Opinion ID: 72058
Heading Depth: 3
Heading Rank: 1

Heading: 15(a) (Early Retirement Date).

Text: 17 The Pension Dispute Board consisted of four members: two were selected by Eastern and two were selected by ALPA. The Board had the authority to hear and determine [a]ll disputes concerning the application, interpretation or administration of the Plan in respect to individual employees and their participation in or their benefits under the Plan. § 11.2 (Authority [of Pension Dispute Board]). Southern District of New York. On March 20, 1990, Eastern and ALPA signed an interim letter of agreement, effective March 2, 1990, fixing Eastern's contribution to the Plan for all pilots at 3% of compensation.18 On April 18, 1990, the bankruptcy court named Martin R. Shugrue as Bankruptcy Trustee of Eastern (the Bankruptcy Trustee). The Bankruptcy Trustee began liquidating certain company assets in an attempt to reorganize Eastern as a smaller carrier.19 On September 11, 1990, the Bankruptcy Trustee, proceeding under section 1113(e) of the Bankruptcy Code, applied to the bankruptcy court for an order, which the court entered, approving an amendment to the Plan.20 Pursuant to this order, Eastern reduced its contribution to the Plan to 0% for compensation earned by pilots after August 11, 1990, and provided for resumption of its contribution of 3% for such compensation on or after June 1, 1991. This amendment also suspended the Pension Dispute Board's powers effective August 11, 1991. ALPA objected to the Bankruptcy Trustee's action and appealed to the district court the bankruptcy court's order authorizing this amendment. The record does not inform us of the district court's disposition of this appeal. After Eastern's Chapter 11 filing, the Fund became increasingly illiquid due to three factors. First, because Eastern had suspended and eventually ceased making contributions to the Plan, the Fund's sole source of cash was the return on its investments. Second, a substantial portion of the Fund's assets were invested in real estate, which was depressed in value due to a nationwide real estate recession. Third, the lump-sum option for receiving benefits had become increasingly popular with retiring pilots. In fact, the annual amount distributed in lump-sum payments had risen steadily from $52,000,000 in 1986 to more than $200,000,000 in 1990. 18 For Eastern pilots employed before March 2, 1986, Eastern had been contributing 10% of compensation since January 1, 1988. See supra note 6. 19 The record indicates that the Eastern Pension and Insurance Department retained its authority and continued to perform its responsibilities under the supervision of the Bankruptcy Trustee. 20 Section 1113(e) of the Bankruptcy Code, 11 U.S.C. § 1113(e), states that the bankruptcy court, after notice and a hearing, may authorize the trustee to implement interim changes in the terms, conditions, wages, benefits, or work rules provided by a collective bargaining agreement. The bankruptcy court may authorize such measures only if they occur during a period when the collective bargaining agreement continues in effect, and if [such measures are] essential to the continuation of the debtor's business, or in order to avoid irreparable damage to the estate. On January 18, 1991, Eastern shut down its operations, effectively retiring the approximately 2,500 pilots in its employ at the time. The same day, O'Connor of the O'Connor law firm, which served as counsel to the TAC, contacted Brian P. White, Director of Eastern's Pension and Insurance Department, and told White that the TAC recommended that Eastern place a temporary moratorium on lump-sum payments. White, in response, said that Eastern lacked the authority to impose a moratorium. On January 19, 1991, O'Connor confirmed the recommendation by letter, a copy of which he sent to ALPA, the TAC, and Hawthorne. On January 27, 1991, according to the deposition testimony of former President Gerald R. Ford, the TAC voted unanimously to impose the temporary moratorium.21 The record does not disclose how the TAC planned to implement the moratorium. On January 28, 1991, O'Connor, representatives of ALPA and Eastern and their respective attorneys,22 met to discuss the need to place a temporary moratorium on lump-sum payments. The record does not disclose whether at this meeting the parties discussed Article XIII of the Plan, which gives Eastern the power to modify, suspend ... or discontinu[e] ... any feature [of the Plan]. On February 1, 1991, the TAC issued a Certificate of Action of the [TAC of the Plan] Taken upon Unanimous Written Consent. In this document, the TAC stated that it, as named fiduciary of the [Plan], has decided to, and hereby does, impose a temporary moratorium upon the payment of benefits to all Eastern pilots who shall file requests for benefits after the close of business on January 18, 1991.23 This Certificate also instructed O'Connor to notify [Eastern] of the [TAC's] request that Eastern, as [Plan] Administrator, promptly notify all Eastern pilots who shall file requests for benefits after the close of business on January 18, 1991, that, until further notice, a 21 In his deposition, former President Ford, a member of the TAC at the time the moratorium was imposed, see supra note 9, stated that [the decision to impose the moratorium] was unanimous between Mr. Spencer, Mr. Jenkins, Mr. Fouraker, the [ALPA] members, and myself. 22 The record does not indicate whether the Bankruptcy Trustee was present, or represented, at the meeting. 