INTRODUCTION 

PBGC is the United States government agency that provides pension msurance m 

accordance with the Employee Retirement Income Security Act of 1974, as amended 

("ERISA"). 2 If a plan sponsor is unable to support its pension plan, PBGC becomes trustee of 

the plan and pays pension benefits provided by the plan, subject to legal limitations set by 

Congress under ERISA 

On December 30, 2004, the Plan terminated without sufficient assets to pay all benefits. 

PBGC became trustee of the Plan on October 26, 2005.3 

PBGC sent initial (formal) Benefit Determination letters to most of the appellants in 2010 

and 2011. 4 In March 2011, you requested an extension oftime to file the Appeal on behalf of the 

individuals you represented. 5 On March 4, 2011, the Appeals Board granted your extension 

request and established July 8, 2011 as the Appeal filing date. 6 Through subsequent 

correspondence between you and the Appeals Board, the Appeal filing date was extended until 

May 29, 2013. 

During the time period when the Appeal filing date was extended, PBGC completed a revaluation of the Plan's assets to correct certain deficiencies in the initial plan asset audit.7 

PBGC's re-valuation resulted in PBGC-payable benefit increases for some individuals 

including a substantial number of the appellants - who were entitled to benefits from the Plan, as 

well as for some participants in three other PBGC-terminated pension plans that had been 

sponsored by United Air Lines, Inc. ("UAL"). PBGC issued revised Benefit Determination 

letters to individuals who were entitled to benefit increases based on the asset re-valuation. 

PBGC issued most of these revised Benefit Determinations between July and September 2012. 

2 29 United States Code ("U.S.C.") §§ 1301-1461 (2012). This decision generally cites the applicable sections of 

ERlSA without providing the parallel U.S.C. citations. 

3 The names United Airlines Pilot Defined Benefit Pension Plan and United Airlines Inc. Pilots' Fixed Benefit 

Income Plan are used interchangeably throughout the Plan documents; both names identify the Pilots Plan. 

4 Part 4003 of PBGC's regulations establishes the rules governing PBGC's issuance of initial Benefit 

Determinations and the procedures for requesting and obtaining administrative review. See 29 Code of Federal 

Regulations ("C.F.R.") § 4003 (titled "Rules for Administrative Review of Agency Decisions"). An initial (formal) 

Benefit Determination is the letter PBGC issues to communicate the Agency's determination of an individual's 

benefit. See 29 C.F.R § 4003.21. If the individual desires Appeals Board review of his or her benefit, the individual 

or his or her representative must file an appeal of the Agency's determination, or request an extension oftime to file 

an appeal, within 45 days from the date of issuance ofthe Benefit Determination. See 29 C.F.R. §§ 4003.4, 4003.52. 

5 You also requested and received certain documents from PBGC's Disclosure Officer on behalf of your clients. 

6 The Board also informed you that your extension of the filing date did not apply to individuals who did not file an 

appeal or extension request within the 45-day period stated in PBGC's Administrative Review regulation. See 29 

C.F.R. §§ 4003.4, 4003.5, and 4003.52. 

7 See generally FAQ: UAL Asset Audit Review and Changes to Participants' Benefits at 

http://www.pbgc.gov/wr/bulletin/info/unitedfaq.html. 

2 

You filed a 44-page appeal brief with exhibits on May 28, 2013, which listed seven issues. 

On January 21, 2014, you filed a supplemental 29-page appeal brief with exhibits. You stated 

that your supplemental brief, which lists four issues, "is intended to replace the original 

Consolidated Appeal in all respects." Unless otherwise indicated, all citations to the Appeal in 

this decision refer to the supplemental 29-page appeal brief (cited as "AB") you filed on January 

21, 2014. 

The Appeals Board found that the Appeal was timely filed for the 554 individuals listed in 

Enclosure 1. Each of those individuals received a PBGC Benefit Determination regarding his or 

her Plan benefit and had either an appeal or extension request that was timely filed in accordance 

with PBGC's Administrative Review regulation. 

This Appeals Board decision does not apply to the 152 individuals listed in Enclosure 2 who 

are your clients but do not have timely-filed appeals or extension requests. If PBGC determines 

that an individual listed in Enclosure 2 is similarly situated to appellants who are entitled to 

benefit increases based on this decision, PBGC, in its discretion, may increase that individual's 

benefit. 

The Appeals Board concluded that the appeals of the 554 Plan participants and beneficiaries 

you represent arise out of the same or similar facts and seek the same or similar relief. The 

Board exercised its discretion under PBGC regulation 29 C.F.R. § 4003.56 to consolidate the 

appeals of these 554 individuals. 

ISSUES RAISED IN THE APPEAL 

The Appeal raises four issues that relate to three different aspects of PBGC's benefit 

calculations. Each issue addresses PBGC-payable benefit amounts in Priority Category 3 

("PC3") under the asset allocation provisions in ERISA § 4044. PC3 benefits are discussed in 

detail in this decision. 

The Appeals Board addresses the four issues in the same order that they are presented in the 

Appeal. The three aspects of PBGC' s benefit calculations and the four issues are as follows: 

I. LEVEL INCOME OPTION AMOUNTS IN PC3 

Issue 1: Did PBGC correctly calculate PC3 amounts for appellants with Level Income Option 

("LIO") benefits? AB at 7-9. 

II. PC3 AMOUNTS FOR APPELLANTS WITH PLSA DISTRIBUTIONS 

Issue 2: 	 	 Did PBGC improperly change the Plan's offset formula when it calculated PC3 benefits 

for appellants who elected Partial Lump Sum Amount ("PLSA") distributions? AB at 

9-15. 

3 

Issue 3: Did PBGC incorrectly apply both a "PLSA Offset Factor" and the Plan's early 

retirement factor when it calculated PC3 benefits for appellants who elected PLSA 

distributions? AB at 15-25. 

Ill. PC3 AMOUNTS FOR APPELLANTS WITH IRC § 415(e) REPEAL INCREASES 

Issue 4: 	 	 Did PBGC correctly conclude that PC3 benefits do not include Plan benefit increases 

that were permitted following the legislative repeal of the Internal Revenue Code 

("IRC") § 415(e) limits? AB at 25-28. 

IMPACT OF THE APPEAL'S ISSUES UPON INDIVIDUAL APPELLANTS 

As explained in more detail later, a Plan participant is eligible for a PC3 benefit if he or she 

either was in pay status (retired) or eligible to enter pay status (eligible to retire) three years 

before the Plan terminated. 8 This decision refers to the Plan's termination date as "DOPT," 

which is shorthand for "Date of Plan Termination." We also use the term "DOPT-3" to refer to 

the start date of the 3-year period before DOPT. 

Based on retirement or eligibility for retirement at DOPT-3 under the Plan's terms, almost 

all appellants have PC3 benefits under the asset allocation provisions in ERISA § 4044.9 For 

many appellants, PBGC is paying more than the PBGC-guaranteed benefit based on the 

allocation of the Plan's assets and the allocation of PBGC's recoveries to benefit amounts 

assigned to PC3. For some appellants, however, PBGC determined that the PBGC-guaranteed 

benefit is larger than the benefit funded by Plan assets and PBGC's recoveries. PBGC is paying 

these appellants the larger guaranteed amount. 

The four issues raised in the Appeal address different aspects of PBGC's PC3 calculations. 

None of the issues, by itself, affects all 554 appellants. The impact of the four issues is as 

follows: 

Issue #1: PC3 amounts for appellants who elected the Plan's Level Income Option. The 

Appeals Board identified 163 appellants who either elected the Plan's "Level Income Option" 

("LIO") or are the beneficiaries of a participant who elected an LIO. As explained in this 

decision, the LIO is designed to provide a retiree with "level income" through the combination of 

the Plan's benefit payments and an (estimated) Social Security benefit. 

The Appeals Board increased the PBGC-payable benefits of 146 appellants with LIOs. The 

Board did not increase the PBGC-payable benefits of the remaining 17 appellants with LIOs, for 

8 Additionally, a beneficiary under the Plan generally is eligible for a PC3 benefit if (1) he or she was in pay status 

three years before the Plan terminated, or (2) the participant upon whom the benefit is based was retired or eligible 

to retire three years before the Plan terminated. 

9 PBGC's electronic pension data show that 11 appellants are not eligible for PC3 benefits because the participant 

upon whom the Plan benefit is based was not retired or eligible to retire three years before the Plan terminated. 

4 

the reasons explained in this decision. 

Issues #2 and #3: PC3 amounts for appellants witlt partial lump sum amount 

distributions. Under the Plan's terms, a participant who retires or terminates employment may 

elect to receive a portion of his or her accrued benefit in the form of a lump-sum distribution. 

The term "Partial Lump Sum Amount" ("PLSA") refers to the amount the participant could 

receive under this benefit payment option. 

Issues #2 and #3 address PBGC's PC3 benefit calculations for appellants who received 

PLSA distributions or are the beneficiaries of participants who received PLSA distributions. The 

Appeals Board identified 374 appellants with PLSA distributions. The Appeals Board denied the 

Appeal's Issue #2 and Issue #3 claims for all 374 appellants with PLSA distributions. 

After PBGC became trustee ofthe Plan, PBGC did not allow retiring participants to elect the 

PLSA payment option. 10 Thus, Issues #2 and #3 do not affect appellants who did not receive 

PLSA distributions because they retired after PBGC became trustee. Additionally, Issues #2 and 

#3 do not affect those appellants who retired before DOPT and elected to receive their entire 

Plan benefit in an annuity form. 

The 374 appellants with PLSA distributions fall into the following two groups: (1) 344 

appellants who received PLSA distributions before DOPT (i.e., before December, 30, 2004); and 

(2) 30 appellants who retired and received PLSA distributions in the approximately 10-month 

period between DOPT and PBGC's trusteeship (which occurred on October 26, 2005). 

The primary focus of the Appeal is upon PBGC's calculations for participants who received 

PLSA distributions before DOPT, rather than the calculations for participants who received 

PLSA distributions after DOPT and before PBGC's trusteeship. However, one of your clients, 

Captain filed an individual appeal that disagrees with how PBGC determined the 

offset for his post-DO PT PLSA distribution. The Appeals Board will decide Captain ­

PLSA issue in a separate decision that will be issued in the near future. 11 

Issue #4: PC3 amounts for appellants wlto received increased Plan benefits after tlte 

Internal Revenue Code§ 415(e) repeal. Prior to its repeal, IRC § 415(e) capped the combined 

pension benefits that a participant could receive from (1) all of the employer's tax-qualified 

"defined benefit" pension plans and (2) all of the employer's tax-qualified "defined contribution" 

pension plans. Under the Plan's provisions, the IRC § 415(e) limit applied to benefit payments 

prior to January 1, 2000. Issue #4, which concerns PBGC's decision to apply the IRC § 415(e) 

10 PBGC's decision not to make PLSA distributions to post-trusteeship retirees is based on PBGC regulation 

29 C.F.R. § 4022.7-.8. 

11 PBGC, in allocating (as of DOPT) the Plan's assets and PBGC's recoveries to benefit liabilities, applies the 

PLSA offset in a different calculation step for participants who received their PLSA distribution prior to DOPT than 

for participants who retired and received a PLSA distribution after DOPT. The Appeals Board will address this 

difference when it decides Captain - individual appeal. 

5 


of December 30, 2004. PBGC became trustee of the Pilots Plan on October 26, 2005. UAL 

exited bankruptcy in February 2006. 

PBGC's Guarantee and Its Limits. The pension benefit a retiree receives from PBGC 

initially depends on the plan's provisions; PBGC does not pay more than the plan would have 

paid (except in limited situations where the plan failed to follow ERISA's requirements). 

Moreover, PBGC does not guarantee all benefits provided by a pension plan. To be guaranteed, 

a benefit must, first, be "nonforfeitable," which means that the participant must have satisfied the 

pension plan's requirements to be eligible for the benefit by the date on which the plan 

terminates. 13 Not all nonforfeitable benefits are guaranteed; as explained below, there are 

statutory and regulatory limits on PBGC's guarantee. 

PBGC is unable to pay all Plan benefits primarily because ERISA places a cap, known as 

the Maximum Guaranteed Benefit ("MGB") limit, upon the amounts that PBGC guarantees. 14 

The amount of an individual's MGB depends on a number of factors, including the year in which 

the pension plan terminated, the participant's age at the later of DOPT or date of benefit 

commencement, the form in which the benefit is paid, and the age of the participant's spouse if 

the benefit form includes a surviving spouse benefit. 15 For plans terminating in 2004, as the Plan 

did, the MGB is $3,698.86 per month ($44,386.32 per year) for a participant who begins 

receiving PBGC-payable benefits at age 65 in the form of a straight life annuity ("SLA") with no 

survivor benefit. If the person is younger than 65 and/or if a survivor benefit will be paid (for 

example, to a spouse), the MGB is lower. 16 

Another limit on PBGC's guarantee is the phase-in limit, which provides that PBGC's 

guarantee of a benefit increase is phased in over five years from the later of the adoption or 

effective date of the increase. 17 Because PBGC applies the MGB limit before applying the 

phase-in limit, the number of Plan participants whose guaranteed benefit is decreased by the 

phase-in limit is substantially less than the number of participants affected only by the MGB. 

In many cases, whether a participant receives his or her full plan benefit depends principally 

on the statutory and regulatory limits on PBGC's guarantee. But, if a plan has enough assets, 

some participants may receive more than the guaranteed amount. As is explained below, many 

appellants are entitled to receive more than the PBGC-guaranteed monthly amount based on the 

allocation of Plan assets and PBGC's recoveries. 

13 See ERISA § 400l(a)(8); 29 C.F.R. § 4022.3(a)(l). 

14 See ERISA § 4022(b)(3). 

15 See 29 C.F.R. § 4022.23. 

16 See 29 C.F.R. §§ 4022.22-.23. 

17 See ERISA § 4022(b)(l), (7); 29 C.F.R. § 4022.2, .24-.25. To determine the phase-in limit, PBGC must 

scrutinize all plan amendments made during the five years before a plan terminates. 

7 

Allocating a Pension Plan's Assets and PBGC's Recoveries under ER/SA. ERISA's s1xtier asset allocation structure determines how a terminated pension plan's assets are distributed 

among various categories of benefits when the assets are insufficient to pay all promised 

benefits. The six priority categories are referred to as "PCl," "PC2," "PC3," etc. The Plan has 

no benefits in the first two priority categories (PC 1 and PC2), which relate to benefits derived 

from a participant's own contributions. The next priority category, PC3, applies to a 

participant's or beneficiary'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 termination if the participant had retired. PC4 generally covers benefits guaranteed by 

PBGC. PCS covers other nonforfeitable benefits (generally, benefits that are not in PC3 and are 

not guaranteed due to the limits described above). PC6 covers all other benefits under the plan 

(i.e., non-vested benefits). 

Because PC3 benefits come ahead of PBGC-guaranteed benefits (PC4) in the allocation 

structure, a participant or beneficiary who went into pay status (or could have gone into pay 

status) three or more years before plan termination potentially may receive his or her full plan 

benefit amount, even if it is not all guaranteed by PBGC. This would occur if all of a 

participant's benefit is in PC3 and the plan's assets are sufficient to cover all benefits in PC3. 

If a plan's assets do not cover all benefits in PC3, each fiarticipant or beneficiary with a PC3 

benefit generally will receive a pro rata share of the assets. 8 PBGC determined that the Plan's 

assets as of DOPT ($2,878, 128,788) covered 82.0617% of the Plan's benefits in PC3. 19 

As provided under ERISA § 4022( c ), PBGC pays some participants and beneficiaries 

additional benefits based on PBGC's recoveries for Unfunded Benefit Liabilities ("UBL"). 

