Frequently Asked Questions (Retirement & Insurance)[1]
Q.12: If a person continues in service or is reemployed as a pilot after age 60, what is the impact of FTEPA on his/her retirement and insurance benefits?
A.12: The impact of FTEPA on a pilot's retirement and insurance benefits depends, in large part, on the precise terms of the applicable CBA and the applicable benefit plan(s). Applicable law (e.g., ADEA, the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code, and the regulations of federal agencies thereunder) also governs. In general:
ØA person who continues in service or is reemployed as a pilot after age 60 will be eligible for the same coverage and benefits, in accordance with the same formulas and subject to the same rules and procedures, as a pilot who had not yet attained age 60.
ØThe costs of providing LTD and health insurance benefits to active pilots are likely to increase due to coverage of an older workforce, but the costs of employer-provided subsidies for retiree health benefits are likely to decrease due to the shorter average duration of such coverage.
Q.13: How will a pilot be treated under his/her airline's 401(k) plan or other defined contribution plan (DC plan) with respect to service after age 60?
A.13: Under a DC plan, in general, all of the following will apply in the same manner as for a pilot under age 60:
ØThe employer must continue to make employer contributions to each of the pilot's accounts to the same extent as if the pilot were under age 60.
ØThe pilot will continue to be eligible to make employee contributions to each of his/her accounts (pre-tax and after-tax, as allowed by the plan) to the same extent as if the pilot were under age 60.
ØThe pilot will continue to have the same investment options available for each of his/her accounts.
Under a DC plan, the value of a pilot's accounts at retirement will probably be higher if the pilot retires after age 60, since the pilot will have more years of active service during which to accumulate contributions and earnings.
Note that, if specified in the DC plan, employer contributions may cease on account of circumstances other than age. For example, a DC plan that bases contributions on a target benefit formula may provide that contributions cease once a pilot's account is projected to reach the target. As another example, a DC plan may limit the number of years during which employer contributions will be made (
e.g., a plan might provide that contributions will be made only for the first 25 years of service or plan participation).
Q.14: When will a person who continues in service or is reemployed as a pilot after age 60 be eligible to receive distributions from his/her DC plan accounts?
A.14: In general, a person who continues in service or is reemployed as a pilot after age 60 will not be eligible to receive distributions from his/her DC plan accounts unless the plan explicitly permits in-service distributions. For example, a DC plan could explicitly provide (or could be amended to provide) that a participant may elect to receive in-service distributions upon completion of a stated number of years of participation, upon attainment of age 59-1/2 (or some other age), upon furlough, or upon proof of financial hardship. Most DC plans do not provide for in-service distributions. Note that, under provisions of the Internal Revenue Code applicable to all DC plans, minimum distributions must commence to a plan participant by April 1 following the later of the year he/she attains age 70-1/2 or the year he/she retires from employment with the company maintaining the plan.
Q.15: Under most pilot DB plans, the normal retirement age (NRA) is defined as age 60. Will a DB plan's NRA change as a result of FTEPA?
A.15: In all but one of the pilot DB plans, age 60 is specified as the NRA under the plan (see last paragraph of this Answer for the exception). The NRA is a critical component in a DB plan since it is the age at which full, unreduced retirement benefits may begin (i.e., without the reduction, actuarial or otherwise, that would apply in the event of early retirement). FTEPA's increase in the mandatory retirement age will not change a DB plan's NRA; that may be accomplished only through collective bargaining, and there is no obligation under FTEPA or otherwise to agree to such a change. Further, under ERISA's "anti-cutback rule," a plan amendment cannot have the effect of reducing benefits that a participant has already earned. Therefore, even if the parties were to agree to amend the DB plan to increase the plan's NRA to age 65, the benefits a pilot had earned before the plan amendment cannot be subject to an early retirement reduction (actuarial or otherwise) if the pilot retires at age 60 (or older). Only the benefits a pilot earns after the plan amendment could be subject to an early retirement reduction if the pilot retires before the plan's new NRA.
The anti-cutback rule also applies to early retirement benefits. Thus, if the parties were to agree to increase the plan's earliest early retirement age, then with respect to the benefits earned before the plan amendment, a pilot will still be able to retire early and begin drawing the benefits in an amount not less than the amount he could have drawn under the plan's early retirement provisions in place before the plan amendment. Again, ERISA's anti-cutback rule applies only to benefits earned before a plan amendment.
Unlike the DB plans covering most pilots, the DB plan covering the pilots of Piedmont Airlines defines NRA as the "federally mandated retirement age," and defines the earliest early retirement age as 10 years before the NRA. ALPA is presently reviewing FTEPA's impact on this DB plan and the relationship to ERISA's anti-cutback rule.
Q.16: How is a pilot treated under his/her airline's defined benefit pension plan (DB plan) with respect to service past age 60 (assuming the plan's NRA is age 60)?
A.16: In general, in the case of an ongoing, non-frozen DB plan, the plan must either provide benefit accrual credit for service (and earnings) after age 60 or provide an actuarial increase to the retirement benefit that could have commenced at age 60. Most ongoing, non-frozen DB plans provide for continued benefit accrual credit for service (and earnings) after age 60 rather than an actuarial increase. Under most ongoing, non-frozen DB plans, a person who continues in service or is reemployed as a pilot after age 60 will have a higher retirement benefit, since he/she will be able to accumulate more years of credited service and higher average earnings, both of which are typical components of a DB plan's benefit formula.
Note that an ongoing, non-frozen DB plan may provide that accruals will cease on account of circumstances other than age. For example, credited earnings may be limited to a specified dollar amount or years of credited service may be limited to a specified number, such as 25 years. FTEPA will result in no increase in a pilot's retirement benefit for the period after the pilot reaches all of a DB plan's applicable caps.
DB plans that have been "hard-frozen" provide no benefit accrual credit for a pilot's service or earnings during any period after the freeze date, whether such period occurs before or after a pilot attains age 60. A participant in a hard-frozen DB plan will realize no increase in the amount of his/her accrued retirement benefits if he/she continues in service or is reemployed as a pilot after age 60, since the amount of his/her accrued retirement benefits became fixed as of the date the DB plan was frozen. Whether a hard-frozen DB plan must provide an actuarial increase to the amount of the accrued benefit that would have been payable at age 60 depends on the terms of the plan and applicable law; ALPA is presently reviewing this issue.