must recover the overpayments.26 

To mitigate fmancial hardship, PBGC does not charge interest and generally recoups any 

overpayment by reducing future benefit payments by no more than 10% until the overpayment is 

repaid. 

PBGC initially paid you a monthly benefit of $5,644.02, which is the amount you 

previously received from the former Plan administrator. To limit any overpayment and keep any 

amount you may have to repay to a minimum, PBGC estimated the effect ofERISA's limits on 

your benefit and reduced your payments starting on March 1, 2006. However, because PBGC 

did not reduce your payments to the estimated amounts until March 1, 2006, you were paid 

significantly more than you were entitled to receive from January 1, 2005 through February 1, 

2006. Therefore, PBGC must temporarily reduce your future payments to recover the 

overpayments you received .. 

As stated earlier in this decision, PBGC has not yet adjusted your monthly payments for 

the recoupment of your overpayments. - PBGC's Benefits Administration and Payment 

Department will notify you ofthe net overpayment amount, which we expect will differ from the 

amount stated in your December 14, 2010 determination letter. 

The Appeals Board is sympathetic to the hardship caused by PBGC's application of 

ERISA's benefit limits. We also regret that it is necessary to reduce your future payments for the 

recoupment of your overpayments. PBGC is required, however, to pay the correct benefit based 

on applicable Plan terms, ERISA,' and PBGC regulations. The Appeals Board is unable to make 

any changes to your PBGC-payable benefit amount based on hardship. 

Decision 

Having applied the terms ofthe Plan, the provisions ofERISA and PBGC regulations and 

policies to the facts in this case, the Appeals Board increased your monthly PBGC benefit to: (1) 

January 1, 2005 through 2009, aild (2) $1,839.46 starting on 

2009. These amounts are before the deduction for PBGC's recoupment ofbenefit 

overpayments. In all other respects, your appeal is denied. 

26 See 29 C.F.R. §§ 4022.81 and 4022.82. 

734.95 from 

16 

---This is PBGC's final decision on the issues raised in your appeal and you-may,~if you 

wish, ·seek court review of this decision. If you have any questions, please call PBGC's 

Customer Contact Center at 1-800-400-7242. 

Sincerely, 

Charles Vernon 

Chair, Appeals Board 

Appendix 

9 Enclosures: . 

- . (1) _Benefit Statement Worksheet dated December 3, 2013 showing Appeals Board's 

amounts ( 4 pages) 

(2) PBGC's February 16, 2011letter explaining benefit calculations (2 pages) 

(3) PBGC's August 30, 2012 determination letter with Benefit Statement Worksheet 

dated October 12, 2012 (7 pages) 

(4) Excerpts of the UAL Pilot Defined Benefit Pension Plan 1999 Amendment and 

Restatement (26 pages) 

-( 5) PBGC table showing Early retirement adjustment factors effective before April 

12, 2000 (1 page) 

(6) First Amendment to the 1999 Plan ( 4 pages) 

(7) Letter 91-11, agreement between UAL and ALPA dated May 9, 1991 (3 pages) 

(8) VAL's benefit calculations dated November 26, 2003 (9 pages) 

(9) Benefit Election form dated October 7, 2003 (7 pages) 

17 

APPENDIX 


The Benefit Statement Worksheet in Enclosure 1 ("AB Worksheet"), which is dated 

December 3, 2013, shows the Appeals Board's calculation of your PBGC benefit. This 

Appendix explains the Board's benefit calculation in more detail. . 

A. Your pension data 

PBGC records contain the following information that applies to your benefit calculation: 

• 	 You were bomo­

• 	 You began working for United Inc. ("UAL") 1979; 

• 	 Your Date of Participation · 1980; 

• 	 You terminated employment 2003; 

• 	 You started receiving your Plan benefit 2003; and 

• 	 On 2003, you received $136,795.81 as a distribution of your Partial Lump 

Sum Amount ("PLSA") under the Plan. 

B. 	 Your Plan benefit amount 

Before yo~2003 retirement date, UAL calculated your Plan benefit under 

various benefit form options. UAL's calculations show that your accrued benefit as an SLA is 

$5,358.33 per month if you did not elect a PLSA and $4,503.80 if you elected a PLSA. Thus, 

UAL determined that election of a PLSA would reduce your accrued benefit by $854.53 per 

month. Enclosure 7 shows the benefit amounts that UAL calculated. 

