September 2010

National R&I Committee ........................ 2

As We Go To Press…. ........ 2

Health Care Reform Update .............................. 3

Legislative & Legal Update .............................. 8

Court Cases of Interest .......................... 13

Collective Bargaining Update ............................ 16

Spotlight on Investments ................... 18

Membership Plans .......... 19

Other News ..................... 19

R&I Dept. Contacts ......... 22

ALPA R&I Dept. Staff ...... 23

National R&I Committee ...................... 23

Note from the Managers

The upcoming BOD meeting

will allow us the

opportunity to measure

recent bargaining

outcomes and discuss

ongoing negotiations.

The 43rd biennial Board of Directors meeting will be held in Hollywood, Florida, beginning October 11, 2010. Among other things, this BOD meeting will once again focus on the strategic goals and priorities set by committee delegates at the 2008 BOD meeting. In our area, the strategic initiatives developed under the topic Collective Bargaining and Retirement & Insurance had the following goals:

• Emphasizethevalueofpatternbargainingandtheestablishment of favorable ranges and standards for provisions within pilot contracts;

• Increasesharingofbenefitsinformationandmutualsupport across pilot group lines;

• IncreaseinvolvementbytheCollectiveBargainingCommitteeandNationalR&ICommitteeinestablishing acceptable ranges and standards to be incorporatedintoMECplanningandnegotiations;

• HighlightthegrowingimportanceofR&Iprovisionsand the need to mainstream and coordinate these provisions with other important contract provisions.

The upcoming BOD meeting will allow us the opportunity to measure recent bargaining outcomes and discuss ongo-ingnegotiations.BriefingsfrommembersoftheNationalR&ICommitteeandR&IDepartmentstaffwillsupplementtheinformationprovidedbytheRepresentationandEco-nomic&FinancialAnalysisDepartments.Wewillupdatethedelegatesastobargainingtrendsinthebenefitsarea,presentanupdatedversionofourcornerstonebenefitsbenchmarking study, and present an analysis that mea-suresthevalueofemployer-providedpilotbenefits.

LizKobyandSteveHodgson,Managers Retirement&InsuranceDepartment

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National R&I CommitteeTheNationalR&ICommitteeispleasedtoannouncetheappointmentofSecondOfficerKenBinder(FDX)tothecommittee,replacingCaptainMartyGallagher(FDX).WewouldliketothankCaptainGallagherforhisdedicatedservicetothecommitteeandtothemembership.

As We Go To Press….401(k) PLANS MAY ALLOW PARTICIPANTS TO CONVERT CERTAIN NON-ROTH ACCOUNTS TO ROTH ACCOUNTS INSIDE PLANMostofyouknowthatyoumayconvertatraditionalIRAintoaRothIRA,subjecttopayingapplicable taxes on the conversion, and that if you accomplish such a conversion in 2010, you will be eligible for a special tax relief provision permitting you to pay your taxes on the conversion in equal portions in 2011 and 2012. Many of you also know that similar rules apply to distributions from a 401(k) plan, meaning that if you receive a distribution from your non-Rothaccountundera401(k)plan,youmayrollitovertoaRothIRA,throughaconversion,subjecttopayingapplicabletaxesontheconversion,andalsobeeligibleforthespecialtaxrelief provision if the rollover/conversion occurs in 2010. But until now, applicable law did not permit you to accomplish a similar result within your 401(k) plan. This has changed, thanks to a provision buried in the CreatingSmallBusinessJobsActof2010,passedbytheSenateonSeptember16andbytheHouseonSeptember23(andnowawaitingsignaturebythepresident).

UnderSection2112oftheAct,“RolloversfromElectiveDeferralPlanstoDesignatedRothAccounts,” a 401(k) plan may be amended to permit a similar process to take place within the 401(k) plan. Thus, assuming the plan is amended to permit it, a participant in the 401(k) plan whoisotherwiseeligibletoreceiveadistributionfromhisnon-Rothaccountsundertheplanmayrolloverthedistributableamount(viaadirecttransfer)tohisRothaccountundertheplanthroughaconversion,subjecttopayingapplicabletaxesontheconversion,andiftherollover/conversion occurs in 2010, he will be eligible to pay his federal taxes in equal portions in 2011 and 2012. It is important to note that such a rollover/conversion within the 401(k) plan may apply only with respect to an amount that is otherwise immediately distributable to the participant, so in the case of a participant who is still employed, this would apply only to an amount that the participant is eligible to take as an in-service withdrawal. For example, many 401(k) plans permit a participant to take an in-service withdrawal of amounts in his elective deferral account, once he attains age 59½.

Wearebringingthistoyourimmediateattentionincaseyouwouldliketopursuewithyouremployer (your 401(k) plan’s sponsor) amending your 401(k) plan to permit such a rollover/conversion within the 401(k) plan under the new Act. Adding this option will keep more money within the employer-sponsored 401(k) plan, since it will discourage participants from taking in-servicewithdrawalsforthesolepurposeofmakingarollover/conversiontoaRothIRAmaintained outside the plan. If you wish to add this option to your plan, it would be appropriate to try to add it as soon as possible in 2010, so participants may take advantage of the special tax relief permitting taxes on a transfer/conversion accomplished in 2010 to be paid in equal portionsin2011and2012.PleasecontactR&IDepartmentstaffforassistanceinthisregard.

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Health Care Reform UpdateADDITIONAL REGULATIONS ISSUEDHotontheheelsoftheregulationsonextensionofcoveragetoadultchildrentoage26,andongrandfatheredandcollectivelybargainedplans,theagencies(IRS,DOL,andHHS)continuetoissue guidance implementing the health care reform provisions relating to group health plans. OnJune22,regulations were issued on preexisting condition exclusions, annual and lifetime limits, rescission of coverage, and patient protections. Together with regulations on extension ofcoveragetoadultchildrentoage26,thesecomprisethehealthcarereformprovisionsthatwilltakeeffectforallplansonJanuary1,2011(forcalendaryearplans),whethertheplansareinsuredorself-insured,grandfatheredornotgrandfathered.(SeetheJune2010 issue of the R&I UpdateforasummaryoftheAge26regulationsaswellastheregulationsongrandfatheredandcollectivelybargainedplans.)OnJuly14,theagenciesissued regulations regarding coverage of preventivecareservices,followedonJuly22byregulations clarifying the new internal appeals and external review processes. Both of these will apply to all calendar year group health plans that are notgrandfatheredplansasofJanuary1,2011.

The following is a summary of what we have learned from the most recently issued regulations as they apply to group health plans. Unless otherwise indicated, the provisions are all effective January1,2011,forcalendaryearplans.

Pre-Existing Condition Exclusions (PCEs)HealthplansareprohibitedfromimposingPCEsonenrolleesunderage19.Thisprohibition•extends to all enrollees(regardlessofage)beginningJanuary1,2014.TheexistingrestrictionsonPCEsunderHIPAA,whichgenerallylimitthelook-backperiodto6monthsand the exclusion period to 12 months, continue to apply with respect to enrollees age 19 andolderthroughJanuary1,2014.

