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Retirement Plans & Age Discrimination

Posted by Frank Steinberg | Dec 13, 2007 | 0 Comments

"No good deed goes unpunished."   "Sometimes you just can't win."

Those sentiments (and perhaps a few others) must be floating around the hallways at Northwest Airlines, where the company and its pilots' union, the Airline Pilots Association, have joined forces to  save a new retirement plan from an age discrimination challenge by a group of senior pilots.  Yahoo Finance has the AP story.

Northwest and the ALPA have asked a federal judge "to declare that it's not age discrimination to tilt retirement contributions to less-experienced pilots to make up for freezing their pensions."  Unlike some other airlines, a bankrupt Northwest chose not to reduce retirement benefits by terminating  its pension plan and turning its obligation over to a federal guarantor.  Instead, Northwest kept the retirement plan but froze its pensions, so that pilots received what they earned, but their pensions stopped growing.  To make up the difference, Northwest supplemented the pension plan with a 401(k) plan, which included a company match.  Ironically, however, under this arrangement the larger 401(k) matching contributions went to the higher paid, more senior pilots.

Because of that, Northwest argued that the new plan had the perverse effect of giving older pilots who lost nothing on their pension more than they would have received before their pension was frozen. Meanwhile less-experience pilots made far less.

On December 1, with the agreement of the ALPA, Northwest terminated its matching payments.  They will resume on January 1, this time with the larger matches going to less-senior pilots in order "to equalize the difference between experienced pilots who will get their full pension, and younger pilots who no longer have the opportunity to see their pension grow."  The goal is to produce similar retirement income levels for both senior and junior pilots.  And that sounds only fair.

The plan is being opposed by some senior pilots as discriminatory based upon age.  The junior pilots, without the change, would be getting the worst of both worlds.

The case serves to illustrate how difficult it can be to reconcile the demands of groups of employees with competing economic interests.  And it moves us to raise another question that employment lawyers often ponder: "Who woulda thunk it?"

About the Author

Frank Steinberg

Frank is the founder and principal of Steinberg Law, LLC. A Jersey boy born and bred, he focuses on employment litigation and counseling, business litigation,  and aviation law. Following law school and a clerkship in the federal district court Frank spent his early career with large litigation ...

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