As is shown in your benefit election form. (Enclosure 8), you elected the "Single Life 

Annuity with Level Income Feature" ("SLA with LIO") and decided to receive a "Partial Lump 

Sum Amount distribution." UAL computed your SLA with LIO amounts as follows: 

• 	 2003 t VAL 

started with your "qualified" SLA amount of $4,503.80. To calculate the 

additional monthly income the Plan will pay you before age 66, UAL 

multiplied your estimated Social Security amount ("SSA Amount") of 

1$1,848.00 by a Level Income Option Factor ("LIO Factor") of 0.617,2 which 

equals $1,140.22. UAL then added the $1,140.22 amount to your SLA 

amount of $4,503.80, which results in a pre-age-66 monthly benefit of 

$5,644.02. Thus, the pre-age-66 be~efit calculation is: 

1 The "qualified" SLA amount is shown on page 1 of Enclosure 8. 

2 The "Estimated Social Security Amount" and the "Level Income Option Factor'' that UAL used are shown on 

page 2 ofEnclosure 8. The Level Income Option Factor of0.617 is based on the actuarial assumptions stated in the 

Plan's governing documents. 
$4,503.80 (SLA amount)+ [$1,848.00 (SSA Amount) x 0.617 (LIO factor)]= 

$5,644.02 

• 	 To calculate this amount, UAL 

subtracted your SSA Amount ,848.00 from your pre-age-66 amount of 

$5,644.02. This calculation results in a $3,796.02 monthly benefit starting at 

age 66. 

Enclosure 3, which is a PBGC-prepared Benefit Statement Worksheet dated October 12, 

2012 ("PBGC Worksheet"), shows PBGC's calculation ofyour PBGC-payable benefit before the 

Appeals Board's changes. As is shown on lines (1) and (2)"of the PBGC Worksheet, PBGC 

accepted Plan benefit amounts - $5,644.02 before age 66 and $3,796.02 afterwards - that UAL 

calculated for your SLA with LIO benefit. As shown on lines (1) and (2) of the AB Worksheet, 

the Appeals Board also accepted UAL's calculation of your Plan benefit amounts. 

We observe that the Plan's LIO Factor is an important component of this benefit 

calculation. The LIO Factor ensures that, as of the participant's retirement date, the amounts 

calculated for an SLA with LIO benefit are actuarially equivalent (under the Plan's assumptions) 

to the Plan's normal single life form, which is an SLA without an LIO. For this reason, the size 

of the LIO Factor depends upon (1) the age that the participant starts his payments and (2) the 

age he selects -for his benefits to step down to smaller amounts. Thus, for example, your LIO 

Factor would have been smaller if you had started your payments at a younger age with an age66 step down. Your LIO Factor would have been larger if you had started your payments at age 

60 and had selected an earlier step-down age. 

C. 	 Your guaranteed benefit 

1. 	 Your guaranteed benefit i(you had elected an SLA without the L/0. 

ERISA's maximum guaranteed benefit limit ("MGB") provides that PBGC's guarantee 

of a participant's benefit cannot exceed a specified dollar amount payable in the form of a 

Straight Life Annuity ("SLA") at age 65. For pension plans with termiilation dates in 2004, such 

as the Plan, the MGB is $3,698.86 per month ($44,386.32 annually) for a participant who begins 

receiving PBGC benefits at age 65 in the form of an SLA. As explained below, the $3,698.86 

amount must be reduced because you were younger than age 65 and in pay status when the Plan 

terminated. Also, because you received a PLSA distribution, PBGC must adjust your MGB for 

the value of the PLSA. Accordingly, we made the following adjustments in computing your 

MGB: 

• Age Adjustment. As provided in PBGC regulations, the MGB for a participant who begins 

receiving a benefit before age 65 is reduced to reflect the number of whole months between: (1) 

the later of the plan's termination date ("DOPT") and the participant's retirement date, and (2) 

the date the participant attains age 65. In your case, the December 30, 2004 plan termination 

date is later than your retirement date. As is also provided in PBGC's regulation, the age 

reduction to the MGB is 7/12 of 1% for each of the first 60 months before age 65. 

