. h a JBD\ 

* 

I. 

(o VI 

PBEE Pension Benefit Guaranty Corporation 

7 us.cor~~tum~- 1200 K Street, N.W., Washington, D.C. 20005-4026 

*I 

October 28, 2002 

Re: Estate of 1 Appeal 71 

Pan American World Airwavs. -. Inc. ("Pan Am") 

Cooperative Retirement Income Pension Plan ("CRIP") . . 

Dear Mr. Katz: 

The Appeals Board has reviewed your appeal of PBGC's May 28, 

1999 revised determination of benefit. PBGC offered 

two options for receiving her benefit, both as a Single 

Life Annuity: 

1) receiving $24.64 per month from September 1, 1991 through 

October 1, 1992, and $484.58 per month for her remaining 

lifetime starting November 1, 1992, or 

2) $24.64 per month from September 1, 1991 through October 1, 

1992, $745.23 per month starting November 1, 1992 per month 

until age 65, and $168.58 per month for her remaining lifetime 

beginning November 1, 2002. 

PBGC explained had been overpaid and her future benefit, 

under both Options 1 and 2, would be reduced 10% until her 

overpayments had been repaid. PBGC paidan estimated 

benefit of $1,265.20 per month following her September 1, 1991 

retirement through July 2000, the month of her death. 

As explained below, you have not presented a basis for 

increasing the beneflt PBGC paid to1 Also, under PBGC's 

policies I debt for her cumulative overpayments were 

extinguished upon her death. However, PBGC's policies require 

repaying any benefits PBGC paid on behalf after the 

month of her death.' 

Your ADP~~ 

In your July 8, 1999 letter, you asked that no action be taken 

on your appeal until PBGC fully explains benefit 

calculation and then gives you time to perfect your appeal. You 

stated: 

had been improperly denied payment of a 

'subsidized' early retirement benefit. In particular, you 

' PBGCrs records indicate bank account was paid 

for 3 months after her death, August - October 2000. 
believe worked through her Early Retirement Date 

which you believe was before CRIP's July 31, 1991 termination 

date; 

your time to perfect your appeal should be extended 

indefinitely, pending resolution of the Pineiro lawsuit; 

your appeal should be consolidated with the appeals of all 

participants in CRIP and two other Pan Am pension plans; 

PBGC should supply you with calculations, and copies of 

records and other documents which relate to the determination 

of your benefit; 

PBGC should recuse itself from making any determination of 

your benefit and appoint an independent trustee to make such 

a determination; 

PBGC did not use sufficient qualified personnel to perform 

benefit calculations, and your benefit calculations were not 

reviewed by Milliman, USA, PBGC's actuarial contractor. 

You believe Pan Am average compensation to. have 

been understated for calculating benefit. In particular, you 

believe her pension earnings should include overtime and bonuses. 

Additional Documents ~ilevant to Your Appeal 

On July 15, 1999, PBGC's Disclosure Officer sent you a copy of 

the information contained in PBGC benefit file. 

Appeals Board Decisions Relevant to Your A~peal 

In decisions made prior to the date of this letter, the 

Appeals Board has consolidated and decided certain issues relevant 

to your appeal. Among other things, the Board has: 

found that, CRIP's definition of Compensation includes 

overtime and bonuses for participants in Pan Am's Management 

Workforce; 

found that for participants in Pan Am's IUFA Workforce, CRIP's 

definition of Compensation includes overtime and bonuses for 

years up to and including 1978, but not for later years; 

decided that for the purpose of determining Normal Retirement 

Benefit, CRIP was amended to freeze compensation and service 

as of December 31, 1983; 

found that CRIP's administrators and PBGC correctly used the 

factors in CRIP's "45.2% TableNto adjust Vested Separation 

benefits for starting early even though these factors are more 

generous than the CRIP document states. 