HIPAAcurrentlydefinesaPCEasalimitationorexclusionofbenefitsrelatingtoacondition•based on the fact that the condition was present before the date of enrollment, whether or not any medical advice, diagnosis, care, or treatment was recommended or received before suchdate.Thenewregulationsrevisethisdefinitiontoincludenotjustanexclusionofbenefitsassociatedwithaspecificpreexistingcondition,butacompletedenial of coverage if such denial is based on a condition that existed before such denial.

Lifetime & Annual Limits• Ahealthplanmaynotimposealifetimelimitonthedollaramountof“essentialhealth

benefits,”defined(pendingreleaseoffurtherregulations)toincludethefollowing:

Ambulatory patient serviceso Emergencyserviceso Hospitalizationo Maternity and newborn careo Mental health and substance use disorder services, including behavioral health treatmento Prescriptiondrugso Rehabilitativeandhabilitativeservicesanddeviceso Laboratory serviceso Preventiveandwellnessservicesandchroniccasemanagemento Pediatricservices,includingoralandvisioncare

ForplanyearsbeginningonorafterJanuary1,2011,butbeforeJanuary1,2014,ahealthplan•mayimposeanannuallimitonthedollaramountofbenefitsconsideredtobeessentialhealthbenefits,providedthelimitisnolessthan$750,000in2011,$1,250,000in2012,and$2,000,000in2013.NoannuallimitonessentialhealthbenefitswillbepermittedasofJanuary1,2014.

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The annual limit restriction through 2014, and the prohibition thereafter, does not apply to •flexiblespendingaccounts(FSAs)orhealthsavingsaccounts(HSAs),ortohealthreimbursementarrangements(HRAs)thatareintegratedintoagrouphealthplanthatotherwisecomplieswiththerulesrelatingtoannuallimits.Astand-aloneHRAlimitedtoretireesisexemptfromtheserequirements as well by virtue of the fact that retiree-only plans are exempt from the insurance reform requirements of the health care reform legislation.

The rules regarding annual and lifetime limits do not prevent a health plan from excluding •allbenefitsforaspecificcondition(subjecttotheotherrequirementsoffederalorstatelaw).However,ifanybenefitsareprovidedforacondition,thentherulesonannualandlifetime limits apply.

Anindividualwhosecoverageorbenefitsendedbyreasonofhavingreachedalifetimelimit•before the effective date of the prohibition on lifetime limits, and who is otherwise still eligible for coverage, must be given written notice that the lifetime limit no longer applies and an opportunity to again enroll for coverage. The notices must be provided no later than January1,2011,andtheenrollmentopportunitymustcontinueforatleast30days.Therequired notices may be provided to the employee on behalf of the employee’s dependents and may be included with other enrollment materials distributed to employees, provided thenoticeisprominent.Theenrollmentopportunitymustextendtoanyofthebenefitpackages available to similarly situated individuals upon initial enrollment.

Rescission of CoverageA health plan may not rescind coverage, i.e., retroactively cancel or discontinue coverage, with •respect to an individual or the family to which an individual belongs, except in cases of fraud or intentional misrepresentations of fact, or in the case of nonpayment of required contributions toward the cost of coverage. In such cases, a plan must provide at least 30 days’ advance written notice to each participant who would be affected before coverage is rescinded.

Patient ProtectionsIf a health plan requires the designation of a primary care provider, it must permit each •participantorbeneficiarytodesignateanyprimarycareproviderwhoisacceptingpatients.Inthecaseofachild,theparticipantorbeneficiarymustbeallowedtodesignateapediatricianastheprimarycareprovider.Noticeoftheserightsmustbeincludedwhenevertheplanprovidesasummaryplandescriptionoranyotherdescriptionofplanbenefits.

Aplanmaynotrequireafemaleparticipantorbeneficiarytoobtainanauthorizationor•referralbeforeobtainingcarefromanin-networkobstetricianorgynecologist.Noticeofthis right must also be included whenever the plan provides a summary plan description or any other description of the plan.

A plan that covers emergency hospital services must provide coverage for such services •withoutanypriorauthorization,whethertheservicesareprovidedinanin-networkorout-of-network facility, without regard to whether the health care provider furnishing the services is a network participating provider, and without regard to any other term or conditionotherthananexclusionorcoordinationofbenefits,awaitingperiod,orpermittedapplicable cost-sharing.

Emergencyservicesprovidedout-of-networkmaynotbesubjecttoanyadministrative•requirementsorlimitationsonbenefitsthataremorerestrictivethanwouldapplytoemergency services provided in-network.

Any copayment or coinsurance that applies to emergency services provided out-of-network •cannot exceed those that would apply if the services had been provided in-network. However, an out-of-network provider is permitted to balance bill the patient for the difference between the provider’s charges and the amount collected from the plan and from the copayment and/or coinsurance from the patient.

A deductible or out-of-pocket maximum may only be applied with respect to emergency •services provided out-of-network if such deductible or out-of-pocket maximum applies to all out-of-networkservices,andnotjustemergencyservices.

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Preventive CareA health plan that is • notagrandfatheredhealthplanmustprovidebenefits,withoutany cost-sharing requirements, for certain preventive care services, screenings, and immunizationsrecommendedbytheU.S.PreventiveServicesTaskForceandothergovernmentalagenciesspecifiedintheregulations.

In the case of a health plan with a network of providers, the requirement to provide •coverage for preventive care services, without cost-sharing requirements, does not apply to services delivered out-of-network. The plan may impose cost-sharing and/or exclude coverage altogether for out-of-network preventive care services.

Ifarequiredpreventivecareitemorserviceisbilledortrackedseparatelyfromanoffice•visit,thehealthplanmayimposecost-sharingrequirementswithrespecttotheofficevisit.

If a required item or service is not billed or tracked separately, whether or not cost-•sharingmaybeimposeddependsontheprimarypurposeoftheofficevisit.Iftheprimarypurposeoftheofficevisitwastoreceivetherequiredpreventivecareitemorservice,cost-sharingmaynotbeimposedwithrespecttotheofficevisit.However,ifdeliveryofsuchitemorservicewasnottheprimarypurposeoftheofficevisit,thentheplanmayimposecost-sharingwithrespecttotheofficevisit.

Internal Claims and Appeals and External Review ProcessesInternal Claims and Appeals. The new rules respecting internal claims and appeals do not significantlyimpactgrouphealthplans,assuchplanswerealreadysubjecttoexistingrequirementsforclaimsandappealsunderERISA.However,someadditionalrequirementswereaddedeffectiveJanuary1,2011,forplansthatarenot grandfathered plans, as follows:

TheERISAdefinitionofan“adversebenefitdetermination”thatmustbeeligibleforthe•internal claims and appeals process is expanded to include a rescission (i.e., retroactive cancellation or discontinuance) of coverage.