Essentially, the UBL is the shortfall between a plan's assets and its liabilities for all benefits.20 

As provided under ERISA § 4022(c), PBGC allocated a portion of its UBL recoveries from UAL 

to Plan benefits that are neither guaranteed by PBGC nor funded by the Plan's assets.21 

For the Pilots Plan, the ERISA § 4022(c) amount of $179,571,087 covers 58.4630% of all 

UNGB in PC3. 22 Thus, for a participant whose PC3 benefit is greater than his PBGC-guaranteed 

18 See ERISA § 4044(b)(2); 29 C.F.R. § 4044.IO(d). 

19 See PBGC's Actuarial Case Memo for United Airlines Pilot Defined Benefit Pension Plans Retirement Plan 

("Actuarial Case Memo"), at 1, 30, and PBGC's August 15, 2012 revision to the Actuarial Case Memo ("Revised 

Case Memo"), at 1-4. Exhibit 2 of the Appeal is a copy of the Actuarial Case Memo, without its appendices and 

enclosures. Exhibit 3 of the Appeal is a copy of the Revised Case Memo. 

20 See ERISA § 4001(a)(l8) (definition of UBL) and§ 4062(b) (liability ofa plan sponsor and its controlled group 
 

to PBGC for UBL). 
 

21 For pension plans like the Plan, in which the outstanding amount of Unfunded Non-Guaranteed Benefits 
 

("UNGB") exceeds $20 million, the ERISA § 4022(c) amounts payable to participants and beneficiaries are 

determined based on PBGC's actual recoveries on its claims against the plan sponsor. 
 

22 PBGC used the entire§ 4022(c) amount to increase benefits of participants with UNGB in PC3. 

8 

benefit, the ERISA § 4022(c) amount covers 58.4630% of the difference between the full PC3 

amount (i.e., the PC3 benefit amount if PC3 was 100% funded) and the funded PC3 amount (i.e., 

the 82.0617% funded PC3 benefit). Overall, through the allocation of the Plan's assets and 

PBGC's recoveries, Plan participants and beneficiaries entitled to PC3 benefits (including many 

appellants) are receiving at least 92.5489% of their benefit amounts in PC3.23 Some Plan 

participants and beneficiaries who are eligible for PC3 benefits are entitled to larger 

PBGC-payable amounts due to PBGC's guarantee.24 

Determining Benefit Amounts in PC3. The Appeal's four issues assert that PBGC 

incorrectly determined appellants' PBGC-payable benefits in PC3. PBGC's determination of 

PC3 amounts has a significant impact upon many appellants because: (1) PBGC is unable to 

guarantee all Plan benefits, primarily due to the MGB limit; and (2) the Plan's assets and the 

Plan's ERISA § 4022(c) amount are insufficient to fund the amounts that ERISA assigns to 

lower priority categories. 

ERIS A provides that there are three requirements for a benefit amount to be in PC3. The 

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

before DOPT.25 The second requirement is that the benefit in PC3 is the benefit in pay status at 

DOPT-3 or that would have been in pay status at DOPT-3 if the participant had retired. The 

third requirement is that the PC3 amount is determined based on the plan provisions "in effect" 

during the five years before the plan's termination date "under which such benefit would be the 

least." This decision refers to the start date of this 5-year period as "DOPT-5." The Appeals 

Board, in deciding the four issues raised in the Appeal, applied these three PC3 requirements. 

I. LEVEL INCOME OPTION AMOUNTS IN PC3 

Issue 1: Did PBGC correctly calculate PC3 amounts for appellants with Level Income 

Option ("LIO") benefits? AB at 7-9. 

The Appeal 

The Plan's LIO is designed to provide a retiree with a "level income" through the 

combination of a pension plan benefit and an (estimated) Social Security benefit. The Appeal 

claims that PBGC incorrectly calculated PC3 benefits for participants who elected an LIO 

because PBGC "broke PBGC actuarial equivalence" between an SLA benefit without the LIO 

feature and an LIO benefit. AB at 7-9. 

23 This percentage, 92.5489%, is calculated as follows: 82.0617% (funded PC3 %) + 58.4630% x (100% ­

82.0617%) (%of participant's PC3 benefit funded by§ 4022(c) amount) 82.0617% + 10.4872% = 92.5489% (% 

of PC3 benefit funded by plan assets and§ 4022(c) amount). 

24 The Pilots Plan participants who are receiving more than 92.5489% of their PC3 benefit amounts have 

PBGC-guaranteed benefits that exceed their funded PC3 benefit amounts. 

25 ERISA § 4044(a)(3). 

9 

As the Appeal states, a December 11, 2013 decision issued by the Appeals Board corrected 

PBGC's PC3 calculations for a participant with an LIO who had appealed his PBGC benefit 

determination. 26 The Appeal further notes that the Board later made similar corrections for three 

appellants who filed individual appeals. The Appeal, at AB 9, requests that the Appeals Board 

take the same action for all other affected appellants by: 

• 	 Increasing the monthly annuity amount in PC3 for each appellant "whose resulting LIO 

benefit increase in PC3 is greater than their MOB under ERISA;" and 

• 	 Issuing a lump-sum back payment to each affected appellant, with interest, "in an amount 

that reflects the entire increased annuity benefit that PBGC improperly withheld from 

each such Appellant because of its erroneous LIO benefit calculations." 

The Appeal recognizes, at AB 8-9, that an appellant is not entitled to a benefit increase if 

his or her guaranteed benefit exceeds the benefit in PC3 that is funded by Plan assets and the 

ERISA § 4022( c) amount. 

Our Conclusions 

The Appeals Board granted the relief you requested in Issue # 1 ofthe Appeal. 

Accordingly, the Appeals Board applied the reasoning in its December 11, 2013 decision to 

all eligible appellants and recalculated their PBGC-payable benefit amounts. As previously 

stated, the Appeals Board increased the PBGC-payable benefits of 146 appellants who (1) had 

elected the Plan's Level Income Option ("LIO") and (2) are entitled to a benefit based on an 

allocation of the Plan's assets and PBGC recoveries that is larger than the PBGC-guaranteed 

benefit. 

The Appeals Board also applied its December 11, 2013 decision to an additional 17 

appellants with LIOs, but their PBGC-payable benefits did not increase, as is discussed later. 

The 17 appellants are listed in Enclosure 3. 

26 The Board's December 11, 2013 decision addressed the benefits of a Plan participant who is not represented by 

you. Enclosure 6 is a copy of the December 11, 2013 decision, with the personal information concerning the 

appellant redacted. A redacted copy of this Appeals Board decision also is available on PBGC's website at: 

http://www.pbgc.gov/Documents/apbletter/Decision --United-Airlines-Inc.-Pilots-2013-12-11.pdf 

10 

Explanation of Board's Decision on Issue #1 

Discussion of Issue #1 

Under the LIO, a participant's payments from the Plan do not remain the same throughout 

his or her lifetime. Instead, the participant's payments: (1) are larger from his retirement date 

until a Social Security eligibility date; and (2) thereafter are reduced by an estimated Social 

Security amount ("SSA Amount").27 Under the Plan's calculations, the sum of the Plan benefit 

that is payable after the Social Security eligibility date and the participant's estimated Social 

Security benefit equals the (larger) Plan benefit before the reduction. 28 

The Plan's LIO calculation is based on two components: the participant's estimated SSA 

Amount and an actuarial adjustment factor (the "LIO Factor"). The LIO Factor is used to 

convert the participant's benefit payable without the LIO feature to a benefit with the LIO 

feature. The LIO Factor ensures that the benefit amounts calculated as an LIO are actuarially 

equivalent, as of the participant's Annuity Starting Date ("ASD") and under the Plan's 

assumptions, to the benefit payable without an LIO. 

PBGC used the same LIO Factor and SSA Amount as UAL when it determined Plan benefit 

amounts. In determining PC3 amounts for participants who retired after DOPT-3, however, 

PBGC: (1) used an assumed benefit start date for LIO purposes that was earlier than the actual 

benefit start date; and (2) used a different SSA Amount. The overall impact of PBGC's PC3 

calculations is that PC3 amounts are materially lower than if PBGC had applied the LIO Factor 

and SSA Amount based on the participant's actual benefit start date (i.e., his ASD). 

In our December 11, 2013 decision, the Appeals Board decided that PBGC should calculate 

the LIO benefit assigned to PC3 as follows: 

• 	 first determine the participant's PC3 benefit in the Plan's normal form (i.e., without the 

LIO); and 

• 	 then convert the normal form PC3 amount to an LIO using the LIO factor and SSA 

Amount that the Plan had applied as of the participant's actual benefit commencement 

date (i.e., his ASD). 

As stated above, the Appeals Board applied the reasoning in its December 11, 2013 decision 

and recalculated benefit amounts for all affected appellants with LIOs. 

27 As provided in section 8.5 of the 1999 Restatement, 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." 

28 The participant's Plan benefit amounts do not increase or decrease, however, if his actual Social Security benefit 

is different. 

11 

Implementation of Board's Decision on Issue #1 

Enclosure 3 lists the 146 appellants whose PBGC-payable benefits increased based on the 

Appeals Board's recalculation of LIO amounts assigned to PC3. We note that the Appeals Board 

previously recalculated and increased benefits for three of the 146 appellants when the Board 

issued individual appeal decisions to them. 29 

Enclosure 3 also lists 17 appellants whose PBGC-payable benefits did not increase based on 

the Board's recalculation of LIO amounts assigned to PC3.30 Thirteen appellants with LIOs are 

not entitled to increased PBGC-payable benefits because: (1) PBGC correctly calculated the 

PBGC-guaranteed benefit; and (2) the guaranteed benefit amount is larger than the benefit based 

on an allocation of the Plan's assets and PBGC recoveries (even after the Board's corrections). 

An additional three appellants with LIOs are not entitled to benefit increases based on the 

Board's December 11, 2013 decision because: (1) they retired more than 5 years before DOPT; 

and (2) PBGC correctly computed their PC3 benefits using the same LIO Factors and SSA 

Amounts that UAL had used when it computed their Plan benefits. One appellant with a LIO is 

not entitled to a benefit increase because he is not eligible for a benefit in PC3. 

The Appeals Board separately will provide you with new Benefit Statement Worksheets for 

(1) appellants whose benefits increased based on their LIO amounts in PC3, and (2) appellants 

whose LIO amounts in PC3 were recalculated but did not result in a change to the PBGCpayable amount. In coordination with you, we also will provide these appellants with copies of 

their new Benefit Statement Worksheets. 

PBGC's Benefits Administration and Payment Department ("BAPD") will implement the 

Board's decision for appellants with LIOs. Some appellants will be entitled to reimbursement 

for prior underpayments (with interest). For many appellants, however, the Board's decision on 

Issue #1 will reduce, but not eliminate, their overpayment balance. Many appellants have net 

overpayments because monthly payments generally were not reduced for PBGC guarantee limits 

during the first 14 months after the Plan terminated. If an appellant has a net underpayment, 

PBGC will: (1) adjust future benefit payments to the correct amount; and (2) issue a lump-sum 

back payment, which will include interest. If the appellant has a net overpayment, PBGC will 

adjust future monthly benefit payments in accordance with PBGC's recoupment regulation. 31 

29 The names of the three individuals with prior Appeals Board decisions are shown in Enclosure 3. 

30 , who is one of the appellants whose LIO amounts were not changed based on the December 11, 

2013 decision, will receive a new Benefit Determination based on the Board's decision regarding IRC § 415(e) 

repeal increases. 

31 See 29 C.F.R. § 4022.81-.82. To mitigate financial hardship, PBGC does not charge interest and generally 

recoups any overpayment by reducing future monthly benefit payments by no more than 10% until the overpayment 

balance is repaid. 

12 

II. PC3 AMOUNTS FOR APPELLANTS WITH PLSA DISTRIBUTIONS 

Issue 2: Did PBGC improperly change the Plan's offset formula when it calculated PC3 

benefits for appellants who elected Partial Lump Sum Amount ("PLSA") 

distributions? AB at 9-15. 

The Appeal 

Under the Plan's terms, a participant who retires or terminates employment may elect to 

receive a portion of his or her accrued Plan benefit as a Partial Lump Sum Amount ("PLSA") 

distribution. If a PLSA distribution is elected, the benefit amount the Plan pays as a monthly 

annuity is reduced. 

The Appeal challenges PBGC's treatment of the PLSA distributions that many appellants 

received prior to PBGC's trusteeship. AB at 9-15. Although the Appeal recognizes that PBGC 

must account for PLSA distributions, it contends that PBGC's PC3 determinations are incorrect. 

The Appeal asserts that PBGC incorrectly computed PLSA offsets to PC3 amounts by: (1) 

"[ignoring] the Plan-derived Offset Factor that was actuarially created by the Prior Plan 

Administrator" and (2) using a "PBGC-created offset formula that bears little, if any, relationship 

to the Plan." AB at 9-10. 

The Appeal requests that the Appeals Board "recalculate Appellants' benefits using the 

Plan's actuarially-correct PLSA Offset Factor based on Each Appellant's actual age at DOPT-3, 

rather than the artificial offset factor used by PBGC." AB at 10. 

Our Conclusions 

PBGC correctly determined PC3 benefit amounts for the appellants who had received PLSA 

distributions. For such participants, PBGC: (1) first calculated the PC3 amount for an annuity 

without a PLSA offset; and (2) then deducted the annuity equivalent of the participant's actual 

PLSA distribution.32 

The PLSA offset that PBGC applies equals the actual reduction to the participant's monthly 

Plan benefit that resulted from the participant's election of a PLSA distribution.33 Thus, contrary 

to the Appeal's contentions, PBGC does not use a "PBGC-created offset formula" that differed 

32 Under PBGC's calculations, the annuity equivalent of the participant's PLSA distribution equals the difference, 

as of the participant's Annuity Starting Date, between (i) the monthly Plan benefit that would be payable without a 

PLSA distribution and (ii) the monthly Plan benefit that is payable after the PLSA distribution is taken into account. 

33 As explained later, there are slight differences in the calculations by the Plan's administrator (UAL) and by 

PBGC due to mathematical rounding. 

We note that, if a participant elected both a PLSA distribution and an LIO, UAL applied the PLSA offset 

before making the payment adjustments for the LIO. PBGC's PC3 calculations similarly determined the PLSA 

offset amount before adjusting for the LIO. 

13 

from the Plan's provisions. The Board further concluded that PBGC's PC3 calculations maintain 

equivalence, based on the Plan's actuarial assumptions, between participants who elected a 

PLSA distribution and those who elected to receive their entire Plan benefit as an annuity. 

Explanation of Board's Decision on Issue #2 

Background 

We discuss below how the Plan calculated benefits for participants who elected PLSA 

distributions. We also discuss how PBGC determined PLSA offsets for PC3-eligible 

participants. This background information applies to both Issue #2 and Issue #3, which overlap 

in certain respects. Both issues address PBGC's PC3 benefit calculations for appellants who 

received PLSA distributions or are the beneficiaries of participants who received PLSA 

distributions. 

To illustrate the Plan's and PBGC's benefit calculations, we use the benefits of Captain 

, a timely-filed appellant, as an example. Also, in Enclosure 7 to this decision, we 

explain the Plan's and PBGC's benefit calculations for Captain ..in greater detail and provide 

copies of his relevant benefit calculation documents. Although the Appeal contends, at AB 1 7, 

that Captain-PBGC-payable benefit was calculated incorrectly, the Board did not find any 

error in his benefit calculation. 

The Appeal identifies by name four other appellants with alleg~PLSA offsets: 

Captain Captain Captain~ and Captain 

. AB at 17-18. As with Captain~ the Board did not find any errors in 

PBGC's benefit calculations with respect to the PLSA offsets for these four appellants.34 

Enclosures 8 through 11 provide detail~lanations of the benefit calculations for Captain 

-'Captain Captain - and Captain - as well as copies of their 

relevant benefit calculation documents. We also discuss certain aspects of the benefit 

calculations for Captain .. and the other four appellants in our explanation of the Board's 

findings and conclusions for Issue #2 and Issue #3. 

A. Plan benefit amounts for participants with PLSA distributions 

The Plan's accrued benefit. The Plan's accrued benefit is the annual benefit the participant 

is entitled to receive if payments start on the Normal Retirement Date ("NRD"), i.e., at age 60, in 

the form of a single life annuity ("SLA"). 35 Generally, the Plan's accrued benefit equals a 

percentage of the participant's Final Average Eligible Earnings ("FAE") multiplied by the 

34 The Appeals Board increased Captain PBGC-payable benefit based on the Board's recalculation 

of his LIO amounts in PC3. 