2 

PBGC and Plan records show your date of birth You had .whole 

months between DOPT and when you reached age 65. Thus, your. age adjustment factor of 

-iscalculated as follows: 

1.0- (7/12 X 0.01 

• Adjustment for your PLSA distribution. Because the PLSA distribution you received 

provided you with a portion of your Plan benefit, PBGC must reduce your MGB based on the 

annuity value of the PLSA. Under PBGC's procedures, which you did not challenge in your 

appeal, the reduction to the MGB for a PLSA distribution equals the PLSA's monthly annuity 

value under the pension plan's terms. UAL deducted $854.53 from your monthly Plan benefit 

for the PLSA, and PBGC did not change that offset amount. Accordingly, PBGC deducted 

$854.53 from your MGB. · 

• Your MGB after adjustment for your age and the PLSA. Your MGB after adjusting for your 

That ainount is calculated 

as follows: 

age on the Plan's termination date and the PLSA offset is $1,873.38. 

$3,698.86 (age 65 MGB) factor)- $854.53 (PLSA) =$1,873.38 

This guaranteed benefit calculation also is shown on lines (4) through (9) ofthe AB Worksheet. 

2. Your guaranteed benefit based on your election o(the L/0. 

If PBGC were paying you a level benefit, your monthly guaranteed benefit would be 

$1,873.38 per month starting on January 1, 2005 (the first month after the Plan terminated). 

PBGC, however, continues to pay benefits in non-level amounts after plan termination if the 

participant entered pay status with a non-level plan benefit. 

To determine your guaranteed non-level benefit amounts, PBGC first converts your Plan 

benefit amounts under your SLA with LIO to an equivalent level amount. This makes it possible 

to compare the value of your MGB (which was calculated above as a level amount) to the value 

of your Plan benefit. A PBGC regulation, 29 C.F .R. § 4022.23(±), specifies the factors to be 

used in converting the ''temporary additional benefit" under a step-down life annuity to a level 

life annuity. · 

In your case, your Plan benefit as of the Plan's termination date is $5,644.02 per month 

from January I, 2005 through- 2009 and $3,796.02 per month afterwards. Based on 

the factors in 29 C.F.R. § 4022.23(±), PBGC converted your non-level amounts of$5,644.02 and 

$3,796.02 to a level-life Plan benefit of $4,465.00 starting at DOPT. The $4,465.00 amount is 

shown on line (3) ofthe AB Worksheet, as well as on line (3) ofthe PBGC Worksheet. 

PBGC's regulation further provides that, if the level-life monthly Plan benefit exceeds 

the MGB, the monthly non-level amounts that PBGC guarantees equals the non-level Plan 

3 

amounts multiplied by the "ratio" of the level MGB to the level-life Plan benefit.~ -PBGC, 

applying its regulation, computed the percentage of your Plan monthly benefit guaranteed by 

PBGC as 41.9570%. This percentage, which is shown on line (11) of both the AB Worksheet 

and PBGC Worksheet, is calculated as follows: 

$1,873.38 (MGB) + $4,465.00 (Plan Level-Life benefit at Plan termination).= 41.9570% 

PBGC then uses this guaranteed percentage (41.9570%) to determine your monthly 

guaranteed benefit amounts, as shown by the following computation: 

$5,644.02 (Plan benefit) x 41.9570% (PBG~d percentage)= $2,368.06 

PBGC benefit from January 1, 2005 through- 2009; and 

$3,796.02 (Plan benefit) ~BGCguaranteed percentage)= $1,592.70 

PBGC benefit starting on-2009 

Your MGB amounts of$2,368.06 (through- 2009) and$ 1,592.70 (starting­

• 	 2009) are less than the PBGC-payable PC3 amounts that the Appeals Board calculated. See 

explanation below. 

D. Your PC3 benefit based on the allocation of the Plan's assets. 

As is explained in the decision, the six-tier aSset allocation scheme under ERISA section 

4044 determines how a pension plan's assets are distributed among various categories of benefits 

when the assets are insufficient to pay all promised benefits. Priority Category 3 ("PC3") covers 

a participant's benefits that were "in pay status" (i.e. were being paid) three or ~ore years before 

the plan's termination date, or that would have been in pay status three years before DOPT if the 

participant had retired. You have a benefit in PC3 because you could have retired and started 

receiving a benefit from the Plan at the beginning of the three-year period that ended on the 

Plan's termination date. 