23 The moratorium did not affect participants who were already receiving annuities or who had submitted their application for a lump-sum benefit by the close of business on January 18, 1991. temporary moratorium has been placed in effect by [the TAC]. Pursuant to the TAC's request, Eastern mailed notice of the moratorium to all of its pilots on February 4, 1991.24 In this notice, Eastern advised pilots that [q]uestions regarding the temporary moratorium should be addressed to the [TAC] at one of the following addresses: (1) the TAC, care of the O'Connor law firm; or (2) the TAC, care of Hawthorne. White stated that, after Eastern's shutdown and the commencement of the moratorium, the procedure for processing claims for benefits under the Plan remained the same except for two changes: (1) the retiring pilot would contact Eastern's Pension and Insurance Department directly rather than go through the Chief Pilot; and (2) Eastern's Pension and Insurance Department would inform the actuary whether a participant had applied for benefits following the shutdown. If the participant had applied after the shutdown, the bank would not issue a benefit check. On May 22, 1991, the TAC mailed a letter and a videotape to all Plan participants and beneficiaries. The letter and videotape were designed to inform these parties about the current status of the Plan and its plans for the future in light of the present liquidity issues confronting the [Plan]—that is, the state of the Plan after Eastern's shutdown and bankruptcy. On June 25, 1991, the Bankruptcy Trustee and ALPA modified the Plan by letter of agreement.25 This agreement modified the Plan in three significant ways. First, the Plan provided for a periodic-payment option that enabled participants to receive their retirement benefit in substantially equal monthly payments that were made for life (or life expectancy). See § 6.11 (Periodic Payments). These payments would be exempt from the ten percent additional tax assessed on early distributions from qualified retirement plans.26 Second, a new article (Article XV) 24 This mailing consisted of two documents: (1) a brief cover letter printed on Eastern stationery; and (2) a two-page notice about the moratorium signed by the TAC and addressed to all Eastern pilots. 25 This agreement is known as Document 91B. 26 Under the periodic payment option, a participant could elect to receive the actuarial present value of his accrued benefit in the form of periodic monthly payments as described in I.R.C. § 72(t)(2)(A)(iv), 26 U.S.C. § 72(t)(2)(A)(iv); under this option, the benefit amount was determined as of the date of receipt. Participants who were receiving an annuity or had an outstanding balance on a loan from the Fund were not eligible for this option. If the was added in order to enable participants to take out loans from the Plan during this time of financial uncertainty.27 The amendment provided that the TAC would serve as administrator for these two provisions; Eastern, however, retained its administrative authority for all other provisions of the Plan. See §§ 6.11(f), 15.1. Third, the Plan was amended to provide that the value of benefits distributed from the Plan was to be determined at the time of distribution. Thus, the value of a participant's lump-sum benefit would no longer be determined as of the effective retirement date. See § 6.2(e)(i). On July 27, 1992, pending approval by the bankruptcy court, the Bankruptcy Trustee and ALPA entered into a letter of agreement once again. Referred to as Document 91C, this proposed amendment would make two fundamental changes to the Plan. First, the Fund would be divided into a liquid portion (i.e., cash, marketable stocks, and bonds) and an illiquid portion (i.e., real estate, alternative investments, and working capital). Each Plan participant would have a percentage interest in both the liquid and illiquid portions of the Fund rather than an interest in the Fund as a whole. Second, the lump-sum option was modified to provide for a partial distribution—that is, an immediate cash payment equal to the liquid portion of each eligible participant's account. A participant selecting this option also would receive extended payments over time as the real estate and other illiquid assets were sold. The modified lump-sum option had become feasible because of recent favorable changes in the tax code for partial distributions.28 periodic-payment arrangement was discontinued or altered within five years after it started or before the participant reached age 59.5, whichever was later, the participant's subsequent election of another form of benefit from the Plan would trigger the 10% penalty tax normally associated with premature distributions, unless the participant was 55 or older when separating from Eastern. If the penalty tax was triggered, it would be applied retroactively to those amounts previously withdrawn. See § 6.11. 27 Participants who were annuitants or periodic-payment recipients were not eligible to receive loans from the Plan. The maximum loan that could be made was the lesser of $50,000 or 25% of the actuarial present value of the participant's accrued benefit at the time of loan. See § 15.4 (Plan Loans). 28 Effective January 1, 1993, partial distributions from a qualified pension plan could be rolled over into an individual retirement account (IRA) without adverse tax consequences. See 26 U.S.C. § 402(c)(4) (1993). Before this change, a participant could not roll over a partial distribution into an IRA without significant tax liability. See 26 U.S.C. § 402(a)(5)(D) (1991). On August 19, 1992, pursuant to its duties under section 10.2(c), the TAC sent a letter to all Plan participants to describe the modified lump-sum option and to explain why the moratorium had been imposed: The lump sum option in the [Plan] has been modified by Document 91-C to address the reality that the [Plan] has a substantial amount of high quality illiquid assets that cannot be liquidated quickly without suffering a substantial discount in order to achieve a quick sale. The [Plan] does not have sufficient cash and other liquid assets to allow eligible participants to take their lump sum in cash. This is what caused the imposition of the moratorium in January 1991. On October 1, 1992, the Bankruptcy Trustee and ALPA filed a joint motion in the Bankruptcy Court for the Southern District of New York seeking approval of the amendment provided by Document 91C. On November 13, 1992, the bankruptcy court granted their motion and approved the amendment to the Plan, effectively ending the moratorium. The operative date of the Document 91C amendment was June 30, 1992.