35 Plan§ 1.4. 

14 

participant's Years of Participation under the Plan. 36 

As an example, Captain had 34.1667 years of Participation Service and FAE of 

$183,714.36 when he retired on-, 2003 (at age 59 and 1 month). If he had elected to 

receive his entire benefit as an SLA that started on his Normal Retirement Date ("NRD") (i.e., on 

-'2004), he would receive a monthly benefit of $7,846.14, which is calculated as 

follows: 

$183,714.36 (FAE) x 34.1667 (Service) x 0.015 (benefit multiplier)= 

$94,153.70 (annual benefit)+ 12 = $7,846.14 (monthly benefit at NRD). 

PBGC did not change the accrued benefit that the former Plan administrator (UAL) calculated 

for CaptainAdjustment ofthe Plan benefit amount [or early retirement and benefit [orm. The Plan's 

formal document provides that, for retirements on or after April 12, 2000, a participant's accrued 

Plan benefit is decreased by 3% per year (0.25% per month) for each year of benefit 

commencement before his or her NRD.37 The Plan provisions in effect before April 12, 2000 

provided for greater early retirement reductions - 6.0% for each year of early retirement after age 

55 and a 3.6% annual early commencement reduction for ages 50 through 55.38 

For participants who retire early, the accrued benefit amount is multiplied by the Plan's 

Early Retirement Factor ("ERF") and by a benefit form conversion factor (if the participant 

elects a benefit form that is not an SLA). For Captain .., the ERF for his retirement effective 

36 Plan § 5.1. Through Plan amendments, the "multiplier" for this calculation changed as follows: 

• 	 Between January 1, 1976 and April 1, 1988, the multiplier increased from an initial 1.2% of FAE to 1.39% 

of FAE; 

• 	 Effective April 1, 1988, the multiplier increased to 1.41 % ofFAE; and 

• 	 Effective April 12, 2000, the multiplier increased to 1.5% of FAE. 

The Plan adopted a new benefit formula effective June 1, 2003, which is based on a benefit multiplier of 1.35% 

with Participation Service limited to 30 years. The participant's accrued benefit, however, cannot be less than the 

benefit amount accrued as of May 3 1, 2003. 

Plan § 5 .2 states that the accrued benefit stated under Plan § 5 .1 is subject to benefit adjustments under certain 

circumstances. The circumstances covered under Plan§ 5.2, which generally involve re-employment and the Plan's 

purchase of insurance annuities, do not apply to most appellants. 

37 The First Amendment to the 1999 Plan ("First Amendment," which we provide in Enclosure 5) changed the early 

retirement reduction to 3% per year (0.25% per month) effective for retirements on or after April 12, 2000. 

38 Table 4 of Appendix B of the 1999 Plan describes the Plan's Early Retirement Adjustment Factors ("ERFs") that 

were in effect before April 12, 2000. In Enclosure 12, we provide a table that illustrates the monthly Plan's ERFs 

that were in effect before April 12, 2000. 

15 

-,2003 (11 months before his NRD) is 0.973.39 Because Captain-elected an SLA, 

his payments are not reduced by a benefit form conversion factor. If Captain..had not 

elected a PLSA distribution, his monthly Plan benefit would be $7,634.29, as shown by the 

following calculation: 

$7,846.14 (accrued benefit at NRD) x 0.973 (ERF) $7,634.29 (early retirement benefit) 

The Plan's PLSA option. Plan§ 8.5(f)(i) provides that a participant may elect, before his or 

her Annuity Starting Date ("ASD"), "to have a portion of his or her Accrued Benefit equal to his 

or her Partial Lump Sum Amount distributed to him or her in a lump sum." The PLSA 

distribution is to be made "as soon as practicable after the later of the date the Participant 

tem1inates employment with the Company and all Affiliates and the date his or her election is 

filed." 40 

The PLSA is defined as: (1) the participant's "Contribution Account" (if any) under the 

Group Annuity Program that was in effect before January 1, 1976; plus (2) 4-2/3% of the 

participant's Eligible Earnings for each calendar month commencing on or after January 1, 1976, 

plus (3) "Annual Adjustments."41 Each Annual Adjustment generally equals 3% of the PLSA 

balance as of the immediately preceding January I.42 

Accordingly, a participant's PLSA balance increases each year until he or she terminates 

employment. Enclosures 7 through 11 illustrate how PLSA balances are determined for the five 

appellants that are named on pages 1 7-18 of the Appeal. 

The Plan's offset (or the PLSA. The Plan provides that, for purposes of determining benefit 

payments, the participant's accrued benefit at Normal Retirement is adjusted for the election of a 

PLSA distribution.43 The PLSA distribution adjustment equals "the annuity equivalent" of the 

lump sum based on the assumption the annuity commenced on the participant's NRD (i.e., at age 

60) in the form of an SLA.4 The annuity equivalent of the PLSA distribution is determined 

39 The 0.973 ERF for Captain - which is based on an early retirement reduction of 3% per year (i.e., 0.25% 

reduction per month), is calculated as follows: 

1.0 - (0.0025 (monthly reduction) x 11 (months before age 60)] = 0.973 (ERF). 

40 Id. 

41 Plan § 8.5(f)(ii). 

42 Plan § 8.5(f)(iii). 

43 Plan§ 5.4(d). 

44 Plan§ 16.3(a)(ii). 

16 

using the interest rate and mortality factors required for lump-sum distributions under IRC 

§ 417(e). 45 

Consistent with the Plan's provlSlons, UAL used a "PLSA Offset Factor" as of the 

participant's ASD to calculate the participant's PLSA offset.46 The purpose of the PLSA Offset 

Factor is to convert the participant's actual PLSA distribution on the participant's ASD to its 

monthly annuity equivalent as of his or her NRD and in the form of an SLA. This monthly 

annuity equivalent then is deducted from the participant's monthly accrued benefit, which also is 

determined as of NRD and in the form of an SLA. Afterwards, the "residual annuity" (i.e., the 

monthly annuity after the deduction for the PLSA) is adjusted for early retirement and benefit 

form. 

As an example, UAL first determined that Captain - "Total Partial Lump Sum 

Amount" is $204,090.24 - which is the amount he was paid on his-, 2003 ASD. UAL 

then determined the annuity equivalent at NRD of his PLSA distribution by dividing his PLSA 

amount ($204,090.24) by his "Annuity Conversion Factor at age 59.083," which is 152.693.47 

Consequently, UAL determined that the monthly offset at NRD for his PLSA distribution is 

$1,336.60, which is computed as follows: 

$204,090.24 (PLSA amount)_,_ 152.693 (PLSA Offset Factor) 
 
 

$1,3 36.60 (monthly PLSA offset at NRD) 
 
 

UAL then reduced Captain-monthly accrued benefit of $7,846.14 by his PLSA offset 

(at NRD) of $1,336.60, which resulted in a residual annuity at NRD of $6,509.54. Finally, UAL 

adjusted the residual annuity at NRD for early retirement and benefit form, which resulted in an 

ARD monthly benefit of $6,333.78. Captain -was receiving this monthly benefit of 

$6,333. 78 when the Plan terminated.48 

45 Plan§ 16.3(a)(i). The "applicable interest rate" for determining the annuity equivalent of the PLSA distribution 

is the interest rate in effect under IRC § 417(e) "on the first day of the third month immediately preceding the month 

in which the Annuity Starting Date occurs." Plan§§ 16.3(i), 16.3(ii). 

Plan § 1.4 defines "Annuity Starting Date" as "the first day of the first calendar month for which a payment of 

an Accrued Benefit is first made as an annuity, or in any other form, under the Plan to a Participant or his or her 

beneficiary." In communications with participants, PBGC generally uses the term "Actual Retirement Date" 

("ARD") to refer to the participant's benefit commencement date, i.e., his or her ASD. With respect to the issues 

raised in the Appeal, ASD and ARD have the same meaning. 

46 In the Appeal and in this decision, the terms "Annuity Conversion Factor" and "PLSA Offset Factor" both are 

used and have the same meaning. 

47 Later in this decision, we discuss the actuarial assumptions upon which the PLSA Offset Factor is based. 

48 As previously stated: (1) an ERF of 0.973 applies to Captain- benefit calculation, and (2) there is no 

benefit form adjustment because he elected an SLA. The monthly benefit payable to Captain - on his ASD thus 

is $6,333.78, as is shown by the following calculation: 

17 

As previously explained, Captain - would have received a monthly Plan benefit of 

$7,634.29 on his ASD if he had not elected a PLSA distribution. His election and receipt of a 

PLSA distribution caused his mon~ benefit to be $1,300.51 per month less [$7,634.29 ­

$6,333.78 $1,300.51] as of his--' 2003 ASD than if he had received his entire Plan 

benefit as an annuity starting on his ASD. Accordingly, based on the actual reduction to his 

monthly payments, Captain-PLSA offset as of his ASD is $1,300.51 per month. 

B. 	 PBGC's calculation of PC3 amounts for participants with PLSA distributions 

PC3 amounts before deduction {or PLSA distributions. In determining the monthly benefit 

assigned to PC3 for a participant, PBGC first calculates the monthly benefit that PBGC would 

assign to PC3 in the absence of any lump-sum distribution.49 The monthly benefit in PC3 for a 

participant who was an active UAL employee at DOPT-3 (i.e., on December 30, 2001) often is 

significantly lower than his or her Plan benefit for some or all of the following reasons: 

(1) The participant had fewer Years of Participation Service at DOPT-3 (i.e., on the date as 

of which the PC3 benefit is calculated) than on the actual employment termination date; 

(2) The participant's FAE, as determined under the Plan provisions in effect 5 years before 

DOPT, is less at DOPT-3 than on the actual employment termination date; 

(3) The Plan's early retirement reduction 	 	 is greater on DOPT-3 (which is the assumed 

retirement date for the PC3 benefit) than on the participant's (later) actual retirement 

date. Also, PBGC must apply the ERFs under the Plan provisions that were in effect five 

years before DOPT (i.e., on December 30, 1999), rather than the more generous ERFs 

that went in effect on April 12, 2000. 

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

beginning of the five-year period before the Plan terminated. 50 The benefit multiplier in 

effect five years before DOPT is 1.41 %, rather than the later-adopted and more generous 

benefit multiplier of 1.5%. 

The four circumstances listed above reduce the benefit amount in PC3 for some appellants 

regardless of whether or not the participant received a PLSA distribution. 

$6,509.54 (benefit at NRD after PLSA offset) x 0.973 (ERF) = $6,333.78 (benefit at ASD after PLSA offset). 

49 See PBGC's Operating Policy Manual, "Allocation of Assets - Priority Category 3," Chapter 4.2-1 at G.3 

(Enclosure 13). 

50 Use of the benefit formula in effect at DOPT-5 is necessary because the PC3 amount is based on the plan 

provisions "in effect" during the five years before the plan's termination date "under which such benefit would be 

the least." 

18 

Captain..is an example of an appellant whose benefit in PC3 is significantly lower than 

his Plan benefit amount. As is explained in Enclosure 7, his monthly benefit in PC3 (before the 

PLSA offset) is $5,428.50, as compared to his monthly Plan benefit (before PLSA offset) of 

$7,634.29. Also, as shown in Enclosures 8-11, Captain , Captain Captain

each have a benefit amount in PC3 that is significantly lower than his 

Plan benefit amount. 

PBGC's Adjustment of PC3 amounts for PLSA distributions. In determining monthly 

benefit amounts assigned to PC3, PBGC adjusts for PLSA distributions before DOPT by 

offsetting the monthly annuity equivalent ofthe PLSA. The monthly annuity equivalent of the 

PLSA equals the actual reduction in monthly payments that resulted from the participant's 

election of a PLSA distribution. 

As an example, Captain - monthly amount in PC3 in the absence of a PLSA 

distribution is $5,428.50. Also, Captain - receipt of a PLSA distribution caused his 

monthly Plan benefit to decrease by $1,300.51 per month. PBGC used approximately the 

same monthly PLSA offset, $1,300.73, when it calculated Captain monthly amount in 

PC3. The $0.22 difference is attributable to differences in mathematical rounding 

(or "rounding"). 51 

Consequently, Captain-monthly amount in PC3, after the adjustment for his PLSA 

distribution, is $4,127.77 [i.e., $5,428.50 (PC3 amount before PLSA offset) - $1,300.73 

(PLSA offset) $4,127.77]. 

PBGC's Adjustment for the PC3 and ERISA § 4022(c) funding percentages. PBGC is 

unable to pay the full monthly PC3 amounts that it calculated because (1) the Plan's assets 

funded only 82.0617% of the benefit liabilities in PC3, and (2) the ERJSA § 4022(c) amount, 

which is based on PBGC's recoveries, funded some, but not all, of the remaining liabilities in 

PC3. 

PBGC's adjustment of PC3 amounts for the PC3 and ERISA § 4022(c) funding percentages 

is explained in Enclosure 7, which provides additional detail concerning PBGC's calculations for 

Captain-. The Appeal does not dispute how PBGC applied the PC3 funding percentage and 

how it calculated ERIS A § 4022( c) benefits. 

51 In calculating the PLSA offset, UAL used a PLSA Offset Factor that was based on the participant's age 

mathematically rounded to 4 decimal places. Thus, Captain -age on his ASD - which was 59 years and I 

month was rounded to 59.0833 years. PBGC rounded ages to 2 decimal places, i.e., 59 years and 1 month was 

rounded to 59.08. Overall, this difference in the rounding of ages increased the PLSA offset slightly for some 

participants and decreased the offset slightly for others. The Appeals Board concluded that PBGC's rounding of 

ages to 2 decimal places is reasonable and did not significantly impact upon PBGC-payable benefit amounts. 

Accordingly, the Board did not change PBGC's methodology for the rounding of ages. 

19 

Discussion of Issue #2 

Issue #2 challenges how PBGC calculated PC3 benefit amounts for appellants who received 

PLSA distributions. In determining PC3 amounts, PBGC applied a PLSA offset that equaled the 

actual reduction to the participant's monthly Plan benefit that resulted from the participant's 

choice of a PLSA distribution (except for slight differences due to mathematical rounding). For 

the reasons explained below, the Appeals Board found no basis for changing PBGC's calculation 

method. 

A. 	 PBGC correctly applied the Plan's prov1s10ns and actuarial assumptions in 

determining PC3 amounts for appellants with PLSA distributions 

A PLSA distribution provides a participant with a portion of the Plan benefit that otherwise 

would be payable as an annuity. For this reason, PBGC accounts for the PLSA distribution by 

first calculating the amount that would be assigned to PC3 without a PLSA distribution. PBGC 

then deducts the annuity equivalent of the benefit the PLSA replaced. 52 

Chapter 4.2-1 of PBGC's Operating Policy Manual provides that PBGC will apply the 

pension plan's provisions and actuarial assumptions in calculating PC3 benefits for Earticipants 

who received partial lump-sum distributions before their pension plan terminated. 3 PBGC's 

PC3 calculations for the appellants with PSLA distributions are consistent PBGC' s Operating 

Policy Manual. As in UAL's calculations of Plan benefit amounts, PBGC calculated PLSA 

distribution offsets for PC3 using the Applicable Interest Rate and Applicable Mortality Table 

52 As required under ERISA § 4044, PBGC allocated the Plan's assets and the Plan's§ 4022(c) amount as ofDOPT 

to the Plan benefits payable as annuities on or after DOPT. Because a PLSA distribution replaced a portion of the 

annuity that otherwise would be payable to the participant after DOPT, PBGC appropriately deducted the annuity 

equivalent of the participant's actual PLSA distribution from the PC3 annuity amount that would be assigned to PC3 

in the absence of a PLSA distribution. 

53 Section G.3. of Chapter 4.2-1 of PBGC's Operating Policy Manual (Enclosure 13) states that, for a PC3-eligible 

participant who received a partial lump-sum distribution from the terminated pension plan in the 3-year period 

before DOPT, "the PC3 Benefit Amount will be the difference of the following two annuity amounts (but not less 

than $0): 

• 	 The pre-distribution PC3 Benefit Amount-that is, the PC3 Benefit Amount calculated as though no preDOPT distribution had occurred, and 

• 	 The pre-DOPT distribution amount converted to an annuity commencing on the earlier of (a) the ASD of 

the residual annuity and (b) the first of the month coincident with or following DOPT." 