The time frame for a plan to notify a claimant of an urgent care determination, whether •adverseornot,isreducedfromthepreviousERISAstandardofnomorethan72hourstono more than 24 hours after receiving the claim.

Toensurethataclaimantreceivesa“fullandfairreview,”theregulationsrequire•that a plan provide the claimant, free of charge, with any new or additional evidence considered, relied upon, or generated by the plan in connection with the claim, sufficientlyinadvanceofthebenefitdeterminationtoallowtheclaimantareasonableopportunity to respond.

Toavoidanyconflictsofinterest,aplanmustensurethatallclaimsandappealsare•adjudicatedinamannerdesignedtoensuretheimpartialityofthepersonsinvolvedinthe decision-making. The hiring, compensation, termination, or other similar matters with respect to any individual involved in such decision-making must not be made based on the likelihoodthattheindividualwillsupportadenialofbenefits.Forexample,aplanmaynot provide bonuses based on the number of denials, or contract with a medical expert’s reputation for outcomes in contested cases rather than based on the expert’s professional qualifications.

Theamountofinformationrequiredtobeincludedinanoticeofadversebenefit•determinationisexpanded.Forexample,thenoticemustincludesufficientinformationto identify the claim involved, a description of the plan’s standard used in denying the claim, and a description of available internal appeals and external review processes and information regarding how to initiate an appeal. Model notices intended to satisfy all the new requirements have been issued by the agencies.

If a plan does not strictly comply with the claims procedure requirements with respect to •a claim, the claimant will be deemed to have exhausted the internal claims and appeals process and may initiate an external review and pursue any available remedies under applicable law.

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StandardExternalReview

A claimant must be allowed to request an external review within four months after the 1. date of receipt of an adverse determination, extended, if necessary, to the next day thatisnotaSaturday,Sunday,orfederalholiday.

Withinfivebusinessdaysfollowingreceiptoftherequestforexternalreview,theplan2. mustcompleteapreliminaryreviewtoconfirmthat(a)theclaimantwascoveredunder the plan at the time the service was requested or provided; (b) the adverse determination does not relate to the claimant’s failure to meet the plan’s eligibility requirements (the regulations specify that determinations based on a participant’s eligibility to participate in a plan are not eligible for federal external review); (c) the claimant has exhausted the plan’s internal appeal process if such exhaustion is required; and (d) the claimant has provided all the necessary information and forms required to processtheexternalreview.Theplanmustissuewrittennotificationtotheclaimantwithin one business day of completing the preliminary review. If the request is found to becompletebutineligibleforexternalreview,thenotificationmustincludethereasonsforitsineligibilityandcontactinformationfortheDOL’sEmployeeBenefitsSecurityAdministration(EBSA).Iftherequestisnotcomplete,thenotificationmustdescribethe information or materials necessary to make the request complete, and allow the claimanttoperfecttherequestwithinthefour-monthfilingperiodorwithin48hoursfollowingreceiptofthenotification,iflater.

Theplanmustassignanaccreditedindependentrevieworganization(IRO)toconduct3. the external review via a process that ensures unbiased selection. The plan must contractwithatleastthreeIROsandrotateassignmentsamongthem,orincorporateanother independent, unbiased method of selection. The contract between the plan andIROmustincludespecificprovisions(includedinthetechnicalrelease)outliningthe process and time line for conducting the review and notifying the claimant of its decision.

UponreceiptofanIRO’sfinalexternalreviewdecisionreversinganadverse4. determination, the plan must immediately provide coverage or payment for the claim.

ExpeditedExternalReview

A self-insured group health plan must allow a claimant to make a request for an expedited external review if the claimant receives:

a. anadversebenefitdetermination,ifsuchdeterminationinvolvesamedicalcondition for which the time frame for completion of an expedited internal appeal wouldseriouslyjeopardizethelifeorhealthoftheclaimant,orwouldjeopardize

A plan must continue coverage during the appeal process, pending the outcome of the •review.

External Reviews. Withrespecttoexternalreviews,theregulationsprovidethatplansmustcomplywitheitherastateorfederalexternalreviewprocess.Self-insuredERISAplans(mostplanscoveringpilotsareself-insuredERISAplans)musthaveexternalreviewprocessesthatcomply with federal requirements. The regulations charged the agencies with issuing guidance on how non-grandfathered self-insured group health plans may comply or be brought into compliance with the new federal external review process. On August 23, 2010, the DOL issued a technical release setting forth an interim enforcement safe harbor for non-grandfathered self-insured plans, which will apply until future guidance on the federal external review processisdeveloped.Whiletheinterimsafeharborisineffect,noenforcementactionwillbetaken against a group health plan that either (1) complies with the procedures set forth in the technical release, or (2) voluntarily chooses to comply with the provisions of a state external review process that would not otherwise be applicable. Until further guidance is released, the following external review procedures for standard and expedited claims will apply to group health plans choosing to comply with the procedures set forth in the technical release:

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EARLY RETIREE REINSURANCE PROGRAM EstablishedbythePatientProtectionandAffordableCareAct(AffordableCareAct),theEarlyRetireeReinsuranceProgram(ERRP)willprovideupto$5billioninfinancialassistancetoemployers to help them maintain health coverage for early retirees age 55 and older who are notyeteligibleforMedicare.Theprogram,whichbeganJune21,2010,istemporary,andwillrunthroughDecember31,2013,oruntilthefundsallocatedaredepleted,ifsooner.Severalactuarialfirmshavepredictedthatthefundswillrunoutwithintwoyears.EmployerscannotparticipateintheERRPunless,asofthedateofapplication,theplanshaveinplaceprogramsand procedures that have generated, or have the potential to generate, cost savings for participantswithchronicandhigh-costconditions.Employersapprovedfortheprogramwillbereimbursed80percentofretireeclaimsbetween$15,000and$90,000,andreimbursementsmust be used to defray increases in plan costs, reducing premiums or other health care costs for all plan participants (active and retired), or a combination of the two.

As of August 31, 2010, approximately 2,000 applicants were accepted into the program, including the following airlines:

ABX Air

American Airlines

Delta Airlines

FederalExpressCorporation

SouthwestAirlines

United Airlines

USAirways

theclaimant’sabilitytoregainmaximumfunctionandtheclaimanthasfiledarequest for an expedited internal appeal; or

b. afinaladversebenefitdetermination,iftheclaimanthasamedicalconditionwhere the time frame for completion of a standard external review would seriously jeopardizethelifeorhealthoftheclaimant,orwouldjeopardizetheclaimant’sabilitytoregainmaximumfunction,orifthefinalinternaladversebenefitdetermination concerns an admission, availability of care, continued stay, or health care item or service for which the claimant received emergency services but has not been discharged from a facility.