These decisions are explained in Enclosure 2. 
Data Relevant to your A~~eal 

PBGCrs files contain the following data relevant to 

appeal and to Pan Am employment: 

your 

date of birth: r'-'-I 

Hire date: 4/25/1963 

Date -became a participant (first of 5/01/1964 month following 1 year of service): 

Date 71 transferred from Pan Am's IUFA I g/ol/lg71 1 

Workforce to the Management Workforce: 

Date 1 started contributing to CRIP: 12/01/1973 

Effective date on which CRIPt s benefit accruals ( 12111/1983 

were 'frozen" : 1 

1 

Final 5-year Annualized compensation as of 

12/31/83, as shown in CRIP's records: $36,952.75 

1 20 Year. 11 Total Years of Benefit Service as of 12/31/83: months 

CRIP.'s termination date: 1 7/31/1991 11 

Date 7pran.f erred from the Management I 8/19/1991 11 

Workforce back to the IUFA Workforce: 

Date started receiving her benefit: 9/01/1991 

1 age on 9/01/1991, in years and 53 years 

com~leted months: 10 months 

Date of 1 death: 1 7/04/2000 11 1 

Pension Service 

The full elapsed time in completed months from71 

April 25, 1963 hire date through CRIP's December 31, 1983 freeze 

date is 20 8/12 years. She was absent on personal leave for 2 

complete calendar months during that period, from October 31, 1969 

until January 1, 1970. Therefore, the 20 6/12 (20 8/12 minus 2/12) 

Years of Benefit Service Pan Am and EBGC used is the maximum 

possible for 1 under CRIP . 

Normal Retirement Date 

The estimated benefit Pan Am calculated and PBGC paid was 

based on a November 1, 1997 Normal Retirement Date, 

age 60. Age 60 is CRIP's Normal Retirement Age for flight 
attendants. However, was no longer a flight attendant. 

on Pan Am's December 31, 1983 freeze date. On December 31, 1983 

was already a ground employee, with Normal Retirement 

Date November 1, 2002 (age 65), instead of November 1, 1997. 

CRIP uses the age-65 Normal Retirement Date for all of 

benefit except for what she had earned when she stopped 

being a flight employee on September 1, 1971 .' 1 option 

for transferring back to flight attendant and therefore, having all 

of her benefit based on an age-60 Normal Retirement Age was 

eliminated effective January 1, 1984 .3 Furthermore, even if CRIP . 

did use Normal Retirement Age 60 based on ~ugust 19, 

1991 transfer to flight employee, PBGC could not guarantee the 

benefit increase because under the law, PBGC cannot guarantee 

benefit increases based on eligibility met after CRIP's July 31, 

1991 termination date. 

Division of Normal Retirement Benefit between Manaaement and IUFA 

We explain below that'Norma1 Retirement Benefit 

is $1,054.23, of which $36.67 was earned as a flight employee, with 

a Normal Retirement Date November 1, 1997 (age 60). The $1,017.56 

($1,054.23 - $36.67) balance was earned as a member of CRIP's 

Management Workforce, with a November 1, 2002 (age 65) NRD. 

~ormal: Retirement Benefit as if all service were in Manaqement 

Under Article IV(A) (7) (b), 7 total Normal 

Retirement Benefit is calculated as if she was always an employee 

in Pan Am's Management Workforce. Her total Normal Retirement 

Benefit is the largest of her: 

~lternativel: Monthly Basic Benefit, 

Alternative 11: Monthly Minimum Benefit, or 

Alternative 111: Monthly Updated Benefit. 

1. Pension Earnings 

The table below shows pension earnings, as 

contained in Pan Am's pension records and used by PBGC to compute 

benefit. The table also shows earnings 

for certain years, as reflected in Pan Am's payroll records. 

Article IV(A) (7) (b), CRIP 0664 

' See Article IV(A) (7) (a) (CRIP 0664) as modified by CRIP 

Amendment 1984-1 (CRIP 0756). 
.Pan Am Electronic Records 

pension earnings are 

The Appeals Board decided 

reliable and 

Pan 

should be 

Am's records 

used to 

of 

determine her 

71 

benefit. The Board's decision is based in part on our careful 

review of Pan Am wage-rate, payroll records, W2s, and pay stubs for 

other appellants in Pan Am's Management Workforce. 

2. Alternative I: Monthly Basic Benefit (also called the 'Career 

Average Formula" for the Management Workforce) 

I Monthly .Basic Benefit is determined by adding the 

following two amounts: . . 

1) For each year or fraction of a year before 1979, 1% 

Compensation up to $3,000, plus 2% 

of O EII Compensation over $3,000. . . 

2) For each year or fraction of a year beginning in 

1979 [through the December 31, 1983 freeze date], 

1.25% of I Compensation up to $4,000 

plus 2% of Compensation over $4,000. 

CRIP' s computerized records show that CRIP' s' administrators 

calculated that I earned a Monthly Basic Benefit of 

$544.92 ($6,539.01 z 12 months), if paid as a Straight Life Annuity 

beginning at Normal Retirement Date of November 1, 

2002. 