Section G.3. further states that, to annuitize the pre-DOPT partial lump-sum distribution, PBGC "will follow the 

plan's conversion rules for converting a lump sum to an annuity (such as the Applicable Interest Rate and 

Applicable Mortality Table under Code section 417(e)(3), which many pension plans require for converting lump 

sum distributions to a monthly annuity)." 

20 

under IRC § 417(e)(3). 54 Consequently, in determining PLSA offsets, PBGC did not change the 

Plan's actuarial assumptions. 

Essentially, PBGC concluded that the PLSA offset for PC3 purposes should equal the actual 

monthly benefit amount the Plan deducted when it paid the participant a PLSA distribution. If, 

for example, a Plan participant would have received a Plan benefit of $7 ,000 per month as an 

SLA without a PLSA distribution and $5,500 per month as an SLA with a PLSA distribution, 

then the PLSA offset is the difference between the two amounts, i.e., $1,500 per month. The 

Appeals Board concluded that PBGC' s calculations of PLSA offset amounts are logical because 

they correspond to the actual benefit choices made by participants. 

A major contention in Issues #2 and #3 of the Appeal is that PBGC adjusted PC3 amounts 

for PLSA distributions in a way that differed from UAL's Plan benefit calculations. AB at 

13-15, 16-20. However, PBGC's benefit calculations for Captain ..illustrate that PBGC did 

not compute different PLSA offset amounts than UAL. 

As discussed in the "Background" section: (1) Captain - election of a PLSA 

distribution caused his monthly Plan benefit to decrease by $1,300.51 per month; and (2) PBGC 

used a monthly PLSA offset of $1,300.73, when it calculated Captain - monthly PC3 

amount, with the $0.22 difference from the UAL-calculated amount attributable to rounding. 

PBGC's calculations for Captain ..are shown in the table below. 

Comparison of PLSA offsets calculated by UAL and by PBGC 

fo.­ - See Background and Enclosure 7 for 

(1) 

(2) 

(3) 

(4) 

(5) 

(6) 

ex lanation of amounts in lines (3 , (6), (8 and 9 

N orrnal Retirement Date 

Annuity Starting Date (ASD) 

Accrued benefit (NRD) 

ERF atASD 

Plan benefit at ASD without PLSA 

deduction: (3) x (4) 

Plan benefit at ASD with PLSA deduction 

(as shown in UAL calculations) 

2004 

~003 

$7,846.14 

0.9730 

$7,634.29 

$6,333.78 

(7) PI•!;tb~ll~~!,~~e~~~t>P uu~>fo .Rtsa,olfset $l,300.s1 UAn~alculatfons f •:.i.• .6 

(8) PC3 amount before PLSA offset (as shown $5,428.50 

in PBGC's calculations) 

(9) PC3 amount after PLSA offset (as shown in $4,127.77 

PBGC's calculations) 

54 As discussed in the Background section, the Plan's PLSA Offset Factor which is based on the applicable 

interest rate and applicable mortality table under IRC § 417( e )(3) is used to convert a PLSA distribution that is 

paid on the participant's ASD to an equivalent annuity starting on the participant's NRD. 

21 

In addition to Ca tain 

PLSA offsets: 

- Enclosures 8 through 11 explain the benefit calculations for those four appellants. As 

is shown in the table below, PBGC's PC3 calculations for the four appellants used the same 

PLSA offset (except for rounding differences) that UAL used when it computed their Plan 

benefit amounts. 

Comparison of PLSA offsets calculated by UAL and by PBGC 

See Enclosures 8 through 11 for explanation of amounts in lines (3), (6), (8) and (9) 

(1) Normal Retirement Date 

(2) Annuity Starting Date 

ASD) 

(3) Accrued benefit (NRD) $7,980.09 $7,961.37 $3,023.64 $7,554.18 

(4) ERF at ASD 0.9480 0.9950 0.9830 0.9580 

( 5) Plan benefit at ASD without $7,565 .13 $7,921.56 $2,972.24 $7,236.90 

PLSA deduction: (3 x (4) 

( 6) Plan benefit at ASD with $6,148.03 $6,386.62 $2,269.03 $6,038.98 

PLSA deduction (as shown 

in UAL calculations 

(7) Plan benefit reduction due 1417.10 1,534.94 703.21 1197.92 

to PL offset 

calculation .: 5 - 6 f---+­

( 8) PC3 amount before PLSA $5,013 .33 $5, 144.16 $1,778.25 $4,290.78 

offset (as shown in PBGC's 

calculations 

(9) PC3 amount after PLSA $3,596.23 $3,608.53 $1 ,075.17 $3,10 1.06 

offset (as shown in PBGC's 

calculations 

PL A offset to PC3 1417.10 1,535.6~ 703.08 1189.72* 

benefit: 8 - 9 

­

NOTE: Captain . and Captain-each elected an SLA with LIO. The amounts shown in the table 

are before the adjustments for the LIO amounts. Captain -and Captain ..each elected an SLA without the 

LIO feature. 

* Captain -received a portion of his PLSA distribution on - 2003, which was approximately • 

months after his ASD. PBGC computed a smaller (more favorabl e) PLSA offset for Captain based on that 

later PLSA distribution date. The Appeals Board did not change the PLSA offset that PBGC computed for Captain 

-PC3 benefit. 

22 
 
For the above reasons, the Appeals Board concluded that PBGC correctly applied the Plan's 

provisions and actuarial assumptions in determining PC3 amounts for appellants with PLSA 

distributions. 

B. 	 PBGC's PC3 calculations are consistent with ERISA § 4044 and PBGC's asset 

allocation regulation 

In both Issue #2 and Issue #3, the Appeal refers to UAL's "order of calculations," under 

which the PLSA offset is applied before the Plan benefit is reduced for early retirement. AB at 

13-15, 16-20. 

The Appeal correctly states that, for participants with PLSA distributions, PBGC's PC3 

calculations apply the early retirement reduction in a different step than UAL's Plan benefit 

calculations. UAL, however, was not calculating PC3 benefits; therefore, UAL's methodology 

for calculating Plan benefits does not control how PBGC calculates the statutorily-created PC3 

amounts. As discussed below, PBGC's method is in accord with the requirements in ERISA and 

PBGC regulations and, accordingly, must be upheld. 

For participants who were not in pay status at DOPT-3, ERISA and PBGC regulations 

define the PC3 benefit as the "normal form of annuity."55 PBGC's PC3 regulation, which is 

consistent with ERISA § 4044(a), further provide that the PC3 amount "is limited to the lowest 

annuity benefit payable under the plan provisions, including any reduction for early retirement, 

at any time during the 5-year period ending on the termination date." 

Based on these statutory and regulatory provisions, PBGC's initial step for participants not 

in pay status at DOPT-3 is to calculate the PC3 amount in the normal annuity form, which 

includes "any reduction for early retirement." PBGC does not apply a PLSA offset in this initial 

step because, under the Plan's provisions, the normal form of annuity does not include a PLSA 

offset. PBGC then reduces the normal form PC3 amount by deducting the annuity equivalent of 

the actual PLSA distribution the participant received. The amount that PBGC assigns to PC3 

accordingly equals the normal form annuity amount less the annuity equivalent of the actual 

PLSA distribution. 

The PLSA offsets that PBGC applies in determining appellants' PC3 amounts does not 

deprive them of benefits entitled to priority under ERISA § 4044. Rather, the PLSA offset that 

PBGC applies recognizes that an appellant with a PLSA distribution already received a portion 

of the Plan benefit amount that, in the absence of a pre-DOPT PLSA distribution, would be 

assigned to PC3. 

55 ERISA states that, ifthe 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). PBGC's PC3 regulation provides 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). 

23 

C. PBGC did not use a "PBGC created offset formula" for PC3 purposes that differed 

from the Plan's provisions 

The Appeal claims that PBGC "applied its own, ad-hoc calculations to re-value PLSA 

amounts based entirely on assumptions and factors outside the Plan." AB at 12. It further 

alleges that PBGC "improperly confuses the ERISA guaranteed benefit calculations under PC4 

and the Plan-derived benefit calculations under PC3" and "confuses, re-labels and re-values the 

PSLA into something it was never intended to be, and is not now." AB at 13-14. As explained 

below, the Appeal did not demonstrate any error in PBGC's PLSA offset calculations. 

The Appeal, in asserting that PBGC used an incorrect formula to determine PLSA offsets to 

PC3 amounts, refers to the following statement on page 12 of PBGC's Actuarial Case Memo: 

PBGC will not guarantee the full account balance as part of the post-DOPT lump 

sum survivor benefit for participants not receiving their full plan benefit from 

PBGC. Instead, their guaranteed PLSA account balance will be equal to their 

PLSA account balance multiplied by a ratio, where the numerator is the PBGC 

guaranteed monthly benefit and the denominator is the full plan monthly benefit. 

The number of months certain . . . remains unchanged. [Emphasis added by 

Appeals Board.] 

The above-quoted language does not apply to PBGC's treatment of the PLSA distributions 

that many appellants received when they retired or terminated employment. Rather, this 

statement in the Actuarial Case Memo discusses PBGC's guarantee of a different Plan benefit 

the lump-sum survivor benefit (also referred to as the "Death Benefit") that sometimes is payable 

to the beneficiaries of Plan participants. 

Specifically, the Death Benefit ensures that, if the PLSA is not fully distributed when the 

participant retires, the full PLSA amount later will be paid (without post-retirement interest) 

through the combination of monthly annuity payments to the participant and a lump-sum 

survivor benefit.56 Accordingly, the Death Benefit is payable to the participant's beneficiary 

only if the participant did not receive his full PLSA. Because the Death Benefit does not affect 

how PLSA offsets are computed, the Appeal's reference to PBGC's Death Benefit calculations 

does not support the Appeal's claim that PBGC determined PLSA offsets incorrectly. 57 

56 The Death Benefit amount equals the participant's (undistributed) PLSA as of his retirement date reduced by the 

benefit payments that the Plan made before the participant's death. The Plan also permitted waiver of the Death 

Benefit. If the Death Benefit was waived, the Plan increased benefit payments by multiplying the accrued benefit 

amount by a form conversion factor (i.e., by a factor greater than 1.0). 

57 The language on page 12 of the Actuarial Case Memo essentially provides that, if a participant's guaranteed 

benefit amount is less than the Plan benefit amount, the guaranteed Death Benefit amount will be computed using 

the ratio of the guaranteed monthly annuity amount to the Plan monthly annuity amount. Although it is not 

specifically mentioned in the Actuarial Case Memo, PBGC similarly adjusts Death Benefit amounts if the funded 

benefit in PC3 is less than the Plan benefit amount. We note that, because PBGC does not make lump-sum 

payments (except for de minimis amounts), PBGC ordinarily pays the Death Benefit as a certain period annuity. 

24 

Aside from the reference to the Death Benefit, the Appeal does not present, or refer to, any 

specific information that would support its contention that PBGC used a "PBGC created offset 

formula" for PC3 purposes. Based on our review of PBGC's calculations and the information 

provided in the Appeal, the Appeals Board rejected the Appeal's claim that PBGC incorrectly 

computed PC3 amounts for appellants that received PLSA distributions. 

D. PBGC's PC3 calculations treat participants with PLSA distributions comparably to 

participants who did not elect the PLSA option 

The Appeal states that PBGC's use of an incorrect PLSA Offset Factor "broke the actuarial 

equivalence mandated by the Plan." AB at 12. The Appeals Board found that this claim is 

without merit. As is demonstrated below, PBGC treated participants with PLSA distributions 

comparably to participants who did not elect the PLSA option. 

For Plan participants with and without PLSA distributions, PBGC allocates the total 

Plan benefit amounts that are payable after DOPT to one or more of ERISA's six priority 

categories.58 As previously discussed, PC3 covers the benefit a participant would have received 

under the Plan on the earlier of the participant's actual retirement date or DOPT-3, but 

disregarding any benefit increase made within the five years before termination. If all or a 

portion of a participant's Plan benefit amount cannot be assigned to PC3, the amount is 

assigned to PC4 if it is covered by PBGC 's guarantee.59 A vested Plan benefit amount that 

cannot be included in PC3 or PC4 is assigned to PCS, which covers "all other nonforfeitable 

benefits under the plan."60 Ifa benefit amount is non-vested, it is assigned to PC6. 

The below table, which shows benefit amounts for Captain., illustrates how PBGC 

assigned Plan benefits to ERISA's priority categories depending upon whether or not the 

participant elected a PLSA distribution. Please note that: (1) PBGC allocated a portion of 

Captain Plan benefit to PC3 and the remaining amount to PCS; and (2) PBGC did not 

assign any of his Plan benefit to PC 1, PC2, PC4, or PC6. 

58 A pre-DOPT PLSA distribution provides a participant with a portion of the Plan benefit that otherwise would be 

payable as an annuity after DOPT. Accordingly, the benefit liability at DOPT for purposes of the ERISA § 4044 

allocation is less for a participant who received a PLSA distribution before DOPT than for a similarly-situated 

participant who did not receive a distribution. 

59 As previously stated, the Plan did not have any benefit liabilities in PCl or PC2. 

60 Due to ERISA's guarantee limits, many appellants have large nonguaranteed benefit amounts in PC5. 

PBGC is unable to pay any PC5 benefits because the Plan's assets and ERISA § 4022(c) amount were 

insufficient to fund them. 

2S 
Assignment of monthly benefit to ERISA's priority categories 

with and without a PLSA distribution 

Ifno PLSA distribution With PLSA distribution 

Captain-full Plan benefit amounts 

Plan benefit before PLSA deduction (at 

2003 ASD and in SLA 

form) 

$7,634.29 $7,634.29 

Plan's deduction for PLSA $0 $1,300.51 

Monthly Plan benefit payable (after any 

PLSA deduction) 

THIS IS THE AMOUNT PBGC 

ALLOCATES UNDER ERISA 4044 

$7,634.29 $6,333.78 

Captain-benefit amounts assigned to PC3 

(Plan benefit at DOPT-3 under 5-years-old Plan provisions) 

PC3 amount before PLSA offset $5,428.50 $5,428.50 

PBGC's PC3 deduction for PLSA $0 $1,300.73 

Net amount (after any PLSA deduction) 

assigned to PC3 

$5,428.50 $4,127.77 

PBGC's assignment of Captain -benefit to ERISA § 4044 priority categories 

Monthly benefit assigned to PC3 $5,428.50 $4,127.77 

Monthly benefit assigned to PC5 

[Plan benefit amount less PC3 amount] 

$2,205.79 $2,206.01 

Total benefit assigned to priority 

categories [Sum of PC3 and PC5 

amounts] 

$7,634.29 $6,333.78 

As shown in the table, Captain -(1) received a PLSA distribution that was equivalent to 

a monthly annuity of $1,300.73 and (2) has a monthly benefit of $4,127.77 assigned to PC3. 

Added together, these two amounts total $5,428.50. The sum of the annuity equivalent of his 

PLSA distribution and his PC3 amount equals the monthly $5,428.50 amount that PBGC would 

have assigned to PC3 if Captain-had not received a PLSA distribution. Accordingly, the 

benefit amounts PBGC assigned to PC3 for Captain -did not place him in a less-favorable 

position than if he had declined a PLSA distribution. 

Furthermore, because the Plan's assets and ERIS A § 4022(c) amount do not fund any 

26 

amounts in PCS, PBGC is unabl~ay Captai- any of the $2,206.01 monthly benefit that 

is assigned to PCS. If Captain-had not elected a PLSA distribution, PBGC would have 

assigned $2,20S.79 of his monthly Plan benefit to PCS. Consequently, the monthly PCS amount 

that PBGC is unable to pay due to the insufficiency of the Plan's assets and ERISA § 4022(c) 

amount is the same (except for a $0 .22 rounding difference) regardless of whether or not Captain 

-received a PLSA distribution. 