The process for completing the expedited external review, and the requirements applicable totheIRO,areessentiallythesameasforastandardreviewexceptthatthepreliminaryreview to determine whether the request meets the reviewability requirements must be completed by the plan immediately upon receipt of the request as opposed to within the fivedayspermittedforstandardexternalreviews.Inaddition,theIROmustprovidenoticeofthefinalexternalreviewdecisionasexpeditiouslyastheclaimant’smedicalconditionorcircumstancesrequire,butinnoeventmorethan72hoursaftertheIROreceivestherequestforanexpeditedreview.Ifthenoticeisnotinwriting,theassignedIROmustfollowupwithawrittenconfirmationofthedecisiontotheclaimantandtheplanwithin48hoursafter providing the notice.

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Legislative & Legal UpdateGUIDANCE ISSUED ON REVISED DEFINITION OF MEDICAL EXPENSES AS IT RELATES TO OVER-THE-COUNTER DRUGSOnSeptember3,2010,theIRSissuedNotice2010-59, providing guidance regarding the change madebyAffordableCareActpertainingtothereimbursementofover-the-countermedicinesanddrugsunderemployer-sponsoredhealthplans.Ingeneral,effectiveJanuary1,2011,paymentsor reimbursements for medicines or drugs from an employer-provided health plan, including a healthFSAoranHRA,arerestrictedtoprescribeddrugs,insulin,andover-the-counterdrugsonly if they are prescribed.IfamountsaredistributedfromanHSAforanymedicineordrugthatdoesnotsatisfythisnewrequirement,suchamountswillbedistributionsfornonqualifiedmedicalexpenses,whichareincludableinincomeandgenerallysubjecttoa20percentpenaltytax.TheNoticemakesthefollowingclarificationseffectiveJanuary1,2011,forcalendaryearplans:

Over-the-counter medicines and drugs generally available without a prescription are still •eligibleforreimbursementunderanFSAorHRA,andwillconstitutequalifiedexpensesforpurposesofanHSA,ifanindividualobtainsaprescription.

Insulin is eligible without prescription.•

These new rules apply only to medicines and drugs; they do not apply to medical devices or •supplies,suchascrutches,bandages,andblood-sugartestkits.Suchitemsmaybeeligiblefortax-freereimbursementunderanemployer-providedhealthplaniftheymeettheIRSdefinitionofmedicalcare,whichincludesexpensesforthediagnosis,cure,mitigation,treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body.

TheJanuary1,2011,effectivedatefortherevisedrulesappliesregardlesswhetherthe•planyearfortheemployer’splanisafiscalorcalendaryear,orwhetherthereisnoplanyear, and regardless if the expense is incurred during the permissible 2½-month grace periodforhealthFSAs.ExpensesfornonprescribeddrugsthatwereincurredpriortoJanuary1,2011,maycontinuetobereimbursedonoraftersuchdate.

FSAandHRAdebitcardsmaynotbeusedtopurchaseover-the-counterdrugsbecausethe•debitcardsystemsareincapableofrecognizingandsubstantiatingthatthedrugswereprescribed, as required under the new rules. To facilitate the transition to this new rule, theIRShasindicateditwillnotchallengetheuseofFSAandHRAdebitcardsforexpensesincurredthroughJanuary15,2011,iftheuseofthedebitcardotherwisecomplieswiththerulescurrentlyineffectfordebitcards.However,alldrugpurchasesafterJanuary15,2011, must be substantiated before reimbursement may be made, including a copy of the prescription or a customer receipt that includes the prescription number.

IRS ISSUES PRIVATE RULING THAT COBRA SUBSTITUTE IS A QUALIFIED PLAN FOR HEALTH COVERAGE TAX CREDIT Undercurrentlaw,ahealthcoveragetaxcredit(HCTC)equalto65percent(temporarilyincreasedto80percentthroughDecember31,2010)oftheamountanindividualpaidforqualifiedhealthinsuranceisavailabletoPBGCbenefitrecipientsage55andolderandnotyeteligibleforMedicare.Generally,healthinsurancecoverageprovidedbyanindividual’semployer(orformeremployer)isqualifiedhealthinsuranceforHCTCpurposesonlyifitisCOBRAcoverage.(Note: Other coverage that is not employer-sponsored, such as certain state-based coverage, maybequalifiedhealthinsuranceforHCTCpurposes.)Inaprivate letter ruling releasedJune18,theIRSdeterminedthathealthcoverageofferedtoagroupofretiredemployees(andtheirbeneficiaries)inlieuofCOBRAcoveragefollowingtheemployer’sbankruptcy,whilenotsatisfyingtherequirementsofCOBRA,isqualifiedhealthinsuranceforHCTCeligibilitypurposes.

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In the facts submitted, the employer provided group health plan coverage to eligible retired employeesandtheirdependentspursuanttocollectivebargaining.AftercommencingChapter11bankruptcyproceedings,butbeforethelossofcoverageasaresultofthechangeinbenefitsoccurred(thequalifyingeventforCOBRA),theemployerrenegotiatedthetermsofthegrouphealth plan for retirees with two of its unions to one that was less generous than the pre-bankruptcy coverage provided by the employer, and different from the coverage offered to active employees. Because the terms of the renegotiated plan are not the same as that provided tosimilarlysituatedbeneficiarieswhohavenotexperiencedaqualifyingevent,theplandoesnotsatisfytheCOBRArequirements.ButcoveragethatdoesnotsatisfyCOBRArequirementscanneverthelessbeconsideredcoverageprovidedpursuanttotheCOBRArequirementsifsuchcoverageismadeavailableinsettlementofanobligationtomakeCOBRAcoverageavailable.

Inthiscase,theIRSfoundthatbecausethebankruptcyproceedingisaqualifyingeventandtheemployerisrequiredtomakeCOBRAcoverageavailabletoqualifiedbeneficiaries,therenegotiatedcoveragemadeavailabletoqualifiedbeneficiariesinconnectionwiththebankruptcyisinsettlementoftheobligationtoprovideCOBRA.Theunions’acceptanceoftheplaninlieuofCOBRAcoverageevenbeforethequalifyingeventoccurredwasaneffectivewaiveroftheretirees’COBRArights,whichisgenerallyinconsistentwiththerequirementsunderCOBRA.COBRArulesacknowledgethataqualifiedbeneficiaryhastherighttowaiveCOBRA,butonlyonceaqualifyingeventhasoccurred,andthequalifiedbeneficiarymaintainstherighttorevokethewaiverbeforetheendoftheelectionperiod.Initsruling,theIRSstatedthatawaiverbeforetherighttoelectCOBRAcouldbeeffectiveincertaincircumstances—suchasoneenteredintoshortlybeforeandinanticipationofaqualifyingevent,asinthisinstance—providedthewaivingpartyisfullyinformedofhis/herCOBRArights.