Because your PC3 amount is greater than your MGB, you are entitled to receive the 

greater PC3 amount. The Plan's assets and PBGC's recoveries on its claims against UAL are 

insufficient to pay you any benefit amounts· in the lowest two priority categories, PC5 and PC6. 

For this reason, your PBGC benefit is less than your benefit amount under the Plan's terms. 

I. Your PC3 benefit i(you had elected an SLA without the L/0. 

Your PC3 benefit is based on the assumption that you had retired as of the beginning of 

the three-year period ending on Plan's Date of Plan Termination (i.e., December 30, 2001, which 

we refer to as "DOPT-3"). Thus, to determine your PC3 benefit, PBGC must use your age, your 

service, and your Final Average Earnings as ofDOPT-3. 

29 C.F.R. § 4022.23(f)(2). 

4 


3 
PBGC also must use the early retirement -factor for a benefit starting on DOPT-3. 

Finally, PBGC must calculate your PC3 benefit using the benefit formula and other pension 

terms that were in effect during the five-year period ending o~ the Plan's termination date that 

provide the lowest benefit. 

In your case, PBGC made the following four adjustments in calculating your PC3 benefit: 

(1) 	 You had 19.50 Years of Participation Service for purposes of computing your PC3 

benefit (as compared with 23.75 Years of Participation Service when your UAL 

employment ended o~2003). . · 

The calculation of your 19.50 years· of Participation Service is explained on pages 8- 9 

ofthe decision. 

(2) 	 Your Final Average Earnings ("F AE") for purposes of computing your PC3 benefit as 

of DOPT-3 were $160,000.00 (as compared with your FAE of $183,714.36 on your 

employment termination date). 

The calculation of your FAE of$160,000 is explained on pages 7-8 ofthe decision. 

(3) 	 Because you werellyears anclllmonths old on December 30,2001 .months before 

age 60), PBGC must apply the Plan's Early Retirement Factor ("ERF") to calculate 

your PC3 benefit as ofDOPT-3. 

The reason why PBGC applies this reduction and the calculation of th~ERF that 

is used in the calculation of your PC3 benefit is explained on pages 6-7 ofthe decision. 

(4) 	 PBGC, in calculating your PC3 benefit, must use the benefit formula that was in effect 

at the beginning of the five-year period before the Plan terminated. 

The benefit formula that was in effect five years before the Plan's termination date 

provided for a benefit multiplier of 1.41%, as compared to a later-adopted benefit 

multiplier of 1.5%. 

Based on your pension data and the four adjustments discussed above, your benefit in 

PC3 is $3,262. 74, if you received your benefit as an SLA without the LIO and before the 

deduction for your PLSA distribution. The $3,262.74 amount is calculated as follows: 

$160,000 (FAE) x1.41% (multiplier) x19.50 (service to 12/30/2001) x­

(ERF) + 12 = $3,262.74 (PC3 benefit before Partial Lump Sum ("PLSA") offset 

The Appeals Board (and PBGC) deducted the same PLSA amount ($854.53) in 

determining your PC3 benefit that UAL deducted in determining your Plan benefit. Thus, your 

benefit in PC3 after the offset for your PLSA distribution is $2,408.21 [$3,262.74 (PC3 benefit 

before PLSA offset)- $854.53 (PLSA amount)= $2,408.21(PC3 amount after PLSA offset). 

5 

The above PC3 calculation is shown on lines (12) through (16) of the AB Worksheet. As 

is shown on line (16), the $2,408.21 amount represents your "Monthly Benefit for Priority 

Category Three as a Straight Life Annuity Before Adjustment for Level Income. Option." 