In Enclosure 14, we provide tables fo~tains which 

We do not provide similar tables for Captains 

because, due to their election of the SLA with LIO, the 

are similar to the above table for Ca tain-. 

assignment of their benefits to the ERISA 4044 priority categories is more complicated. 

E. 	 PBGC correctly determined PLSA offsets to PC3 amounts based on the 

participant's age on his Actual Retirement Date, rather than his age at DOPT-3 

The Appeal requests that the Appeals Board "re-calculate benefits payable to Appellants 

in PC3 based on the Plan's treatment of the PLSA distribution, using Plan-derived Offset 

Factors as of Appellant's actual age as of the Annuity Start Date (DOPT-3-December 30, 

2001) in order to retain actuarial equivalency under the Plan."61 AB at 14. The Appeals 

Board declined this request. 

PBGC's calculations adjust the normal form PC3 amount to reflect the annuity 

equivalent of the actual PLSA distribution the participant received, rather than a 

hypothetical offset based on the participant's age at DOPT-3. As demonstrated above, 

PBGC's PC3 calculation method is logical because, in assigning benefit amounts to PC3, 

participants with PLSA distributions are treated comparably to participants who did not 

elect the PLSA option. The Appeal, in referring to a PLSA offset calculation that is based 

on the participant's age at DOPT-3, apparently is seeking smaller PLSA offsets than PBGC 

calculated for participants who retired after DOPT-3. This change would depart from the 

Appeal's intended goal of actuarial equivalence because it would treat appellants with PLSA 

distributions more favorably than participants without PLSA distributions. 

In its request for PLSA offsets based on the participant's age at DOPT-3, the Appeal 

asserts that such a change would be consistent with the Board's logic in its December 11, 

2013 decision regarding Level Income Option ("LIO") amounts in PC3. AB at 12. 

61 The Appeal also states: "[S]ince PBGC assumes a Participant retired as of DOPT-3, the PLSA Offset Factor 

based on Appellant's actual age at DOPT-3 (December 30, 2001) must be used in order to retain actuarial 

equivalence for benefit payments under the Plan in PC3." AB at 14. 

The Appeal does not demonstrate how PC3 benefits would be calculated using a "PLSA Offset Factor based on 

Appellant's actual age at DOPT-3." As is discussed under Issue #3, the Appeal proposes an (alternative) PC3 

calculation method that changes the order in which PBGC' s early retirement factor for the PC3 calculation is 

applied. Under the Appeal's proposed method, however, there is no change to the PLSA offset amounts that PBGC 

computed, which are based on the Plan's PLSA Offset Factor for a benefit starting on the participant's ASD. 

27 

Contrary to the statement in the Appeal, the Board computed LIO adjustments to PC3 

amounts based on the participant's age at ASD, even if the participant retired after DOPT-3. 

Thus, for both this decision and the Board's December 11, 2013 decision, the appropriate 

initial calculation step is to compute the PC3 amount as of DOPT-3 in the normal annuity 

form - that is, without a PLSA offset or an LIO adjustment. Afterwards, the normal form 

PC3 amount is adjusted for the optional form the participant elected, using the Plan's 

actuarial assumptions that apply to a benefit starting on the participant's ASD. 

Accordingly, in determining LIO benefit amounts in PC3, the Board did not change the 

"temporary period increases" and "age-66 reductions" that the Plan had computed for the 

participant's monthly annuity as of his or her ASD. Similarly, the PLSA offset that PBGC 

computes for PC3 purposes reflects the Plan's PLSA offset (i.e., the actual monthly 

reduction) for the participant's monthly annuity as of his or her ASD. 

Issue 3: Did PBGC incorrectly apply both a "PLSA Offset Factor" and the Plan's early 

retirement factor when it calculated PC3 benefits for appellants who elected PLSA 

distributions? AB 15-25. 

The Appeal 

Issue #3 of the Appeal asserts that PBGC's PC3 calculations "double penalized 

Appellants" with PLSA distributions because PBGC applied the Plan's early retirement 

adjustment factor to the PC3 amount before it "reduced" the PC3 benefit based on the Plan's 

PLSA Offset Factor. AB at 15-16. The Appeal claims that the reversed order of 

calculations "violates the Plan and is an arbitrary mistake in ordering calculations." AB at 

18. The Appeal presented an alternative PC3 calculation method, which would increase 

PC3 amounts for the appellants who had received PLSA distributions after DOPT-3. 

Our Conclusions 

Contrary to the Appeal's contention, PBGC did not apply "a double reduction against 

the same benefit" when it calculated PC3 amounts. Rather, in computing the participant's 

"normal form" PC3 annuity amount, PBGC applied the Plan's early retirement reductions, 

as is required by ERISA § 4044(a) and PBGC's PC3 regulation. PBGC also used the Plan's 

PLSA Offset Factor to determine the annuity equivalent of the participant's actual PLSA 

distribution, which was deducted from the PC3 normal form annuity amount. 

The Appeals Board further concluded that the Appeal's suggested calculation method 

for PLSA offsets is inconsistent with PC3 requirements and does not achieve the Appeal's 

intended goal of actuarial equivalence. Thus, the Board denied the Appeal's requested relief 

for Issue #3. 

28 

Explanation of Board's Decision on Issue #3 

Relevant background for Issue #3 of the Appeal is presented above under Issue #2. We 

explain below the reasons the Appeals Board is unable to grant the relief sought in Issue #3. 

Discussion of Issue # 3 

A. 	 For PC3, PBGC correctly determined PLSA offsets by using the Plan's PLSA Offset 

Factor and the Plan's Early Retirement Factors 

After we explain the purpose of the Plan's PLSA Offset Factor, we discuss how PBGC 

applied that factor (as well as the Plan's early retirement factors) in benefit calculations. 

The Appeals Board concluded that PBGC did not err when it computed PLSA offsets for 

purposes of PC3. 

The Plan's PLSA Offset Factor. The PLSA Offset Factor does not affect the PLSA 

distribution amount the Plan will pay the participant. A change in the PLSA Offset Factor, 

however, affects the annuity equivalent ofthe PLSA. 

As the Appeal states at AB 10-12, the Plan's PLSA Offset Factor is not the same for all 

retirees. Rather, under the Plan's terms, the applicable PLSA Offset Factor for a participant 

who received a PLSA distribution depends upon: (1) the participant's age on his ASD, and 

(2) the interest rate and mortality table in effect on the participant's ASD. 62 Consequently, 

the applicable PLSA Offset Factor will be different for two Plan participants if they: (1) 

retire on the same date but are different ages; or (2) retire at the same age but the applicable 

interest rate is different on their (different) retirement dates. The Appendix to this decision 

demonstrates how the PLSA Offset Factor varies based on the participant's age at retirement 

and retirement date. 

Contrary to the implication in the Appeal, the PLSA Offset Factor is not used to 

compute early retirement reductions to the Plan's Normal Retirement benefit. Instead, the 

PLSA Offset Factor for an early (pre-age 60) retiree converts a lump-sum distribution made 

on the participant's ASD to its annuity equivalent as of the participant's later Normal 

Retirement Date ("NRD"). 63 

62 During the 3-year period prior to the Plan's DOPT, the applicable interest rate varied from a low of 4.37% (on 

June 2003) to a high of 5.71 % (on March 2002), while the applicable mortality table did not change. This change in 

interest rates, for example, caused the applicable PLSA Offset Factor to be different for two participants if they 

retired on different dates, even ifthe age at retirement was the same for the two participants. We observe that, ifthe 

applicable interest rate increases, the PLSA Factor decreases. A smaller PLSA Factor produces a larger PLSA 

offset, and this larger PLSA offset will cause the (residual) Plan benefit payable as an annuity to decrease. 

63 The PLSA sometimes is distributed before the participant's ASD. The Plan provides that a participant may 

receive a PLSA when he or she terminates employment, even ifthe participant had not then attained early retirement 

age. The Plan also contains complex provisions that address how Plan benefits are determined if a participant 

terminates employment, receives a PLSA distribution, and later is re-employed. The Appeal does not address how 

29 

UAL's benefit calculation worksheets show, for example, that UAL used an "Annuity 

Conversion Factor at age 59.083" of 152.693 to determine Captain-PLSA offset. See 

Enclosure 7. Essentially, the 152.693 factor means that a lump sum of $152.69 and 3/10 of 

a cent payable to Captain-on his-2003 Annuity Starting Date ("ASD") is 

equivalent to an annuity of $1 per month that starts 11 months later, i.e., on-, 

2004 (his NRD), and continues for his lifetime. 64 

UA~ng the PLSA Offset Factor of 152.693, determined that the PLSA distribution 

Captain-received is equivalent to a $1,336.60 monthly annuity starting at his NRD. As 

previously explained in the "Background" section, UAL then deducted the annuity equivalent 

at NRD of Captain-PLSA distribution from his accrued Plan benefit at NRD, with the 

Plan's early retirement reduction applied in a later calculation step. 

PBGC's PLSA offset calculations. If a Plan participant received a PLSA distribution 

between DOPT-3 and DOPT, PBGC's calculation of the monthly benefit assigned to PC3 

consists of the following three steps: 

First, PBGC applies the requirements in PBGC's PC3 regulation and, for a participant not in 

pay status at DOPT-3, calculates the PC3 amount in the "normal form of annuity." As required 

in PBGC's PC3 regulation, the normal form annuity in PC3 for a Plan participant is the monthly 

amount the Plan would pay for a benefit (1) starting at DOPT-3, (2) based on the Plan's 

provisions (including early retirement reductions) in effect during the 5 years prior to DOPT that 

produce the least benefit, and (3) without a PLSA offset. Thus, PBGC's first calculation step 

includes the Plan's early retirement reduction, but the Plan's PLSA Offset Factor is not used. 

PBGC's second calculation step is to determine the annuity equivalent of the participant's 

PLSA distribution. To accomplish this, PBGC applies the Plan's provisions and calculates the 

monthly amounts the participant is entitled to receive at ASD (1) without a PLSA distribution 

and (2) with a PLSA distribution. The difference between the two amounts is the annuity 

equivalent of the participant's PLSA distribution. 65 See explanations in Enclosures 7 through 11. 

Thus, PBGC's second calculation step is consistent with UAL's benefit calculations and 

produces an offset amount that corresponds to the actual reduction to the participant's monthly 

benefit for the PLSA distribution. 

PLSA offsets are determined for the two situations described above, so there is no need to discuss them further in 

this decision. 

64 The "applicable interest rate" that UAL applied in calculating Captain-PLSA offset is an annual rate of 

4.96%. 

65 To compute the annuity equivalent of the PLSA distribution as of the participant's ASD, PBGC uses the Plan's 

PLSA Offset Factor to determine the PLSA offset applicable to a benefit starting at Normal Retirement. PBGC 

then reduces the PLSA offset at NRD by applying the Plan's Early Retirement factors. As shown in Enclosures 

7-11, PBGC's calculation method produces the same PLSA offset reductions as of the participant's ASD as UAL's 

calculations. 

30 

In the third and final step, PBGC takes into account that the participant effectively 

exchanged a portion of the annuity that (otherwise) would be included in PC3 for a PLSA 

distribution. To adjust for the PLSA distribution, PBGC deducts the PLSA offset computed in 

the second step from the PC3 amount (without the PLSA offset) that is computed in the first step. 

Conclusion. Contrary to the Appeal's contentions, PBGC does not make duplicate PLSA 

reductions or early retirement reductions in determining Plan benefit amounts assigned to PC3. 

Rather, PBGC: (1) first calculates the participant's PC3 amount in the normal form of annuity 

which, as provided in PBGC's PC3 regulation, requires a reduction for early retirement; (2) then 

applies the Plan's terms (including its PLSA Offset Factor) to determine the annuity equivalent 

of the PLSA distribution; and (3) in a final step, determines the monthly annuity assigned to PC3 

by deducting the annuity equivalent of the PLSA distribution from the participant's PC3 amount 

in the normal form. The Board found no error in PBGC's PC3 calculation method. 

B. 	 The Appeal's suggested calculation method for PLSA offsets is inconsistent with 

PC3 requirements and does not achieve actuarial equivalence 

The Appeal proposes a six-step method ("the Appeal's Method") for calculating PC3 and 

ERISA § 4022(c) benefits, which would be applied to the appellants who received PLSA 

distributions after DOPT-3.66 AB at 14-15, 23-24. 

The differences between PBGC's method and the Appeal's Method are: 

• 	 PBGC first calculates the PC3 benefit payable in the normal annuity form, including 

the required early retirement adjustment for PC3.67 PBGC then accounts for the 

PLSA distribution by subtracting the PLSA offset (which is determined as of the 

participant's ASD) from the PC3 amount with the PC3 early retirement reduction. 

66 The Appeal states at AB 23-24 (with the Appeal's footnotes omitted): "The correct order of calculation should 

be as follows: 

Under ERIS A and PBGC regulations, PC3 benefits must be adjusted for early retirement as of the earlier of the 

1) Calculate the Normal Benefit under [Plan] § 5 .1 (a), based on: 

a. Years of Participation as ofDOPT-3 

b. Final Average Earnings as ofDOPT-5 

2) Reduce by the PLSA Offset Factor calculated by United, taking care to apply the Offset at 

Appellant's actual age as of DOPT-3 

3) Reduce by the Early Retirement adjustment factor under [Plan] §7.2(c) 

4) Reduce by other offset factors, if applicable 

5) Reduce by the PC3 Funding Percentage (.820617) 

6) Add the 4022(c) Recovery Amount Allocation (Actuarial equivalent of PC3 Benefit + 4022(c) 

Amount) ..." 

participant's actual start date or an assumed DOPT-3 start date, using the Plan's provisions in effect during the five 

years before DOPT which produce the lowest benefit. ERISA § 4044(a)(3); 29 C.F.R. § 4044.13(a), (b)(3). 

31 


67 
The amount calculated in the second step is the amount that PBGC assigns to PC3. 

• 	 The Appeal's Method subtracts the PLSA offset (as of ASD) from the "accrued" PC3 

amount, which is the normal form PC3 annuity without the required PC3 early 

retirement reduction. In the second calculation step, the amount computed in the first 

step is multiplied by the early retirement factor required for PC3. The amount 

calculated in the second step is the amount the Appeal would assign to PC3. 

The Appeal, referring to PBGC's Benefit Statement Worksheets, demonstrates how its 

method would be applied to five appellants - Captain Captain - Captain

Captain -and Captain-. The Appeal's Method for these five 

individuals does not change the "accrued" PC3 amount, the PC3 early retirement factor, and the 

PLSA offset amount that PBGC used in its calculations. Rather, the Appeal's Method changes 

the order of PBGC's PC3 calculations. 

The below tables show how PBGC's method and the Appeal's Method produce different 

PC3 amounts for Captain­

(as shown on lines (10) to (14) of his Benefit Statement Worksheet) 

PBGC's PC3 calculation for 

(10) Monthly PC3 Amount before Early Retirement Reduction and PLSA Offset:68 $6,204.00 

(11) Plan Adjustment Factor for Early Retirement as of DOPT-3 :

69 

(12) Monthly PC3 Amount After Early Retirement Reduction and Before 

PLSA Offset:70 $6,204.00 (line 10) x 0.875 (line 11) $5,428.50 

(13) Monthly Benefit Offset for PC3 Attributable to PLSA Paid: 	 	 $1,300.73 

(14) Monthly Benefit for PC3 as a Straight Life Annuity: Line (12) - Line (13) = $4,127.77 

68 PBGC's Benefit Statement Worksheet labels this amount as "Monthly Benefit Earned as of 12/30/2001 Under 

Plan Provisions in Effect Five Years Before Date of Plan Termination." 

69 As required by ERISA § 4044(a)(3) and PBGC's PC3 regulation, the Plan Adjustment Factor for Early 

Retirement is based on the Plan provisions in effect at DOPT-5. 

70 PBGC's Benefit Statement Worksheet labels this amount as "Monthly Benefit Earned as of 12/30/2001 Under 

Plan Provisions in Effect Five Years Before Date of Plan Termination." 