Effect of pre-1979 Compensation on the Monthly Basic Benefit 

PBGC could not reproduce CRIP's administrators' calculations 

of Monthly Basic Benefit because the Pan Am records 

PBGC obtained do not show 1 -pension earnings before 

1979. However, we have verified that it is highly unlik 1 that 

exact earnings data in years before 1979 would irnproveFl 

benefit. In particular, overtime and bonus earnings 

before 1979 needed to average more than 70% of her estimated full- 
i 

r 

X 

I time base pay to make her Monthly Basic Benefit larger than the 

10 benefit PBGC determined. See Enclosure 4. 

3. Alternative 11: Monthly Minimum Benefit 

Monthly Minimum Benefit is calculated by 

multiplying her 20-6112 Years of Benefit Service by the applicable 

benefit accrual rate for her job classifications. Using the 

maximum $24.00 rate (Enclosure 6), Pan Am and PBGC calculatedm 

Monthly Minimum Benefit is $492.00 {20-6/12 years x 

if paid as a Straight Life Annuity starting at age 65. 

4. Alternative 111: Monthly Updated Benefit 

Monthly Updated Benefit depends on her "Average 

Annualized Compensationn ('AAC") for the six five-year periods 

ending on December 31 of 1978, 1979, 1980, 1981, 1982, and 1983. 4 

benefit is largest using her 1979-1983 AAC. See 

Enclosure 5 which shows the pre-1979 earnings needed to improve her 

benefit. 

Updated Benefit Calculation Using 1979-1983 AAC 

The Monthly Updated Benefit. based on I 1979-1983 

AAC is $12,650.77 per year ($36,952.75 x (20-6/12 years) x .0167), 

or $1,054.23 per month ($12,650.77 + 12 months), if paid as a 

Straight Life Annuity starting at age 65. 

Effect of Pre - 19 79 Compensation on the Monthly Updated Benefi t 

Although unlikely, it is mathematically possible 71 

pre-1979 Annualized Compensation could improve her benefit. 

However, her benefit would improve only if her'nverage Annualized 

Compensation, including overtime and bonuses, is larger than shown 

in any row of the table below. The table is based on Enclosure 5. 

' The CRIP document also includes an earlier, version of the 

Monthly Updated Benefit. However, the earlier version uses only a 

1.5% accrual rate, instead of 1.67%, and is further reduced based 

onbocial Security benefit. See Enclosure 6 page A-3. 

Therefore, the earlier version of the Monthly Updated Benefit is 

l.ess beneficial than the version Pan Am, PBGC, and the Appeals 

Board used. 
H I I Pre-1979 Annualized Compensation Number Needed to Improve Benefit 

of Years I I . Y?;? Average Annualized 

(3 1 1 (31+(21 

For comparison, we estimate 1978 Compensation to 

be $27,820.59. See Enclosure 4 column 6. Therefore, it is very 

unlikely her pre-1979 earnings are large enough to improve her 

Monthly Updated Benefit. 

5. Total Normal Retirement Benefit 

Normal Retirement Benefit is $1.054.23 per month, 

treating all service as in Pan Am's Management Workforce. The 

$1,054.23 under the Monthly Updated Benefit is larger than her 

$492.00 Monthly Minimum Benefit and the $544.92 Monthly Basic 

Benefit Pan Am calculated. 

Benefit Earned as Flisht Em~lovee throush Se~tember 1. 1971 

Pan Amrs records show began contributing to CRIP 

in 1973 after her transferring to a Management position. 

Therefore, her flight service benefit is calculated using the 

non-contributory accrual rate of $5.00 per month per year of 

service. Also, in 1971 CRIP required that an employee complete one 

year of service and be over age 25 before'she could start accruing 

benefit service. In 1 case, her benefit service started 

to accrue on May 1, 1964, the first of the month after she had 

completed one year of service. On August 31, 1971, she had accrued 

7 4/12 (7 6/12 minus 2/12) Years of Benefit ~ervice.~ Therefore, 

her Normal Retirement Benefit on August 31, 1971 was $36.67 ($5.00 

x 7 4/12 years), per month if paid as a Straight Life Annuity 

starting at age 60. 