Accordingly,basedonthefactssubmitted,theIRSruledthatthecoverageprovidedinsettlementoftheobligationtoprovideCOBRAinconnectionwiththeemployer’sbankruptcy,whilenotsatisfyingtherequirementsforCOBRA,isqualifiedhealthinsuranceforpurposesoftheHCTC.

It should be noted that private letter rulings are directed only to the taxpayer requesting it and may not be used or cited as precedent.

DOL ISSUES GUIDANCE ON DEFINITION OF “SON OR DAUGHTER” FOR FMLA PURPOSESOnJune22,theDOLissued interpretive guidance to address how FMLA applies to an employee taking FMLA leave for the birth or placement of a child for adoption, to care for a newborn or newly adopted child, or to care for a child with a serious health condition, when there is no legal or biological parent-child relationship. The FMLA entitles an eligible employee to takeupto12weeksofjob-protectedleavefortheaforementionedreasons,anddefines“sonor daughter” to include not only a biological or adopted child, a foster child, and a legal ward,butalsoachildofapersonstanding“in loco parentis.”FMLAregulationsdefine“in loco parentis” as including those with day-to-day responsibilities to care for and financially support a child.

In its interpretive guidance, the DOL states that the regulations do not require an employee who intends to assume the responsibilities of a parent to bothcareforandfinanciallysupporta child to qualify as standing in loco parentis—“providingeitherday-to-daycareorfinancialsupport may establish an in loco parentis relationship where the employee intends to assume theresponsibilitiesofaparentwithregardtoachild.”Furthermore,theDOLclarifiesthatthefact that a child has a biological parent in the home, or actually has both a mother and a father, doesnotprecludeafindingthattheemployeeprovidingday-to-daycareforthechildisstandingin loco parentis for purposes of taking FMLA leave.

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DOL PROVIDES SAFE HARBOR FOR COMPLIANCE WITH NEW MENTAL HEALTH PARITY REQUIREMENTS WITH RESPECT TO OUTPATIENT BENEFITSIn the March 2010 issue of the R&I Update,wesummarizedtheinterimfinalregulationsissuedjointlybytheIRS,DOL,andCentersforMedicareandMedicaidServicesundertheMentalHealthParityandAddictionEquityAct(MHPAEA).Amongotherthings,theregulationsclarifiedthatwhiletheMHPAEAdoesnotrequireaplantooffermentalhealthandorsubstanceusedisorderbenefits,plansthatdoprovidesuchbenefitsmustofferthemineachclassificationinwhichmedical/surgicalbenefitsareoffered,andthefinancialandtreatmentlimitationsparityrequirementsmustbeappliedonaclassification-by-classificationbasis.Nofinancialrequirements(e.g.,copaymentsor coinsurance) or treatment limitations (e.g., limits on the number of visits) may be imposed withrespecttomentalhealthorsubstanceusedisorderbenefitsunlesssuchrequirementsapplyto“substantiallyall”medical/surgicalbenefitsintheequivalentclassification.Forthispurpose,theregulationsgroupallservicesintosixgeneralclassifications:

Inpatient, in-network1.

Inpatient, out-of-network2.

Outpatient, in-network3.

Outpatient, out-of-network4.

Emergencycare5.

Prescriptiondrugs6.

Plansandinsurancecompaniescommentedthatcertainoutpatientservices,suchasdoctorvisits, typically require a copayment, while other outpatient services, such as outpatient surgeryandlaboratorycharges,aresubjecttocoinsuranceinstead,makingcompliancewiththe“substantiallyall”requirementdifficult.Theagenciesdecidedthatuntilfurtherguidanceonthisissueisreleased,outpatientservicesmaybedividedintothefollowingtwosub-classificationsforpurposesofapplyingthefinancialrequirementandlimitationrulesunderMHPAEA:

Officevisits1.

All other outpatient items and services2.

Aplanthatdividesitsoutpatientbenefitsintothesetwosub-classificationsmaynotimposeanyfinancialrequirementortreatmentlimitationonmentalhealthorsubstanceusedisorderbenefitsineithersub-classification(i.e.,officevisitsorallotheroutpatientitemsandservices)thatismorerestrictivethanthepredominantfinancialrequirementortreatmentlimitationthatappliestosubstantiallyallmedical/surgicalbenefitsinthesub-classificationusingtherulessetforthinthefinalinterimregulations.Otherthanthisspecialprovisionforoutpatientservices,andexceptaspermittedundertheinterimfinalregulationswithrespecttotieredprescriptiondrugformularies,sub-classificationsarenotpermittedforpurposesofapplyingthefinancialrequirementandtreatmentlimitationrulesunderMHPAEA.

PENSION RELIEF ENACTEDDue to the severe economic conditions during the recent recession, many companies are facing substantiallygreatercontributionrequirementsfortheirdefinedbenefitplansthananticipated,at a time when their own cash positions have been weakened. These companies have been seekingdefinedbenefitplanfundingreliefforsometime.Inmanyrespects,otherindustriesare now dealing with the same economic realities as the airline industry did in the aftermath ofSeptember11,2001.Intheyearsfollowingthattragedy,planssponsoredbycommercialpassengerairlineswereeligibleforseveralroundsofdefinedbenefitplanfundingrelief.

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OnJune25,2010,PresidentObamasignedintolawthe PreservationofAccesstoCareforMedicareBeneficiariesandPensionReliefActof2010,P.L.111-192(the2010ReliefAct).Thislawcontainsprovisionsdesignedtoeasethecashcontributionburdenformanydefinedbenefitplansponsors(notjustcommercialpassengerairlines)andpotentiallyeasecertainbenefitrestrictionsimposedbythePensionProtectionActof2006(PPA’06).

Thisarticleonlyaddressesprovisionsofthe2010ReformActthatcouldapplytosingle-employerdefinedbenefitplansinwhichALPApilotsparticipate.Additionalprovisionsinthelawapplytoplansmaintainedbycharitiesandtomultiemployerplans.SinceALPApilotsdonotparticipateinthose types of plans, there is no discussion of those provisions included here.

SomedefinedbenefitplanscoveringALPApilotswouldbeeligiblefortheminimumfundingreliefprovisionsofthe2010ReliefAct,iftheirsponsorselecttousethem.Alldefinedbenefitplanswouldbeeligibleforthebenefitrestrictionreliefprovisions,thoughtheywouldnothaveanyimpactonsomedefinedbenefitplanscoveringALPApilots.FollowingisasummaryofthereliefprovisionsastheypertaintodefinedbenefitplanscoveringALPApilots.

Minimum Funding ReliefThenewminimumfundingreliefdoesnotimpactplansusingthefrozencommercial•passengerairlineplanreliefofPPA’06.ThatwouldincludetheplancoveringpilotsatCALandtheplancoveringformerNWApilotsatDAL.Whilethe2010ReliefActdoesnotexplicitly exclude these plans from using the relief provisions, it would make no sense for them to do so because it would actually result in higher minimum funding contributions than undertheirexistingPPA’06relief.AndtheywouldfirsthavetogetIRSpermissiontostopusingtheexistingPPA’06reliefbeforeelectingthenewrelief.