32 


0.875 
Appeal Method's PC3 calculation for.. (using PLSA's equivalent at ASD) 

(changing order of operations for lines (10) to (14) of his Benefit Statement Worksheet) 

(10) Monthly PC3 amount before Early Retirement reduction and PLSA offset: $6,204.00 

(11) Monthly Benefit Offset for PC3 Attributable to PLSA Paid: $1,300.73 

(12) Monthly PC3 amount after PLSA offset and before PC3 Early 

Retirement reduction: $6,204.00 (line 10) - $1,300.73 (line 11) = $4,903.27 

(13) Plan Adjustment Factor for Early Retirement as of DOPT-3: 0.875 

(14) Monthly PC3 benefit as a Straight Life Annuity: Line (12) x Line (13) = $4,290.36 

Enclosure 14 repeats the table for Captain-and also shows how PBGC's method and the 

Appeal's Method produce different PC3 amounts for Captains 

The Appeal asserts, at AB 24, that these six steps yield "a monthly annuity that accounts for 

PC3 deductions while faithfully applying the Plan's terms and provisions in the same way United 

applied the Plan-and while retaining actuarial equivalence between a benefit that includes a 

PLSA distribution and one that does not." 

Through what appears to be an inadvertent mistake, the Appeal's Method differs from 

UAL's calculation method. UAL, in calculating Plan benefit amounts, deducted the annuity 

equivalent of the participant's PLSA distribution at NRD from the participant's accrued benefit. 

The Appeal's Method, however, deducts the (PBGC-calculated) annuity equivalent of the 

participant's PLSA distribution at ASD from the participant's accrued PC3 amount. Because a 

PLSA distribution has a smaller annuity equivalent at ASD than at NRD, the Appeal's Method 

departs from UAL's calculations by using PLSA offsets that are too small - which results in 

larger PC3 amounts. This impact of using the PLSA' s offset equivalent at NRD, as compared to 

the PLSA's offset equivalent at ASD, is shown in Enclosure 15. 

The Board concluded that the Appeal's Method even if it is modified to use the PLSA 

offset at NRD is inconsistent with PC3 requirements and fails to achieve its intended objective 

of actuarial equivalence, as is discussed below. 

1. 	 The Appeal's suggested calculation method for PLSA offsets is inconsistent with 

PC3 requirements 

As previously stated, PBGC's method for determining PC3 amounts is consistent with 

ERISA's provisions and PBGC regulations, which: 

33 

• 	 define the PC3 benefit as the "normal form of annuity" for a participant not in pay status 

at DOPT-3; and 

• 	 provide that, if the participant is not in pay status at DOPT-3, the PC3 amount "is limited 

to the lowest annuity benefit payable under the plan provisions, including any reduction 

for early retirement, at any time during the 5-year period ending on the termination date" 

(emphasis added). 71 

The Appeal's Method changes PBGC's order of calculations by first applying the PLSA 

offset to the accrued PC3 amount and then applying the required PC3 early retirement 

adjustment only to the remaining (non-PLSA) portion of the participant's benefit. The Appeal's 

Method, however, presumably would apply the PC3 early retirement reduction to the 

participant's entire PC3 benefit if the participant did not receive a PLSA distribution. The 

overall impact is that the Appeal's Method assigns a larger benefit amount to PC3 than PBGC's 

calculations, if the participant received a PLSA distribution after DOPT-3. 

The Appeal's Method is inconsistent with the PC3 requirements because, by changing the 

order of calculations, it does not apply the required PC3 early retirement reduction to the entire 

PC3 annuity in the normal form. Instead, the Appeal's Method deducts the PLSA offset, which 

applies to an optional benefit form, before making the required PC3 early retirement reduction. 

2. 	 The Appeal's suggested calculation method does not achieve actuarial 

equivalence for benefit amounts assigned to PC3 

For the benefit assigned to PC3, the Appeal's Method does not treat a participant who retires 

after DOPT-3 and elects a PLSA distribution comparably to a similarly-situated participant who 

declines a PLSA distribution. Rather, under the Appeal's Method, the sum of the participant's 

PC3 amount (after PLSA offset) and the annuity equivalent of his PLSA distribution is larger 

than the amount that PBGC would assign to PC3 if the participant had not elected a PLSA 

distribution. 

The more favorable treatment for participants with PLSA distributions is demonstrated in 

the tables below, which show the PC3 amounts with and without PLSA distributions for the five 

appellants identified on pages 1 7-18 of the Appeal. 72 

71 29 C.F.R. § 4022.13(b)(3)(ii). 

72 Enclosure 15 demonstrates how the PC3 amounts in the tables are computed under PBGC's method and under 

the Appeal's Method for each of the 5 appellants. 

The tables do not change the Appeal's calculations to use the PLSA offset amounts at NRD. Even if the PLSA 

offset at NRD is used, however, participants with PLSA distributions would be treated more favorably than 

participants without PLSA distributions. See tables in Enclosure 15. 

34 

Comparison of monthly benefit amounts with and without PLSA distributions 

under the A eal's Method for a ellants 

Line Description 

PC3 amount (after offset for $3,297.36 PLSA) under A eal' s Method 

2 Annuity equivalent of PLSA $1,189.72 distribution 

3 Total value provided by PC3 

amount and PLSA distribution: $4,487.08 

Line (1) + Line (2) 

4 PC3 amount without PLSA $4,290.78 distribution 

5 Greater value provided due to 

election of PLSA distribution: $196.30 

Line 3 - Line 4 

$4,290.36 

$1,300.73 

$5,591.09 

$5,428.50 

$162.59 

$3,879.65 

$1,417.10 

$5,296.75 

$5,013.33 

$283.42 

Comparison of monthly benefit amounts with and without 

PLSA distributions under the A eal's Method 

for a 

Line Description 

PC3 amount (after offset for $3,877.26 $1,212.27 PLSA) under A eal's Method 

2 Annuity equivalent of PLSA $1,535.63 $703.08 distribution 

3 Total value provided by PC3 

amount and PLSA distribution: $5,412.89 $1,915.35 

Line (1) +Line (2) 

4 PC3 amount without PLSA $5,144.16 $1,778.25 distribution 

5 Greater value provided due to 

election of PLSA distribution: $268.73 $137.10 

Line (3) - Line ( 4) 

In contrast to the Appeal's Method, PBGC's method maintains equivalence between 

participants with and without PLSA distributions by: (1) applying the required PC3 early 

retirement reduction to the entire PC3 annuity amount; and (2) afterwards deducting the actual 

annuity equivalent of any PLSA distribution. The Appeals Board found no basis for changing 

PBGC's method for computing PC3 benefits for appellants with PLSA distributions. 

35 
 
C. 	 The PLSA's alleged resemblance to employee contributions does not exempt PLSA 

distributions from the required early retirement reductions for PC3 

Referring to the PLSA's definition in Plan § 5.1, the Appeal asserts that the PLSA "is 

funded according to an entirely different benefit formula, based on entirely different definitions, 

than the Normal Retirement Benefit." AB at 18-19. The Appeal further states that "the 

definitional history of the Partial Lump Sum Amount (formerly, Contribution Account) benefit" 

establishes that the PLSA "possessed important characteristics of a contribution account, whollyowned by each Pilot." AB at 19-20 (emphasis in original).73 The Appeal contends that "the 

PLSA distribution should not be applied in such a way as to be reduced by the Plan's Early 

Retirement Adjustment Factor." AB at 23. 

The Appeal essentially argues that, because the PLSA resembles employee contributions, it 

should be treated differently from the residual annuity portion of the Plan benefit for purposes of 

the early retirement reductions required for PC3. We disagree, for the reasons stated below. 

ERISA § 4044(a)(2) accords priority, in PC2, to "that portion of each individual's 

accrued benefit amounts that is derived from the participant's mandatory contributions." 

PBGC did not find any data that employee contributions remained in the Plan as of its 

DOPT, nor did the Appeal provide evidence that appellants had unreturned employee 

contributions as of DOPT.74 

The PC2 category is limited to amounts that are "contributed" by the employee, and 

thus does not include the amounts that the employer directly pays to the plan. See definition 

of mandatory employee contributions in ERISA § 204(c)(2) and IRC § 41 l(c)(2)(C). 

Although the Plan's 1976 Restatement refers to the participant's "Contribution Account" 

benefit which was replaced by the term "Partial Lump Sum Amount" in the 1999 

Restatement - the PLSA described in the Plan was funded by employer contributions, rather 

than by employee contributions. The Appeals Board found that the Appeal provided no 

basis for including appellants' PLSAs in PC2. 

The Appeals Board further found no basis for according the PLSA special status for 

PC3 purposes. The PLSA is not a separate "contribution benefit," even though it apparently 

was intended to replace the employee contribution benefit in a prior United Airlines pension 

plan. Rather, as the Appeal acknowledges at AB 18-19, Plan § 5.4 refers to the PLSA as a 

"Payment Adjustment." The following PLSA characteristics further indicate that the PLSA 

73 The Appeal also states that, "in practice, custom and for historic reasons . . . the Partial Lump Sum Amount 

funds were treated by the Previous Plan Administrator (United) ... as if each pilot made them for purposes of 'cash 

vesting' or 'ownership.' ... They were, for all intents and purposes, continuation of a long-existing Contribution 

Account-with only the name of the benefit changed in order to 'better describe' it." AB at 23 (citations omitted). 

74 PBGC Actuarial Case Memo, at page 27. See also 2002 Bluebook (Exhibit 7 of the Appeal), at page 79 ("pilot 

mandatory contributions were eliminated effective January 1, 1965"). 

36 

should be treated strictly as a payment option, rather than as a separate benefit entitlement, 

in relation to the Plan's "normal form" annuity benefit. 

• 	 Although most Plan participants elected a PLSA distribution when they retired or 

terminated employment, the PLSA is not part of the Plan's normal benefit form. 75 

Thus, if a PLSA is not elected, the participant's entire benefit is payable as an 

annuity. 

• 	 The Plan states that a participant may elect "to have a portion of his or her Accrued 

Benefit equal to his or her Partial Lump Sum Amount distributed to him or her in a 

lump sum."76 The Plan also provides that the annuity equivalent ofthe PLSA cannot 

exceed the participant's accrued benefit.77 Thus, the PLSA is part ofthe participant's 

accrued benefit, rather than a separate benefit entitlement. 78 

• 	 Although the participant's PLSA balance is calculated based on an assumed 

employer contribution (i.e., 4-2/3% of the participant's Eligible Earnings), the Plan 

did not maintain separate PLSA accounts. Rather, the contributions that UAL made 

to the Plan funded all of the Plan's benefit liabilities, i.e., both annuity benefits and 

PLSA distributions for the participants who elected them. 

The Appeals Board, based on its analysis of the Plan's PLSA provisions, disagreed with the 

Appeal's position that the PLSA is, for purposes of PC3, "a contribution account" that is 

"wholly-owned by each Pilot." 

PBGC correctly adjusted for PLSA distributions by deducting the actual annuity 

equivalent of the PLSA distribution from the PC3 annuity amount that (in accordance with 

ERISA § 4044 and PBGC regulation 29 C.F.R. § 4044.13) includes an adjustment for early 

retirement. For the reasons given above, the Appeals Board found no basis for concluding 

that PBGC applied incorrect early retirement adjustments in computing PC3 benefits for the 

appellants with PLSA distributions. The Board accordingly denied the request for relief 

under Issue #3 ofthe Appeal. 

75 See Plan §§ 8.1 - 8.4. 

76 Plan § 8.5(f)(i). 

77 Plan § 8.5(f)(iv)(A). 

78 The Appeal (at AB 19-20) refers to Plan § 3. l(a), which provides that a participant is "at all times ... vested in that 

portion of his or her Accrued Benefit which is the actuarial equivalent, as determined under Section 16, of his or her 

Partial Lump Sum Amount." 

Although the PLSA is given special treatment for vesting purposes, this difference does not impact appellants 

because all of them are 100% vested in their accrued Plan benefit amounts. The Appeals Board concluded that the 

PLSA's favorable vesting status under the Plan does not provide a basis for changing how the PLSA is treated for 

purposes of appellants' PC3 benefits. 

37 

III. PC3 AMOUNTS FOR APPELLANTS WITH IRC § 415{e) REPEAL INCREASES 

Issue 4: 	 	 Did PBGC correctly conclude that PC3 benefits do not include Plan benefit 

increases that were permitted following the legislative repeal of the Internal 

Revenue Code ("IRC") § 415(e) limits? AB at 25-28. 

Before its repeal, IRC § 415( e) limited the combined pension benefits that a participant 

could receive from (1) all of the employer's tax-qualified "defined benefit" pension plans and (2) 

all of the employer's tax-qualified "defined contribution" pension plans. The Small Business 

Jobs Protection Act of 1996 ("SBJP A") eliminated this statutory restriction, with the repeal 

applying to "limitation years beginning after December 31, 1999."79 

PBGC determined that the increase to Plan benefits that was permitted following the 

IRC § 415( e) repeal cannot be included in PC3 because the increase was not effective until 

January 1, 2000, which is less than five years before the Plan's December 30, 2004 termination 

date ("DOPT"). As explained below, the Appeals Board changed PBGC's determination with 

respect to the IRC § 415( e) repeal increase. 

The Appeal 

The Appeal asserts that the Plan benefit increase permitted by the IRC §415( e) repeal is "an 

automatic benefit increase under the Plan" that is "fully payable in PC3."80 AB at 27. The 

Appeal states that the IRC §415(e) repeal increase satisfies the PC3 criteria under PBGC's 

regulations because the increase was "adopted and effective January 1, 1999 (prior to DOPT-5) 

and was scheduled to provide benefit increases to retired appellants who were then in pay status, 

with the benefit increases scheduled to begin after December 31, 1999, the fifth year preceding 

Plan Termination."81 

The Appeal requests that PBGC "properly account for the IRC § 415(e) increase" by 

recalculating and increasing the "Qualified Benefits" of affected appellants. AB at 28. 

Our Conclusions 

The Appeals Board decided that the Plan's IRC § 415(e) repeal increase should be included 

in PC3. The Board accordingly granted the Appeal's requested relief for Issue #4. 

79 See SBJPA § 1452(a),(d), PL 104-188 (August 20, 1996), 110 Stat 1755. 

80 The Appeal states that United "took advantage of the statutory change" under SBJPA by amending the Plan, 

effective January 1, 1999, "to automatically conform to the §415(e) repeal." AB at 26. 

81 Id. In making this point, the Appeal (incorrectly) cites PBGC regulation "4044.13(5)." It appears the Appeal 

intended to cite 29 C.F.R. § 4044.13(b)(5). 

38 

The Appeals Board reached this decision based on PBGC regulation 29 C.F .R. 

§ 4044.13(b)(5) ("§ 4044.13(b)(5)"), which allows certain "automatic benefit increases" to be 

included in PC3 even if the increases were not payable throughout the 5-year period ending on 

DOPT. As explained below, the benefit increase resulting from the Plan's IRC § 415(e) repeal 

amendment satisfied the requirements in § 4044. l 3(b )(5). 

Explanation of Board's Decision on Issue #4 

Background 

A. The IRC § 415( e) limits and their repeal 

IRC § 415(e), which was enacted in 1974 as part of the original ERISA legislation, went 

into effect for limitation years starting in 1976. IRC § 415( e) limited the total amount of benefits 

and contributions which could be received or accrued by an employee who was a participant in 

both a defined benefit plan and one or more defined contribution plans sponsored by the same 

employer. 82 

The SBJP A repealed IRC § 415( e ), effective as of the first day of the first limitation year 

beginning on or after January 1, 2000. 83 Because the Plan's limitation year coincided with the 

calendar year, the first date that the Plan could pay benefits without applying the IRC § 415(e) 

limit was January 1, 2000. 