The full elapsed time from May 1, 1964 to August 31, 1971 

(7 6/12 years) less 2/12 years on personal leave of absence. 
Flight Attendant Early Retirement Benefit 

elected to retire effective September 1, 1991, at 

age 53-10/12 years. Because $36.67 flight attendant 

benefit was payable starting at Normal Retirement Age 60, the CRIP 

document in effect in - 1971 required applying a 0.6635 reduction 

factor. Therefore, the flight service portion of 

benefit was $24.33 ($36.67 x .6635) per month if paid G as a 

Life Annuity starting on her September 1, 1991 retirement date. 

PBGC's revised determination calculated $24.64 ($36.67 x .6720), 

0 

using a slightly different factor of 0.6720. 

Normal 

The 

Retirement 

$1,017.56 

Benefit 

($1,054.23 

was earned - $36.67) as 

balance 

a member 

of 71

of CRIP's 

Management Workforce. Also, did not qualify for CRIP's 

subsidized Early Retirement Benefit on her $1,017.56 Management 

Employee Normal Retirement Benefit because she stopped working in 

1991, before reaching age 55. See Enclosures 2 and 3. 

Under CRIP1s Vested Separation. Benefit, the earliest 

could start receiving her $1,017.56 Normal Retirement 

Benefit, reduced for starting early, was November 1, 1992, at age 

55. The applicable factor for starting her benefit at age 55-0/12 

is .452. Therefore, her benefit beginning November 1,,1992 would 

have been $459.94 ($1,017.56 x 0.452) per month if paid as a 

Straight Life Annuity. 

Fy 

To show was overpaid, for simplicity, we calculate 

her benefit as if she was entitled to receive her $484.27 ($459.94 

+ $24.33) total benefit as a Straight Life Annuity starting on her 

September 1. 1991 retirement date, at age 53-10/12. 

.Social Securitv Level Income O~tion 

chose to receive her benefit under CRIP's Social 

Security Level Income Option ('SSLO") which is designed to provide 

a more level combLned retirement income than if she retired with a 

Straight Life Annuity. CRIP uses a Social Security retirement age . 

of 65 and an estimated Social Security benefit. Pan Am used an 

estimated Social Security Benefit of $979.00 for 1 Under 

the SSLO, CRIP pays more than $484.27 per'month before age 65, but 

after age 65 her total monthly benefit is reduced by $979.00, so 

her final CRIP benefit is less than $484.27 per month. 

Temporarily increasing I benefit until age 65 by 

the $979.00 amount Pan Am used increased the value. of her CRIP 

benefit: The calculations in the next paragraph show 

benefit after reaching age 65 would need to be negative to repay 
such a large temporary increase. We use the generous $979.00 

Social Security Benefit Pan Am used to simplify our explanation 

that was overpaid. 

Based on age of 53 years 10 months on 

September 1, 1991, the Actuarial Equivalence factor a plicable to 

SLO benefit is 0.415. See Enclosure 7 .' Therefore, 

15$484.27 per month maximum benefit would have been 

temporarily increased at most $406.00 (.4150 x $979.00;.rounded to 

nearest dollar). for a total of $890.27 ($484.27 + $406.06) per 

month until October 1, 2002. Based on the $979.00 assumed Social 

Security benefit, 1 benefit beginning November 1, 2002 

(age 65) would have been $0 because $890.27 minus $979.00 is less 

than $0. 

PBGCThe Calculations above show was entitled to receive 

at most, $890.27 per month until she died on July 4, 2000. PBGC's 

records show received $3,265.20 per month through 

July 1, 2000.~ Therefore, 1 has been overpaid. 

Decision , 

Having applied CRIP's provisions to the facts in this case, 

the Appeals Board found no basis for changing PBGC's determination. 

has not been underpaid and PBGC will not try seek 

repayment of overpayments toprior to her death. You 

may if you wish, seek court review of PBGC's determination with . 

respect to the issues that you have raised. We appreciate your 

patience during this careful review of your appeal. 

Sincerely, 

William D. Ellis 

Appeals Board Member 

Enclosures: 

1) Pan Amls "Personnel Master" database record 

2) Explanation of Certain Appeals Board Rulings Involving 

the Pan Am TRIP Plan" (7 pages) 

3) Summary of CRIP's provisions (2 pages) 

4) Worksheet showing an average 70% overtime lus estimated 

full-time piy is needed to increase~~benefit 

'See footnote 3 on page 2. 
5) Worksheet showing pre-1979 earnings needed to increase 

benefit under the Monthly Updated Benefit 

6) CRIP document, Section I, Appendix A (4 pages) 

7) Excerpt from CRIP January 1, 1985 Summary Plan 

Description (2 pages)