Court Advances Suit Regarding Delta Air Lines’ Offset of Pension Benefits

A federal judge has denied dismissal of a lawsuit in which five former employees of Delta Air Lines allege Delta and its administrative committee improperly reduced their pension benefits from the Northwest Airlines Pension Plan for Contract Employees.

According to the court order, while employed by Delta, the plaintiffs suffered workplace injuries and filed claims for workers’ compensation benefits under Minnesota law. Delta settled these claims, paying each plaintiff a single lump sum. The plaintiffs have since retired and begun to receive their pensions. Citing a provision of the plan that requires Delta to offset pensions by the amount of other income-replacement benefits, Delta has reduced each plaintiff’s monthly pension by an amount calculated in his workers’ compensation settlement agreement.

Relevant points in the case include that although the agreements calculated the settlement amount from each plaintiff’s potential entitlement to permanent total disability benefits, not all the plaintiffs claimed they qualified for permanent total disability. The settlement agreements were structured to take into consideration the plaintiffs’ potential entitlement to disability benefits under the Social Security Act, which provides Social Security Disability Insurance (SSDI) to qualified individuals.

Also, Delta notified each plaintiff that it was reducing his monthly pension benefit “to account for workers’ compensation benefits paid to [him] due to loss of wages with respect to a period of time after age 65.”

In her order, U.S. District Judge Joan N. Ericksen of the U.S. District Court for the District of Minnesota noted that the 8th U.S. Circuit Court of Appeals assesses five factors when deciding whether an Employee Retirement Income Security Act (ERISA) administrator interpreted a plan reasonably: (1) whether the interpretation was consistent with the goals of the plan, (2) whether the interpretation renders any language of the plan meaningless or internally inconsistent, (3) whether the interpretation conflicts with the substantive and procedural requirements of ERISA, (4) whether the words at issue were interpreted consistently, and (5) whether the interpretation is contrary to the clear language of the plan.

The committee argued that because the lump sums “represent” a monthly payment for the rest of each plaintiff’s life, they are equivalent to retirement income. For example, in plaintiff Leighton’s settlement agreement, his lump sum of $52,000 “represents” an amount of $225.81 per month for the rest of his life. The committee determined that it should deduct $225.81 per month to avoid Leighton receiving both his pension and that additional income each month. The committee performed a similar reduction for all five plaintiffs.

Ericksen said one problem with this reasoning is that the plaintiffs agreed to a single payment, not an income stream that would supplement their pension. In other words, they are not receiving a monthly workers’ compensation entitlement in addition to their monthly pension. She pointed out that the plaintiffs’ entitlement to workers’ compensation actually was never determined because the parties settled without stipulating to liability.

In addition, Ericksen found that the settlement calculations do not reflect the type of workers’ compensation entitlement claimed by each plaintiff. For example, although Leighton only claimed to be entitled to “temporary partial disability,” the stipulation calculated his settlement based on his potential entitlement to “permanent total disability.” She noted that had the calculation reflected his claim, it would have calculated the payments based on his potential entitlement to temporary partial disability. “This mismatch between the payment calculation and the underlying claim suggests that the calculation was made for some purpose other than to create a periodic workers’ compensation entitlement,” she wrote in her order.

Ericksen found that the stipulations made a monthly calculation to account for SSDI payment offsets and to maximize the plaintiffs’ pre-retirement SSDI income. They did not unfairly supplement the plaintiffs’ monthly pensions. Therefore, the committee’s decision to deduct the “represented” monthly payment did not support the plan’s goal of preventing duplicative retirement income. Instead, it reduced the plaintiffs’ pensions by an amount calculated to accommodate SSDI benefits.

Regarding the second factor in the 8th Circuit’s assessment, Ericksen said the committee’s interpretation of the plan renders the term “periodic” meaningless. The plan defines workers’ compensation benefits as “any periodic benefit payable.” The committee argues that because the one-time lump-sum payment settles a claim for a periodic benefit, that one-time payment is also periodic. “Under this reading, any settlement for a workers’ compensation claim would be periodic, making the phrase ‘periodic benefits payable’ identical to ‘benefits payable’ and rendering the word ‘periodic’ meaningless. This factor weighs in favor of plaintiffs,” Ericksen wrote in her order.

She did find that nothing in the committee’s interpretation appears to conflict with the substantive or procedural requirements of ERISA. The statute allows employers to determine what, if any, pension benefits they offer and to offset pension amounts by other income streams. An offset is valid under ERISA if it is authorized by the plan. Therefore, she said this factor weighs in favor of the defendants.

Ericksen found the fourth factor also weighed in favor of the defendants. Based on the administrative record, the committee and Delta appear to have consistently interpreted the plan language to require an offset for lump-sum workers’ compensation settlement payments.

However, she found the committee’s interpretation violates the clear language of the plan by concluding that a settlement payment is the same as a payable workers’ compensation benefit. The committee defined payable as something “that may, can or must be paid,” and argued that because Delta paid the settlement, the underlying workers’ compensation benefit was something that “can” be paid. Despite this assertion, a payment made to settle a legal claim is not the same relief as the payment Delta would have owed had the plaintiffs ultimately succeeded in their workers’ compensation actions.

“Because Delta challenged plaintiffs’ workers’ compensation claims and the parties stipulated to the dismissal of those claims, the underlying benefit was never ‘payable.’ … Nothing in the plan contemplates workers’ compensation settlements and nothing in the stipulations contemplates the pension plan. This mutual silence suggests that nothing in the clear language of either document supported the committee’s conclusion. Therefore, this factor weighs in favor of plaintiffs,” Ericksen wrote.

Based on the record before the court, Ericksen concluded that the committee did not reasonably interpret the plan and denied the defendants’ motion with respect to the plaintiffs’ ERISA Section 502(a)(1)(B) denial of benefits claim.

However, she agreed with the defendants’ argument that the plaintiffs’ ERISA Section 502(a)(3) claim for equitable relief should be dismissed because it is duplicative of their claim for benefits. Ericksen noted that ERISA Section 502(a)(3) permits actions against fiduciaries who breach their fiduciary duties, and although the plaintiffs may not ultimately obtain duplicate recoveries under both Section 502(a)(1)(B) and (a)(3), they can plead alternate theories of liability under both provisions. “Breach of fiduciary duty and wrongful denial of benefits are distinct causes of action so a plaintiff may pursue both under ERISA,” she said.

The plaintiffs allege that the committee denied their claims because it consulted with the Workers’ Compensation Department, a party alleged to have an interest adverse to participants. But Ericksen found that this allegation fails to state a claim for breach of fiduciary duty because the plan and federal regulations require the committee to apply the plan provisions consistently to similarly situated claimants. In order to fulfill that obligation, the committee had to communicate with the department that offsets employee pensions to learn about its past practices. The committee also had a fiduciary obligation to follow these plan requirements. “While it is theoretically possible that the committee made its decision for the purpose of putting Delta’s financial interests over the interests of the beneficiaries, plaintiffs failed to plead facts that support such an inference. Therefore, plaintiffs failed to state a claim for breach of fiduciary duty,” Ericksen wrote. She dismissed the plaintiffs’ ERISA claim for equitable relief.