A pension plan's existing IRC § 415(e) limits generally remained in effect after SBJPA's 

January 1, 2000 effective date unless the limits were removed from the pension plan's governing 

documents through a plan amendment. A plan amendment was not required, however, if the 

pension plan's existing p,rovisions provided for benefits to increase automatically as a result of 

the IRC § 415( e) repeal. 4 

B. The Plan's provisions and practice regarding the IRC § 415(e) limits 

Before UAL adopted the 1999 Amendment and Restatement of the Plan ("1999 

Restatement"), the terms of the Plan's formal documents ensured that benefit payments would 

82 The IRC § 415( e) limits are determined for a participant based on the aggregation of all relevant plan provisions, 

as provided under IRC § 415(f). The pension plan further is required to compute a defined benefit plan fraction 

(DBF) and a defined contribution plan fraction (DCF). The relationship between these two fractions identifies the 

upper limit on combined defined plan benefits and contribution plan benefits that could be paid to a participant. 

83 SBJPA § 1452(a) provided for the repeal of IRC § 415(e). SBJPA § 1452(d) established the statutory effective 

date for the IRC § 415(e) repeal. 

84 See Q&A 2 of IRS Notice 99-44, 1999-2 C.B. 326 (August 30, 1999). 

39 

not exceed the IRC § 415( e) limits. 85 The 1999 Restatement, which was adopted on December 

21, 2001, removed the IRC § 415(e) restriction. 

Before January 1, 2000, UAL paid benefit amounts in excess of the IRC § 415(e) limits 

from its "Non-Qualified Plan."86 For retirees affected by the IRC § 415(e) limits, UAL increased 

monthly payments from the Plan starting on January 1, 2000 and made corresponding decreases 

to payments from the Non-Qualified Plan. 

Discussion of Issue #4 

ERISA § 4044( a )(3) provides that the benefit in PC3 is "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." PBGC's regulations similarly provide that a participant's PC3 benefit is the lowest 

annuity benefit payable under the plan provisions at any time during the 5-year period ending on 

the termination date. 29 C.F.R. § 4044.13(b)(3)(i), (ii). 

The benefit increase provided by the Plan's IRC § 415(e) repeal amendment was not in 

effect throughout the 5-year period before the Plan's termination date. Section 11.3(c) of the 

1999 Restatement amended the Plan's terms to provide that the combined benefit limit under 

IRC § 415( e) "will cease to apply to any Participant who is or will be receiving a benefit under 

the Plan in Plan Years starting after December 31, 1999." The benefit increase thus did not 

become effective until January 1, 2000, which was the earliest date any participant could receive 

a higher benefit based on the IRC § 415(e) repeal. Because the 5-year period started on 

December 31, 1999, the increase went into effect one day after the 5-year period began. 87 

PBGC regulation 29 C.F.R. § 4044.13(b )(5) allows certain "automatic benefit increases" to 

be included in PC3 even if they were not payable throughout the 5-year period ending on DOPT. 

Section 4044.13(b)(5) states: 

(5) Automatic benefit increases. If plan provisions adopted and effective on 

or before the first day of the 5-year period ending on the termination date 

provided for automatic increases in the benefit formula for both active 

participants and those in pay status or for participants in pay status only, the 

85 Before the 1999 Restatement, the Plan's formal documents were the United Airlines, Inc. Pilots' Fixed Benefit 

Retirement Income Plan, which was effective January 1, 1976 ("1976 Restatement"), and twenty amendments to the 

1976 Restatement. In addition to the 1999 Restatement, the IRC § 415(e) limits were addressed in section 15.2 of 

the 1976 Restatement and in the Thirteenth, Fifteenth, and Eighteenth Amendments to the 1976 Restatement. 

86 The Non-Qualified Plan was a pension plan that did not meet the tax qualification requirements under the IRC. 

As provided under ERISA § 4021 (a), the Non-Qualified Plan is not covered by PBGC. 

87 In this decision, "DOPT-5" refers to the first day of the 5-year period ending on DOPT. See Chapter 4.2-1 of 

PBGC's Operating Policy Manual at C.4 (definition of"DOPT/BPD-5). For the Plan, the 5-year period ending on 

DOPT (December 30, 2004) started on December 31, 1999, so DOPT-5 is December 31, 1999. 

40 

lowest annuity benefit payable during the 5-year period ending on the termination 

date determined under paragraph (b )(3) of this section includes the automatic 

increases scheduled during the fourth and fifth years preceding termination, 

subject to the restriction that benefit increases for active participants in excess of 

the increases for retirees shall not be taken into account. 

By its terms, § 4044.13(b )( 5) provides that a benefit increase will be included in PC3 if 

the following five conditions are met: 

A. 	 The applicable plan provision provides for "automatic increases in the benefit formula"; 

B. 	 The plan provision providing for the increase was adopted on or before the first day of 

the 5-year period ending on DOPT; 

C. 	 The plan provision providing for the increase was effective on or before the first day of 

the 5-year period ending on DOPT; 

D. 	 The automatic increase was scheduled to go into effect during the fourth and fifth years 

preceding plan termination; and 

E. 	 The provision provides for "increases in the benefit formula for both active participants 

and those in pay status or for participants in pay status only." 

We address these five conditions below. 

A. 	 Was the Plan's removal of the IRC § 415(e) restrictions an "automatic increase in 

the benefit formula" within the meaning of§ 4044.13(b)(5)? 

PBGC's PC3 Policy, which was issued on March 27, 2014, identifies but does not resolve 

the question of whether a one-time benefit increase "that results from a change in law" ever 

could qualify as an automatic increase in the benefit formula under 29 C.F.R. § 4044.13(b)(5) ­

even if all of the other conditions for a scheduled automatic increase are met. 88 Historically, 

PBGC has applied § 4044.13(b )(5) to scheduled cost-of-living adjustments ("COLAs") and 

similar types of benefit' increases, such as changes to a benefit multiplier in a pension formula. 89 

However, a one-time benefit increase permitted by a change in the law, such as the Plan benefit 

increase permitted by the IRC § 415( e) repeal, could be considered to be outside of the scope of 

§ 4044.13(b)(5). 

The Appeals Board decided that the term "automatic increases in the benefit formula" in 

§ 4044.13(b )(5) should not be narrowly interpreted to exclude the Plan benefit increases related 

88 See section G .2. of Chapter 4.2-1 of PBGC' s Operating Policy Manual (Enclosure 13). 

89 PBGC's conclusion was based in part upon the preamble to PBGC's final regulation. See 46 Fed. Reg. 9480, 

9484 (Jan. 28,1981). This preamble gives an example of an automatic increase: a plan amendment that provided a 

flat benefit of $300 per month with a $10 increase each year. The annual $10 increases were described as 

"automatic" increases under this provision. 

41 

to the IRC § 415( e) repeal. Because "automatic increases in the benefit formula" are not defined 

in PBGC' s PC3 regulation, it is appropriate to examine the context of the regulation. The focus 

of§ 4044.13(b)(5) is upon the date a benefit increase amendment is adopted in relation to the 

plan termination date, when the increase is scheduled to be paid, and whether retirees would 

receive the increase. There is nothing in the text of§ 4044.13(b)(5) to indicate that the provision 

is directed at only certain types of benefit increases. Although the preamble to the regulation 

provides only the single example of increases to a benefit multiplier, the preamble does not 

suggest that other types of benefit increases are precluded. 90 

The Appeals Board accordingly decided that the Plan provlSlon that removed the 

IRC § 415(e) restrictions is within the scope of § 4044.13(b)(5) because it provided for 

"automatic increases in the benefit formula." Consequently, the Plan's IRC § 415(e) repeal 

amendment satisfied the first of the five requirements in§ 4044.13(b)(5) that are listed above. 

B. 	 Was the Plan provision that removed the IRC § 415(e) restrictions adopted on or 

before DOPT-5? 

PBGC regulation 29 C.F.R. § 4044.13(b)(5) requires that a plan provision providing for 

"automatic benefit increases" be "adopted and effective" on or before the first day of the 5-year 

period ending on DOPT. We address the "adoption" requirement immediately below and we 

address the "effective" requirement later in this decision. 

The 1999 Restatement, which has a general effective date of January 1, 1999, removed the 

IRC § 415(e) restrictions from the Plan as of January 1, 2000. Although the 1999 Restatement's 

general effective date was before DOPT-5, its adoption date did not meet the 5-year threshold 

requirement under § 4044.13(b)(5) because the Restatement's signature date (December 21, 

2001) was after DOPT-5 (December 30, 1999). 

Plan amendments sometimes are adopted by authorized individuals before formal plan 

documents are prepared. For this reason, PBGC and the Appeals Board examine evidence 

outside of the formal plan documents to determine the date when a plan amendment was 

adopted. 

UAL likely delayed the preparation and execution of a formal IRC § 415(e) repeal 

amendment because the statutory effective date of the repeal (January 1, 2000) was two years 

before the latest remedial amendment date permitted under IRS guidance (December 31, 2001 ).91 

90 Although § 4044. l 3(b )(5) refers to "automatic benefit increases," we do not interpret the provision as requiring 

more than one benefit increase. 

91 The IRS, pursuant to IRC § 40l(b), granted plan sponsors a remedial amendment period to adopt "GUST plan 

amendments." "GUST" is an acronym for: (1) the Uruguay Round Agreements Act, Pub. L. 103-465 ("GA TT"); (2) 

the Uniformed Services Employment and Reemployment Rights Act of 1994, Pub. L. 103-353 ("USERRA"); (3) the 

SBJPA; (4) the Taxpayer Relief Act of 1997, Pub. L. 105-34 ("TRA '97"); and (5) the Internal Revenue Service 

Restructuring and Reform Act of 1998, Pub. L. 105-206 ("RRA '98"). Accordingly, plan sponsors could increase 

42 

The IRS had extended the required amendment dates for pension plans several times so that 

changes permitted or required under recent legislation could be coordinated.92 The 1999 

Restatement, which was adopted within the remedial amendment period, made numerous benefit 

changes that were required or permitted by the legislation referenced in the IRS guidance. 

UAL started paying retirees the increased Plan benefits permitted by the IRC § 415(e) repeal 

starting on January 1, 2000, which was on the statutory effective date and only one day after 

DOPT-5. UAL made the necessary preparations for the benefit increase several months in 

advance of DOPT-5. PBGC was informed, during its audit of the Plan, that UAL had scheduled 

increases in its "payment database" as early as February 2, 1999 for specific retirees. In a letter 

~, 1999, UAL's Pension Programs Department notified appellant 

- that his Plan payments would increase starting January 1, 2000 based on the IRC 

§ 415( e) repeal and his Non-Qualified Plan payments would decrease. The Appeals Board also 

found a similar letter dated July 6, 1999 for an individual who is not an appellant in the Appeal. 

Additionally, in similar form letters dated December 31, 1999, UAL informed other appellants of 

changes to their benefit payments based on the IRC § 415( e) repeal. 

The Appeals Based concluded that UAL officials with the authority to amend the Plan 

approved the increase permitted by the IRC § 415(e) repeal before DOPT-5. Approval before 

DOPT-5 was necessary so that UAL could make arrangements to pay the increased benefits 

without delay, which occurred on January 1, 2000, and to provide participants with advance 

notice of the change.93 Given the magnitude of the change, which affected more than 200 

participants, it is unlikely that the increased pension payments would have occurred without 

proper authorization. Accordingly, the Appeals Board found that a Plan amendment removing 

the IRC § 415(e) restrictions was adopted before DOPT-5. 

benefit payments as of the SBJPA's effective date even ifthe required plan amendments were not in place at that 

time. See IRS Notice 99-44. 

92 The IRS, through the issuance of various Revenue Procedures, extended the deadline for nongovernmental plans 

to adopt amendments related to the IRC § 415(e) repeal to "the last day of the first plan year beginning on or after 

January 1, 2001." See Rev. Proc. 2000-27, 2000-26 I.R.B. 1272, 2000-1 C.B. 1272 (June 26, 2000). 

93 We observe that the IRC § 415(e) restrictions largely disappeared from tax-qualified defined-benefit pension 

plans as of the statutory effective date of the repeal. Furthermore, UAL had a financial incentive to authorize the 

IRC § 415(e) repeal amendment, because this reduced the payments that UAL had committed to pay from its NonQualified Plan. It therefore is unlikely that responsible UAL officials would have delayed making a decision 

regarding whether the IRC § 415( e) restrictions should be removed. 

43 

C. 	 Was the Plan provision that removed the IRC § 415(e) restrictions effective on or 

before DOPT-5? 

Having concluded that the IRC § 415(e) repeal provision was adopted before DOPT-5, we 

now address whether it was effective on or before that date for purposes of§ 4044.13(b)(5) of 

the regulation. 

PBGC interprets the 5-year threshold requirement under ERISA§ 4044(a)(3) as establishing 

a general rule that a benefit increase cannot be "in effect" for purposes of PC3 before the date on 

which the increase becomes operative or payable, i.e., when the increase first could be applied in 

determining a participant's benefit. PBGC applies this rule even if the plan provision that 

provided for the increase has an earlier stated effective date. 

This general rule is stated in 29 C.F.R. § 4044.13(b)(3)(i), which provides that the benefit in 

PC3 for a participant who is in pay status at DOPT-3 is limited to "the lesser of the lowest 

annuity benefit in pay status during the 3-year period ending on the termination date and the 

lowest annuity benefit payable under the plan provisions at any time during the 5-year period 

ending on the termination date." With respect to the Plan's application of the IRC § 415( e) 

restrictions, the "lesser amount" is the amount that was payable at the start of the 5-year period 

preceding plan termination, when the Plan's IRC § 415( e) provision restricted the amounts the 

Plan could pay. Accordingly, absent the limited exception in § 4044.13(b)(5) of PBGC's 

regulation, the Plan benefit increase permitted by the IRC § 415(e) repeal could not be included 

in PC3. 

The limited exception in § 4044.13(b)(5) of PBGC's PC3 regulation applies to certain 

"automatic benefit increases" that were "scheduled" during the fourth and fifth years before a 

plan's termination date. As is the case with the general rule, the limited exception reflects 

PBGC's longstanding interpretation of ERISA § 4044(a)(3), which PBGC explained when it 

issued its asset allocation regulation in 1981. PBGC, when it issued its regulation in 1981, 

decided that certain automatic benefit increases that (1) were in place at the beginning of the 

5-year period before DOPT and (2) were scheduled during the fourth and fifth years preceding 

plan termination should be included for purposes of determining the lowest benefit under the 

plan provisions.94 Thus, in contrast to the general PC3 rule in 29 C.F.R. § 4044.13(b)(3)(i), an 

94 The preamble to PBGC's asset allocation regulation provides the following explanation of§ 4044.13(b)(5): 

In determining the lowest amount payable under the plan provisions during the 5-year period, 

consideration was given to the proper treatment of amendments adopted before the 5-year period that 

provided for automatic benefit increases during the 5-year period. Since the amendment provisions were 

in place at the beginning of the 5-year period, the PBGC has decided that automatic benefit increases 

scheduled during the fourth and fifth years preceding plan termination should be included in determining 

the lowest benefit under the plan provisions. However, automatic increases in the benefit formula during 

the 3-year period preceding termination are not taken into consideration since priority category 3 benefit 

rights are fixed no later than the beginning of the 3-year period. Automatic benefit increases are to be 

disregarded to the extent that the increase is greater for active participants than for those in pay status or 

if the benefit increase is only for active participants. This is because, by definition, the lowest benefit 

44 

automatic benefit increase could be included in PC3 even if the increase did not become 

operative or payable before DOPT-5 so long as the scheduled increase occurred during the fifth 

and fourth year before DOPT and the other conditions in§ 4044.13(b)(5) were met. 

One of the conditions under § 4044.l 3(b )(5) is that the plan provision or amendment that 

provides for scheduled automatic benefit increases was "effective" before DOPT-5. As is the 

case with "adopted," the word "effective" within the context of§ 4044. l 3(b )(5) refers to the date 

of the pension plan provision or amendment providing for the automatic increases. Essentially, 

this part of the regulation prevents "retroactive" benefit increases that are authorized after 

DOPT-5 from being included in PC3. If an automatic benefit increase provision is not adopted 

on or before DOPT-5 and/or is not legally effective on or before DOPT-5, then the increase is 

not in PC3 even if the other conditions in § 4044.13(b )(5) are met. 