Thenewminimumfundingreliefcouldapplytoplansusingthenon-frozencommercial•passengerairlineplanreliefofPPA’06.ThatwouldincludeplanscoveringpilotsatALA,HAL,andPDT.Thesponsorwouldhavetomakeaspecificelectiontousethenewrelief.

The new minimum funding relief could apply to plans that were not eligible for (or that •wereeligibleforbutdidnotelect)anyairlinefundingreliefunderPPA’06.TheFDXplan,whichisanall-employeeplanthatincludesALPApilots,wasnoteligibleforanyPPA’06airlinerelief.TheMEApilotplancouldalsobeeligibleforthenewrelief.TheirplansponsordidnotelectthenonfrozencommercialpassengerairlinereliefunderPPA’06.Ofcourse,theplansponsorwouldhavetomakeaspecificelectiontousethenewfundingrelief.

Therearetwominimumfundingreliefoptionsinthe2010ReliefAct.•

Aplansponsormayelectoneoftwoalternativeextensionsofthe7-yearperiodotherwiserequiredforamortizingtheShortfallAmortizationBasethatisestablishedforan“eligibleplan year.” An eligible plan year is a plan year beginning in 2009, 2010, or 2011 (and a plan year beginning in 2008, but it must begin after October 10, 2008). The election is available for up to 2 eligible plan years, but the same relief option must be used for both plan years.

o “2Plus7”AmortizationofShortfallAmortizationBase.Underthisschedule,therequiredinstallmentsforthefirst2yearsoftheamortizationperiodareequaltothe interest on the base at the plan’s effective interest rate for the plan year of the election.Thebalanceisthenamortizedoverthefollowing7yearsinlevelinstallments,allowingatotalof9yearsinsteadof7yearstopayoffthebase.

o 15-YearAmortizationofShortfallAmortizationBase.Underthisschedule,thebaseisamortizedinlevelinstallmentsover15yearsinsteadofthenormal7years.

Ifeitheramortizationextensioniselected,anadditionalcontributionreferredtoasan•“installmentaccelerationamount”mayberequiredduringthe“restrictionperiod.”Aninstallment acceleration amount is the sum of (i) the aggregate amount of excess employee compensation (for all employees) for the plan year, plus (ii) the aggregate amount of extraordinarydividendsandstockredemptionsfortheplanyear.Withrespecttoa“2plus7”election,therestrictionperiodisthe3-yearperiodbeginningwiththeplanyearoftheelection(or,iflater,thefirstplanyearbeginningafterDecember31,2009).Withrespectto

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a“15-year”election,therestrictionperiodisthe5-yearperiodbeginningwiththeplanyearoftheelection(or,iflater,thefirstplanyearbeginningafterDecember31,2009).

If an installment acceleration amount is required for a plan year, future shortfall •amortizationinstallmentsarereduced,inreverseorderstartingwiththefinalscheduledinstallment, so that the present value of the future installments does not exceed the presentvalueoftheremainingshortfallamortizationbase.

SponsorsthatelecttousethefundingreliefavailableundertheReliefActof2010mustgive•noticetoplanparticipantsandbeneficiaries,andmustinformthePensionBenefitGuarantyCorporation(PBGC)oftheelection.

Benefit Restriction ReliefThe2010ReliefActprovideslimitedreliefforcertainPPA’06benefitrestrictionsunderIRC•Section436.ForpurposesoftherestrictionsonbenefitaccrualsforplanswithanAdjustedFundingTargetAttainmentPercentage(AFTAP)lessthan60percent,andtherestrictionsonpayingbenefitsintheformofaSocialSecuritylevelingoptionforplanswithanAFTAPlessthan80percent,forplanyearsbeginningonorafterSeptember1,2008,andbeforeOctober1,2010,theAFTAPisthegreateroftheactualAFTAPforsuchyearortheAFTAPfortheplanyearbeginningafterOctober1,2007,andbeforeOctober1,2008,underrulestobeprovidedbyIRS.The2010ReliefActdoesnotaddresswhetherplansponsorswillbepermittedorrequiredtoapplythereliefretroactivelytoparticipantswhosebenefitscommencedafterthefirstdayofthefirstplanyearbeginningafterOctober1,2008,butprior to the date of enactment.

SEC PROPOSES CHANGES TO MUTUAL FUND DISTRIBUTION FEESTheSecuritiesandExchangeCommissionhasrecentlyproposed a series of changes to how, and how much, investors can be charged by mutual fund companies and broker-dealer intermediaries for the distribution and ongoing client account servicing of open-end investment management funds (i.e., mutual funds). These proposed changes involve a series of new rules and amendments to existing rules that (re)establish the parameters within which sales charges (aka loads) along with fund marketing and client account servicing fees (aka 12b-1 fees) are charged to individual investors. The recommended changes were developed over the past severalmonths,resultingfromaseriesofroundtablediscussionsthattheSECheldwithvariousinvestment market participants, including investors, mutual fund directors, former regulators, andbrokers.Thesechangesareintendedtobenefitindividualinvestorsbyinfluencingimprovements in the pricing and communication of mutual fund marketing charges. It should be noted that the actual portfolio investment management costs charged to investors are not affected by the proposed changes. These changes only address mutual fund sales and marketing related charges.

TheSEChassolicitedcommentaryfrominterestedpartiesoverthenextseveralmonthsanditisanticipatedthatfinalruleswillbeissuedandgointoeffectsometimeduring2011.Theintendedchanges are sundry and often technical. For most investors, the primary change would involve arenamingandrecharacterizationofexisting12b-1feestothatof12b-2fees,andacaponthisannualfeeof0.25percent(oftenreferredtoas25basispoints).Themajorbeneficiariesof this cap will be individual investors who invest in mutual funds in personal accounts, and nottoinvestorsinfundsheldwithinanemployer-sponsoreddefinedcontributionretirementplan—thisappliestomutualfundsofferedbothwithinaplan’scoreinvestmentoptionsandthrough self-directed brokerage accounts that offer access to other mutual funds through a fund “supermarket.”ManyALPApilotscurrentlyselectamonginvestmentoptionswithinemployer-sponsoreddefinedcontributionplansthatdonotchargeany12b-1fees,andforpilotsinplansthat do offer mutual funds that include 12b-1 fees; almost all of them are already limited to 25 or fewer basis points.

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Court Cases of InterestAMERICAN AIRLINES PILOTS’ DB PLAN DOES NOT VIOLATE ERISA IN FAILING TO PROVIDE ACTUARIAL INCREASE AFTER AGE 60TheDistrictCourtfortheMiddleDistrictofTennesseeruledthattheAmericanAirlines,Inc.,PilotRetirementBenefitProgramandAmericanAirlines,collectivelythedefendants,didnotviolateERISA’santi-cutbackandanti-forfeitureprovisionswhentheyrefusedtomakeanactuarialadjustmenttothebenefitofapilotwhoworkedpastage60,theplan’snormalretirementdate(Canada v. American Airlines, Inc. Pilot Retirement Benefit Program,M.D.Tenn.No.3:09-0127,8/10/10).