2. Your monthly PC3 amounts as an SLA with LIO. 

As is explained on pages 12-16 of the Board's decision, the Board decided that PBGC 

should calculate your SLA with LIO benefit in PC3 as follows: (1) first determine the SLA 

amount (without an LIO) of your PC3 benefit as of DOPT-3; and (2) then convert your PC3 

amount as an SLA without LIO to the amounts as an SLA with LIO using the LIO Factor and 

SSA Amount as of your Actual Retirement Date ("ARD"). As is shown on lines (17) through 

(19) ofthe AB Worksheet, this results in the following calculation of your monthly LIO amounts 

in PC3: 

• Monthly PC3 benefit amount from the Plan's termination date through~­

We start with your PC3 benefit amount of$2,408.21 as an SLA. To calculate the additional 

PC3 amount before age 66, we multiply your SSA Amount of $1,848.00 by the LIO Factor 

of 0.617, which equals $1,140.22. We then add the $1,140.22 amount to your SLA amount 

of$2,408.21, which results in a pre-age-66 PC3 amount of$3,548.43. 

• To calculate this amount, we 

subtract your SSA Amount of $1,848.00 from you pre-age-66 amount of $3,548.43. This 

results in a $1,700.43 monthly benefit starting at age 66. 

The Appeals Board found that its calculation of these PC3 amounts maintains the 

actuarial equivalence between your PC3 benefit amount as an SLA and your PC3 benefit amount 

as an SLA with LIO. The Board reached this conclusion because: (1) the Board did not change 

the $2,408.21 monthly PC3 amount that PBGC calculated as a (level) SLA; and _(2) the 

$1,140.22 per month temporary increase (until age 66) to your benefit payable as a level SLA is 

actuarially equivalent (as of your ARD and under the Plan's factors) to the post-age-66 deduction 

of$707.78 per month to your benefit payable as.a level SLA.4 

4 The $1,140.22 monthly temporary amount determined by the Appeals Board: (1) was paid by the Plan during the 

time period between your ARD and DOPT; and (2) is added to your PC3 amount for purposes of determining your 

PBGC-payable benefit (i.e., the monthly benefit you are entitled to receive after DOPT). Thus, between your ARD 

and DOPT, the Plan paid you a $1,140.22 monthly temporary amount in addition to your monthly SLA amount of 

$4,503.80, for a total monthly benefit of $5,644.02. For your PC3 benefit, which starts at DOPT, the Appeals Board 

added the $1,140.22 temporary amount to y9ur PC3 SLA amount of$2,408.21, which equals a pre-age-66 monthly 

PC3 amount of$3,548.43. 

The post-age-66 deduction of $707.78 per month to your PC3 benefit payable as a level SLA is the difference 

between your PC3 amount of $2,408.21 as a level SLA and the $1,700.43 monthly PC3 amount calculated by the 

Appeals Board [$2,408.21 - $707.78 = $1,700.43]. 

We observe that, although your SSA Amount as ofDOPT-3 ($1,713.47) is less than the SSA Amount as of your 

ARD ($1 ,848.00), the size of the SSA Amount does not impact upon actuarial equivalence. Rather, actuarial 

equivalence is controlled solely by the LIO Factor. If your SSA Amount is increased, however, the temporary 

benefit payable before age 66 becomes greater and the (reduced) benefit payable starting at age 66 becomes smaller. 

6 

3. 	 Your PBGC~payable PC3 benefit as an SLA with L/0. 

As is the case with your guaranteed benefit amounts (see explanation above), PBGC 

calculates your PC3 benefit as a "percentage" of the Plan benefit amount you would receive as 

an SLA with LIO. Additionally, PBGC must adjust your non-level PC3 amounts to take into 

account that the Plan was not fully funded for benefits in PC3. PBGC determined that the Plan's 

assets covered 82.0617% ofthe benefit liabilities in PC3. 

We computed the non-level benefit amounts that you are entitled to receive from PBGC 

as your PC3 benefit using the following five steps: 

(1) 	 We first determined the present value ("PV"), based on PBGC's actuarial 

assumptions, ofthe monthly benefit amounts payable to you after DOPT if the Plan 

was fully funded, which are: (1) $5,644.02 per month from January 1, 2005 through 

-	 2009; and (2) $3,796.02 per month afterwards. The PV of those nonlevel Plan amounts as of DOPT is $702,805 (which is the same PV that PBGC 

computed). 

(2) 	 We then determined the PV, based on PBGC's actuarial assumptions, for the 

Board.,.calculated monthly PC3 amounts that are explained above: (1) $3,548.43 per 

month from January 1, 2005 throug~2009; and (2) $1,700.43 per month 

afterwards. The PV ofthose non-level PC3 amounts as ofDOPT (after a rounding 

adjustment) is $367,980. 