The Appeals Board interprets the term "effective" in § 4044.13(b )(5) differently from the 

term "in effect" in other provisions of PBGC's PC3 regulation. In other parts of the regulation, 

the term "in effect" modifies the term "benefit increases." See the third sentence of 

§ 4044. B(a).95 In § 4044. B(b)(5), however, the word "effective" modifies the term "plan 

provisions." In light of this distinction, the Appeals Board concluded that the term "effective" as 

used in§ 4044.13(b )(5) refers to "plan provisions" in effect prior to DOPT-5, rather than benefits 

"payable" before DOPT-5. 

Furthermore, if we interpreted "effective" in the context of § 4044. B(b)(5) to mean 

operative or payable, then no automatic benefit increase that occurred after DOPT-5 could ever 

be included in PC3. This is because such increases would always be payable after DOPT-5, even 

if the plan provision under which the increases are "scheduled" was in the plan before DOPT-5. 

The Appeals Board found that UAL' s amendment of the Plan to remove the IRC § 415( e) 

limit was effective before DOPT-5. As previously discussed, the Board found that responsible 

UAL officials decided before DOPT-5 to remove the IRC § 415(e) restrictions from the Plan. 

The 1999 Restatement, which is the formal document that contains the IRC § 415( e) repeal 

amendment, has a (retroactive) general effective date of January 1, 1999, which is almost a year 

before DOPT-5. Additionally, the Board found no evidence indicating that UAL ever intended 

to delay the effective date of the Plan amendment permitted by the IRC § 415( e) repeal. 

Accordingly, the factual circumstances in this case relevant to Issue #4 of the Appeal establish 

that the UAL officials with the authority to amend the Plan made the IRC § 415(e) repeal 

amendment effective before DOPT-5. 

provided by the plan during the 5-year period can be no greater than one based on the benefit formula 

applicable to participants in pay status. These rules are set forth in § 2608.13(b )(5) of the final regulation. 

46 Fed. Reg. 9480, 9484 (Jan. 28, 1981). 

95 The third sentence of 29 C.F.R. § 4044.13(a) states: "Benefit increases, as defined in § 4022.2, that were in 

effect throughout the 5-year period ending on the termination date, including automatic benefit increases during that 

period to the extent provided in paragraph (b)(5) of this section, shall be included in determining the priority 

category 3 benefit." 

45 

D. 	 Was the Plan benefit increase permitted by the IRC § 415(e) repeal scheduled to go 

into effect during the fourth and fifth years preceding plan termination? 

PBGC regulation 4044.13(b )(5) applies to automatic increases "scheduled during the fourth 

and fifth years preceding [plan] termination" but does not apply to automatic increases that are 

scheduled after DOPT-3. As section 1 l.3(c) of the 1999 Restatement provides, the combined 

benefit limit under IRC § 41 5( e) ceased to apply after December 31, 1999 "to any Participant 

who is or will be receiving a benefit under the Plan." Thus, based on the Restatement's terms, 

the Plan benefit increase permitted by the IRC § 415(e) repeal was scheduled to go into effect 

during the fifth year preceding the Plan's termination. Furthermore, the Plan's practice was 

consistent with the 1999 Restatement because the Plan started paying the increase on January 1, 

2000. 

Accordingly, the requirement in § 4044.13(b)(5) that the automatic benefit increase be 

scheduled during the fourth and fifth years preceding plan termination is satisfied for the 

IRC § 415( e) repeal increase. 

E. 	 Does the Plan benefit increase permitted by the IRC § 415(e) repeal apply to 

participants in pay status? 

PBGC regulation 4044. l 3(b )(5) applies to "automatic increases in the benefit formula for 

both active participants and those in pay status or for participants in pay status only." 

Furthermore, benefit increases "for active participants in excess of the increases for retirees shall 

not be taken into account." These requirements in the PC3 regulation are satisfied with respect 

to Issue #4 of the Appeal. As provided in Section ll.3(c) of the 1999 Restatement, the Plan's 

IRC § 415( e) restriction was removed in the same manner for active participants and for retirees 

who were in pay status. 

The Appeals Board observes, based on its experience with terminated pension plans, that 

benefit increases under pension plan amendments most commonly apply only to participants who 

are active employees when the increase becomes payable. Accordingly, for most plan 

amendments, a benefit increase must be in effect throughout the 5-year period before DOPT in 

order to be included in PC3. The Plan's IRC § 415(e) repeal increase, however, involves the 

less-common situation where a pension plan provides a benefit increase to both participants in 

pay status and active employees. Thus, unlike the benefit increases under many pension plan 

amendments, the exception in PBGC regulation 4044.13(b )( 5) for automatic benefit increases 

applies to the Plan's IRC § 415(e) repeal amendment. 

For the reasons explained above, all of the conditions in PBGC regulation 4044.13(b)(5) are 

satisfied with respect to the Plan benefit increase that were permitted by the IRC § 415(e) repeal. 

46 
 



APPENDIX 

Impact of the Plan's PLSA Offset Factor upon Monthly Benefit Amounts 

As explained in the decision, the purpose of the PLSA Offset Factor is to convert a 

lump-sum distribution made on the participant's Annuity Starting Date ("ASD") to its 

annuity equivalent as of the participant's later Normal Retirement Date ("NRD"). For 

example, the 152.693 PLSA Offset Factor that UAL used to determine the PLSA offset for 

appellant means that a lump sum of $152.69 and 3/10 of one cent payable to 

Captain-on his-2003 ASD is equivalent to an annuity of $1 per month that 

starts 11 months later, i.e., on 2004 (his NRD), and continues until his death. 

The applicable PLSA Offset Factor for a participant who received a PLSA distribution 

depends upon: (1) the participant's age on his ASD, and (2) the interest rate and mortality 

table in effect on the participant's ASD. Consequently, the applicable PLSA Offset Factor 

will be different for two Plan participants ifthey: ( 1) retire on the same date but are different 

ages; or (2) retire at the same age but the applicable interest rate is different on their 

(respective) retirement dates. 

The two examples below demonstrate how a change in the PLSA Offset Factor changes 

the PLSA offset amount. In the examples, we use the PLSA Offset Factors used by PBGC. 1 

Example 1: Two pilots of different ages who retire on the same date 

Pilot #1 and Pilot #2 both retired on January 1, 2004 (i.e., at DOPT-1). Pilot #1, whose 

Date of Birth ("DOB") is December 2, 1947, is age 57 at retirement. Pilot #2, whose DOB 

is December 2, 1945, is age 59 at retirement. Each pilot has an accrued monthly Plan 

benefit of $6,000, and each pilot received a PLSA distribution of $150,000 on January 1, 

2004. As shown below, Pilot #1, who is two years younger, has a larger PLSA offset and a 

smaller (residual) monthly annuity. 

The annual interest rate for computing the PLSA offset (5.14%) is the same for both 

pilots because they started their benefits on the same date. Because they are of different 

ages, however, Pilot #1 and Pilot #2 have different PLSA Offset Factors, which are: (1) 

134.995 for Pilot #1; and (2) 149.230 for Pilot #2. The different PLSA Offset Factors for 

the two pilots produce the following (different) PLSA offset amounts at NRD: 

• 	 Pilot #1 (the younger pilot) has a $1,111.15 PLSA offset at NRD, which is computed 

as follows: 

$150,000 (PLSA distribution) 134.995 (PLSA Offset Factor)= 

$1,111.15 

• 	 Pilot #2 (the older pilot) has a $1,005.16 PLSA offset at NRD, which is computed as 

follows: 

$150,000 (PLSA distribution)-:- 149.230 (PLSA Offset Factor)= 

$1,005.16 

Due to mathematical rounding, PBGC's factors are slightly different than the factors UAL used. 
Accordingly, the $1,111.15 PLSA offset at NRD for Pilot #1 (the younger pilot) is $105.99 more 

than the $1,005.16 PLSA offset at NRD for Pilot #2. 

The reason that the PLSA offsets are different is that: ( 1) Pilot #1 has a longer interval 

between the date he received his PLSA distribution and his NRD (3 years) than Pilot #2 (1 year), 

and (2) during the interval between the PLSA distribution date and NRD, the $150,000 PLSA 

distribution that each pilot received is assumed to accumulate with interest at the Plan's rate 

(5.14%). The impact of accumulated interest on the $150,000 PLSA distribution is that the 

annuity equivalent at NRD of the PLSA distribution is larger for Pilot #1 (who retired at a 

younger age) than for Pilot #2. This difference in the PLSA's annuity equivalent at NRD causes 

the PLSA Offset Factors to be different for the two pilots.2 

A smaller PLSA offset is favorable to the participant because it causes a smaller reduction 

to the participant's benefit. Both Pilot #1 and Pilot #2 have the same accrued benefit ($6,000), 

but the PLSA offset for Pilot #1 is $105.99 more at NRD than the PLSA offset for Pilot #2 at 

NRD. As a result: 

• 	 The remaining annuity at NRD for Pilot #1 (who retired at age 57) is $4,888.85 [$6,000 

(accrued benefit) - $1,111.15 (PLSA offset at NRD) $4,888.85]. 

• 	 The remaining annuity at NRD for Pilot #2 (who retired at age 59) is $4,994.84 [$6,000 

(accrued benefit) - $1,005.16 (PLSA offset at NRD) = $4,994.84]. 

Accordingly, the remaining annuity at NRD is $105.99 less for Pilot #1 (who retired at age 57) 

than for Pilot #2 (who retired at age 59). 

Additionally, because the Plan's early retirement reduction is greater for Pilot #1 (the 

younger pilot) than for Pilot #2, the difference in their monthly Plan benefit amounts at ARD is 

$396.14, which is $290.15 more than the difference at NRD, as is shown in the following 

calculations: 

2 As explained in the decision, the Plan's PLSA Offset Factor reflects the Plan's actuarial assumptions - that is, the 

assumptions for interest and mortality for PLSA distributions. 

2 

• 	 Pilot #1: The monthly Plan benefit (after PLSA offset) at ASD is $4,448.85, which 

is computed as follows: 

$4,888.85 (Monthly Plan benefit at NRD) x 0.91 (Early Retirement Factor 

("ERF") for age 57) $4,448.85 

• 	 Pilot #2: The monthly Plan benefit (after PLSA offset) at ASD is $4,844.99, which 

is computed as follows: 

$4,994.84 (Monthly Plan benefit at NRD) x 0.97 (ERF for age 59) 

$4,844.99 

• 	 Monthly benefit difference at ASD between Pilot #1 and Pilot #2: 

$4,844.99 (monthly annuity at ASD for Pilot #2) - $4,448.85 (monthly 

annuity at ASD for Pilot# 1) $396.14 (monthly difference at ASD) 

We note that Pilot #2 in Example 1 was age 57 at DOPT-3. Thus, if the PLSA offset for 

Pilot #2 was determined based on his age at DOPT-3, his PLSA offset would be the same as 

Pilot #1 in the example, if the applicable interest rate is the same.3 Accordingly, as 

demonstrated by Example #1, a PLSA Offset Factor that is based on the participant's age 

at DOPT-3 (rather than the participant's age at ASD) would decrease the amounts 

assigned to PC3 for participants who retired after DOPT-3. 

Example 2: Two pilots with different dates of birth who retire at the same age 

Pilot #3 was born on December 2, 1947 and Pilot #4 was born on December 2, 1945. 

Both pilots retired at age 57. Thus, Pilot #3, who is the younger pilot, retired on January 1, 

2004 (i.e., at DOPT-1) and Pilot #4 retired on January 1, 2002 (i.e., at DOPT-3). 

Each pilot has an accrued monthly Plan benefit of $6,000, and each received a PLSA 

distribution of $150,000 on his ASD. The annual interest rate in effect when Pilot #3 retired 

(5.14%) is smaller than the annual interest rate for Pilot #4 (5.48%). 

Because of the different interest rates that were in effect on their ASDs, Pilot #3 and 

Pilot #4 have the following (different) PLSA Offset Factors: (1) 134.995 for Pilot #3; and 

(2) 127.518 for Pilot #4. The different PLSA Offset Factors for the two pilots produce the 

following (different) PLSA offset amounts at NRD: 

3 At DOPT-3, however, a less-favorable annual interest rate of 5.48% would be used to compute the PLSA offset 

for Pilot #2, rather than a 5.14% annual interest rate. The effect of different interest rates is demonstrated in the 

second example ofthis Appendix. 

3 

• 	 Pilot #3 (the pilot who retired on a later date) has a $1,111.15 PLSA offset at NRD, 

which computed as follows: 

$150,000 (PLSA distribution) -7 134.995 (PLSA Offset Factor)= 

$1,111.15 

• 	 Pilot #4 (the pilot who retired on an earlier date) has a $1,176.30 PLSA offset at 

NRD, which computed as follows: 

$150,000 (PLSA distribution) 127.518 (PLSA Offset Factor)= 

$1,176.30 

The reason that the PLSA offsets are different is that the decrease in interest rates 

between DOPT-3 and DOPT-1 causes the annuity equivalent of the lump sum amount 

($150,000 for each pilot) to be smaller at NRD for Pilot #3 than for Pilot #4. We observe 

that, in contrast to the two pilots in Example 1, the interval between when the pilot received 

his PLSA distribution and NRD is the same for Pilot #3 and Pilot #4. 

In the example, both pilots have the same accrued benefit ($6,000), but the PLSA offset 

at NRD for Pilot #3 ($1, 111.15) is $65 .15 less than the PLSA offset at NRD for Pilot #4 

($1,176.30). As a result, the remaining annuity at NRD for Pilot #3 ($4,888.85) is $65.15 

more than the remaining annuity at NRD for Pilot #4 ($4,823.70). 

Also, since the Early Retirement Factor (0.91) is the same for both pilots, the monthly 

Plan benefit after the PLSA offset is applied is larger for Pilot #3 (who retired at DOPT-1) 

than for Pilot #4 (who retired at DOPT-3), as is shown by the following calculations: 

• 	 For Pilot #3, the monthly Plan benefit after the PLSA offset is $4,448.84 [$4,888.85 

(remaining annuity at NRD) x 0.9l(ERF) $4,448.85]. 

• 	 For Pilot #4, the monthly Plan benefit after the PLSA offset is $4,389.57 [$4,823.70 

(remaining annuity at NRD) x 0.91(ERF) $4,389.57]. 

Thus, the monthly Plan benefit at ARD after the PLSA offset is applied is $59.28 larger for 

Pilot #3 (the pilot who retired on a later date) than for Pilot #4. 

Conclusions regarding the impact of the Plan's PLSA Offset Factor 

As shown in the above examples, the applicable PLSA Offset Factor will be different 

for two Plan participants if they: (1) retire on the same date but are different ages; or (2) 

retire at the same age but the applicable interest rate is different on their (respective) 

retirement dates. 

The PLSA Offset Factor does not affect the PLSA distribution amount the Plan will pay 

the participant. A change in the PLSA Offset Factor, however, affects the annuity value of 

the PLSA offset in the following ways: 

4 

• 	 A larger PLSA Offset Factor produces a smaller PLSA offset amount for a participant if 

all other relevant circumstances (including the amount of the PLSA distribution) remain 

constant. A smaller PLSA offset amount is favorable to the participant because the 

remaining monthly Plan annuity will be larger if a smaller PLSA offset is applied. 

• 	 If a participant with a PLSA distribution retires on an earlier date (and we assume other 

relevant circumstances remain constant), then the PLSA Offset Factor will decrease due 

to the interest that is assumed to accumulate between the PLSA distribution date and 

NRD. The smaller PLSA Offset Factor on an earlier retirement date is not favorable to 

the participant because it will cause the PLSA offset to increase and the remaining Plan 

benefit that is payable as an annuity to decrease. 

• 	 If the applicable interest rate for the PLSA offset calculation decreases (and we assume 

other relevant circumstances remain constant), then the PLSA Offset Factor will increase 

and the remaining Plan benefit that is payable as an annuity will increase. We note that 

the applicable interest rate generally declined in the months between the Plan's DOPT-3 

and DOPT. Thus, Plan participants who retired closer to DOPT and elected PLSA 

distributions generally have somewhat larger Plan benefits than otherwise 

similarly-situated participants who retired earlier. 

5