ThiscaseexaminestheimpactoftheFairTreatmentofExperiencedPilotsAct(FTEPA),whichincreasedthemandatoryretirementageforcommercialairlinepilotsfrom60to65,onAmericanAirlines’pensionplanforpilots.Theplaintiffinthiscase,WilliamCanada,beganworkingasapilotfor American Airlines in 1989 and participated in the company’s pension plan for pilots. Upon his attainmentofage60,whichcontinuestobethenormalretirementageunderthepensionplan,CanadaoptedtocontinueflyingaspermittedafterFTEPA.Pursuanttothetermsofthepensionplan,asamended,AmericanAirlinessuspendedCanada’spensionbenefitduringhiscontinuedemployment,withoutactuarialincreasesduringthetimehecontinuedtoflypastage60.However,uponactualretirement,hiscontinuedservicepastage60willbetakenintoaccountforpurposesofcalculatinghisaccruedbenefitandfinalaverageearningswhenheactuallyretires.

Canadabroughtsuit,arguingthatthesuspensionofhispensionbenefits,basedonaprovisionaddedtotheplanaftercommencementofhisparticipation,andfailuretoactuariallyadjusthisbenefitsuponhisdelayedretirement,diminishedhisaccruedbenefitinviolationofERISA’santi-cutbackandanti-forfeiturerules.ThecourtfoundthatthesuspensionofbenefitsprovisionaddedtotheplandidnotdiminishCanada’sbenefitsbecausetheplanhadalwaysprovidedthatpilotsworkingpastnormalretirementwouldnothavetheirbenefitsactuariallyadjustedforlateretirement.“BecauseCanadawasneverentitledtoanupwardactuarialadjustmentuponlateretirement,theadditionofSection6.10[thesuspensionofbenefitsprovision]didnotreduceanaccruedbenefit.”AstoCanada’santi-forfeitureclaim,thecourtreasonedthatERISAspecificallyprovidesthattherighttoanaccruedbenefitderivedfromemployercontributionswillnotbetreatedasforfeitablesolelybecausetheplanprovidesforasuspensionofbenefitsduringcontinuedemployment.Thecourtruledinfavorofthe plan and American Airlines and dismissed the case.

COURT FINDS THAT PLAN FIDUCIARIES’ FAILURE TO INVESTIGATE AVAILABILITY OF INSTITUTIONAL MUTUAL FUND SHARE CLASSES CONSTITUTES BREACHTheU.S.DistrictCourtfortheCentralDistrictofCaliforniaruledthata401(k)plan’sfiduciariesbreachedtheirfiduciarydutyofprudenceunderERISAbyfailingtoinvestigatethedifferencesbetween retail and institutional mutual fund share classes, and offering as investment options in the plan the more expensive retail share classes rather than the cheaper institutional classes (Tibble v. Edison International,CV07-5359,C.D.CA,7/8/10).

Theplaintiffsinthiscase,currentandformeremployeesofvarioussubsidiariesofEdisonInternational,filedaclassactionagainstfiduciariesoftheEdison401(k)SavingsPlan(thePlan)allegingalaundrylistofclaims,includingfiduciarybreachesrelatedtotheadministrativeandinvestment fees paid by the plan participants. The court dismissed all but two of the claims, most notably whether defendants breached their duty of loyalty and prudence when they added retail share classes rather than institutional share classes of six mutual funds selected as investmentoptionsunderthePlan.

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PlaintiffsallegedthatthedefendantsviolatedtheirdutyofloyaltybyputtingtheinterestsofthePlansponsoraheadoftheinterestsofthePlanparticipants.Plaintiffsreasonedthat,indeciding to offer the retail share classes rather than the cheaper institutional share classes of certain mutual funds, defendants were improperly motivated by a desire to capture more revenuesharingforthePlansponsor,whichwouldoffsettherecordkeepingfeesitwouldotherwisehavetopay,butwhichresultedinhigherinvestmentfeesforthePlan.Thecourtdismissedthedutyofloyaltyclaim,findingthattheevidencedidnotsupportaconclusionthatrevenue sharing was taken into consideration in the fund selection process.

The court came to an opposite decision on the duty of prudence claim, however. The court found that, had the defendants adequately investigated the difference between two classes ofshares,theywouldhaverealizedthattheinstitutionalshareclassesofferedthesameinvestment at a lower cost to participants. Therefore, the court held that, with respect to three of the six mutual funds in question, the defendants violated their duty of prudence in selecting the retail share classes of mutual funds. The court ordered damages to be calculated as the difference between what participants would have earned under the institutional share classes of the three funds vs. what they earned under the retail share classes of those funds, plus the lost investment opportunity on the additional earnings they should have had.

APPELLATE COURT RULES TAFT-HARTLEY FUNDS ARE INHERENTLY CONFLICTED WHEN MAKING BENEFIT DETERMINATIONSTheU.S.CircuitCourtofAppealsfortheSecondCircuitheldthataninherentconflictofinterestexists when a Taft-Hartley fund, which is administered by a board of trustees consisting of employer andunionrepresentatives,makesbenefitdeterminations,andthisconflictmustbeconsideredby the district courts when reviewing determinations under the arbitrary and capricious standard (Durakovic v. Building Service 32 BJ Pension Fund,2010WL2519645,2dCir.2010).

Theplaintiffinthiscase,BejazeDurakovic,wasanimmigrantwithasixth-gradeeducation.For32years,sheworkedasanofficecleaner,until2003,whenchronicpainandweaknesscausedbyinjuriesshesustainedina1999caraccidentcausedhertostopworking.Durakovicfiled adisabilityclaimwithherunionpension,health,andbenefitsfund(theFund),whichprovideddisabilitybenefitstothosedeterminedtobetotallyandpermanentlyunabletoengageinanyfurtheremploymentforwhichtheapplicantisvocationallyqualified.DurakovicsubmittedtwoattendingphysicianreportsandanoticeofbenefitawardfromtheSocialSecurityAdministrationsupportingherentitlementtobenefits.TheFunddeniedherclaim,however,when a third physician contracted by the Fund to provide an independent evaluation determined thatDurakovicwasnottotallyandpermanentlyunabletoengageinanyemployment.WhenDurakovic appealed, the Fund sent her to yet another doctor who also concluded that Durakovic was not totally disabled, and the Fund denied her appeal.

Durakovicfiledsuitindistrictcourtchallengingthedecision.However,beforethecasecouldbeadjudicated,theFundreopenedthecasetodetermineifDurakovicwasvocationallyqualifiedtoworkatanyjob.Herrecordsweresenttoavocationalexpertwhoidentifiedthreejobsthatshe could perform. Despite a contradictory conclusion in a vocational report Durakovic herself obtained, the Fund denied her claim based on its vocational report, and the district court upheld the Fund’s determination.