Thtis, if your P~3 benefit had been 100% funded by Plan assets, it would equal 

52.3588% of your Plan benefit amount. 5 

(3) 	 We then ·multiplied the PV of your PC3 amounts, $367,980, by the Plan's PC3 

funding percentage of 82.0617%, which equals $301,971. This is the PV of your 

. funded PC3 benefit as of DOPT. 

(4) 	 We then computed, as of DOPT, the ratio of your funded PC3 benefit to your total 

Plan benefit. To calculate this ratio, we divided the PV of your funded PC3 benefit 

($301,971) by the the PV of your Plan benefit ($702,805), which equals 42.9665%. 

(5) Finally, 	we used this percentage, 42.9665%, to determine your PBGC-payable 

monthly benefits in PC3, as shown by the following computation: 

• 	 $5,644.02 (Plan benefit) x 42.9665% (funded PC3 be~ntage) = 

$2,425.04 PC3 benefit from January 1, 2005 through-2009; and 

• 	 $3,796.02 (Plan benefit) x 42.~d PC3 benefit percentage) = 

$1,631.02 PC3 benefit starting o~2009. . 

5 $367,980 (PV of 100% funded PC3 benefit)+ $702,805 (PV of Plan benefit)= 52.3588%. 

7 

4. Your PBGC benefit amounts after the additiono[the ERISA section 4022(c) amounts 

Section 4022(c) of ERISA authorizes PBGC to pay additional benefits based on the 

amounts that PBGC recovers from employers that maintained under-funded pension plans. 

PBGC allocates this additional money (the "section 4022(c) amount") to pay otherwise unfunded 

· benefits in excess of guaranteed benefits. For a pension plan like the Plan, in which the 

outstanding amount of unfunded non-guaranteed benefit liabilities exceeds $20 million, the 

section 4022(c) amount is based on PBGC's actual recovery on its claims against the plan 

sponsor. 

a. Your section 4022(c) benefit calculation 

For the Plan, PBGC determined that the Plan's section 4022(c) amount covers 58.4630% 

of all unfunded nonguaranteed benefits in PC3. The Appeals Board computed your section 

~fitas $309.91 per month throug~ 2009 and $208.44 per month beginning 

-2009. The Board's calculation is: · 

$2,955.14 (PC3 benefit·if 100% funded) 6 - $2,425.04 (82.0617% funded PC3 benefit)= 

$530.10 (unfunded PC3 benefit) 

$530.10 (unfunded PC3 benefit) x 58.4630% (section 4022(c) funding% for PC3) = $309.91 

(section 4022(c) amount payable by PBGC) 

• 

$1,987.55 (PC3 benefit if 100% funded) 7 - $1,631.02 (82.0617% funded PC3 benefit) = 

$356.53 (unfunded PC3 benefit) 

$356.53 (unfunded PC3 benefit) x 58.4630% (section 4022(c) funding% for PC3) = $208.44 

(section 4022(c) amount payable by PBGC) 

.b. Your PBGC-payab1e benefit 

When your section 4022( c) amounts· are added to your PC3 amounts, 

PBGC benefit is $2,734.95 through- 2009 and $1,839.46 beginning 

2009. These amounts are computed as follows: 

6 The $2,955.14 amount we computed for your 100% funded PC3 benefit through- 2009 equals your Plan 

benefit for that time period ($5,644.02) multiplied by 52.3588%. As stated above, the PV of your PC3 benefit (if it 

was 100% funded) is 52.3588% of the PV ofyour Plan benefit. 

7 The $1,987.55 amount we computed for your 100% funded PC3 benefit starting-2009 equals Y<?ur 

Plan benefit for that time period ($3,796.02) multiplied by 52.3588%. 

8 

• 

$2,425.04 (PC3 benefit)+ $309.91 (section 4022(c) benefit)= $2,734.95 (PBGC benefit) 

• 

$1,631.02 (PC3 benefit)+ $208.44 (section 4022(c) benefit)= $1,839.46 (PBGC benefit) 

The Appeals Board's calculation of your monthly PBGC benefit is.shown on lines (24) through 

(27),ofthe AB Worksheet. 

9