DurakovicappealedtotheCourtofAppealsfortheSecondCircuit.Shearguedthattheconflictof interest should have been given more weight, and the defendants argued that because the Fundisadministeredjointlybyemployeeandemployerrepresentatives,asrequiredbytheTaft-HartleyAct,itisnotconflicted.ApplyingtheprinciplesintheU.S.SupremeCourt’sGlenn decision (see September2008issue of the R&I Update),theCourtofAppealsfoundinfavorofDurakovic.Wheretheplanadministrator,asinthiscase,bothevaluatesbenefitsclaimsandpaysbenefitclaims,aconflictexists,andaTaft-Hartleyplanadministratorshouldnot

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betreateddifferentlyinthisregard.“Thattheboardis(byrequirementofstatute)evenlybalancedbetweenunionandemployerdoesnotnegatetheconflict.”AsinGlenn, the court shoulddeterminehowmuchweighttoassigntheconflictofinterest.Wherethefactssuggestthatthereisahigherlikelihoodthattheconflictaffectedthebenefitdecision,greaterscrutinyshould be applied. Then, other factors should be taken into consideration to determine whether thedecisionwasarbitraryandcapricious.Inthiscase,theCourtofAppealsdeterminedthatthe Fund’s consideration of the claim was one-sided, having dismissed Durakovic’s vocational report, which was vastly more detailed than the report on which the Fund relied in making itsdetermination.Givingappropriateweighttotheconflictofinterest,theCourtofAppealsdeterminedthat“anyrationaltrieroffactwouldconcludethattheFund’sdecisionwasunsupported by substantial evidence, and therefore arbitrary and capricious.” The court thereforereversedthedistrictcourt’sdecisionandgrantedjudgmentinfavorofDurakovic.

APPELLATE COURT RULES THAT THE RETIREE BENEFITS BANKRUPTCY PROTECTION ACT TRUMPS PLAN LANGUAGE REGARDING MODIFICATION OR TERMINATION OF RETIREE BENEFITSTheU.S.CourtofAppealsfortheThirdCircuitmadealandmarkrulingthatadebtorinbankruptcycannotmodifyanyretireebenefitsduringthebankruptcyproceedingexceptasprovidedbyBankruptcyCode§1114,evenifthetermsoftheplanexplicitlyreservetothedebtor the unilateral right to amend or terminate the plan (In re Visteon Corporation,2010WL2735715(C.A.3(Del.))).

Thedebtorinthiscase,VisteonCorporation,provideditsretireeswithcertainhealthandlifeinsurancebenefitspursuanttocollectivebargaining.Althoughsummaryplandescriptions(SPDs)providedthatbenefitswouldcontinueduringretirement,oruntildeath,theSPDsalsocontainedlanguagewhereinVisteonreservedtherighttomodifyorterminatethecoverage.OnMay28,2009,VisteonfiledaChapter11bankruptcypetition,andshortlythereafterrequestedpermissiontoterminateallretireebenefitsplansof8,000presentandformeremployeesandtheirfamilies.TheretireesarguedthatVisteoncouldnotterminateanyretireebenefitsduringChapter11proceedingswithoutfirstcomplyingwith§1114,whichwascraftedtoprotecttheinterests of retirees during bankruptcy proceeding.

Generally,§1114requiresadebtor,orthetrusteeforthedebtorifonehasbeenappointedasinthiscase,toattempttoreachanagreementwiththeauthorizedrepresentativeoftheaffectedretireesregardingmodificationofretireebenefitsbeforeitcanaskthebankruptcycourttomodifyorterminatethebenefits.Thetrusteeisrequiredtomakeaproposaltotheauthorizedrepresentativeoftheretireesprovidingforthebenefitchangesnecessarytopermitreorganizationofthedebtor,ensuringthatallaffectedpartiesaretreatedfairlyandequitably.Informationaboutthedebtor’sfinancialsituationmustbeprovidedtoallowtheretirees’authorizedrepresentativetomakeaninformedevaluationoftheproposal.Ifthetrusteehasmade a proposal to the retirees satisfying these requirements, the bankruptcy court may only grantamotiontomodifyretireebenefitsifitfindsthattheauthorizedrepresentativehasrefused to accept the proposal without good cause.

Inthiscase,thebankruptcycourthadgrantedVisteon’srequesttoterminatethevastmajorityoftheretireebenefits,concludingthatsinceVisteonhadtheunilateralrighttoterminatethebenefitsundernon-bankruptcylaw,§1114didnotapply.Theretireesappealedthebankruptcycourt’s decision, but the district court denied the appeal, reasoning that to apply the retirees’ interpretationof§1114“wouldresultinretireesreceivingmoreprotectionfromacompanyunder bankruptcy than they would received from a company outside of bankruptcy . . . a unique ifnotrevolutionaryinterpretationoftheBankruptcyCodebyimprovingonthepre-petition,contractual rights of a third party constituent as a result of a bankruptcy case.” On appeal, the ThirdCircuitCourtofAppealsdidnotagree,holdingthattheplainlanguageof§1114anditslegislative history did not support the lower court’s interpretation, and stating:

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“Section1114couldnotbeclearer.Itrestrictsadebtor’sabilitytomodifyany payments to any entity or person under any plan,fund,orprograminexistencewhenthedebtorfilesforChapter11bankruptcy,anditdoessonotwithstandinganyotherprovisionofthebankruptcycode....Congressdidnotrestricttheapplicationof§1114tothosebenefitsthatthedebtorwasotherwisecompelledtoprovide.Benefitsthatthedebtorcould have terminated outsideofbankruptcy,butwhichitwasnonethelessprovidingatthetimeofitsChapter11filing,areplainlyincludedinthephrase,‘paymentstoanyentityorperson...underanyplan, fund, or program.’”

TheCourtofAppealsreasonedthatifCongresshadintendedtoexcludecertainbenefitsfromtheumbrellaof§1114,itwouldhavedoneso,asevidencedbythefactthatbenefitsprovidedtohigh-incomeretireesabletoobtainothercoveragewerespecificallyexcluded.Therefore,thecircuitcourtreversedthedistrictcourt’sorderthathadaffirmedthebankruptcycourt’sorder.As a result, the debtor is not permitted to terminate certain retiree health and life insurance benefitswithoutcomplyingwith§1114.

Collective Bargaining UpdateThefollowingR&I-relatedchangeswereincludedintherecentlyratifiedcollectivebargainingagreements:

Spirit Airlines (Effective August 1, 2010; amendable July 31, 2015)Insurance:

The dollar amount of medical and dental plan copayments, deductibles, and out-of-pocket •maximums,previouslysubjecttoannualincreasesbasedontheConsumerPriceIndex,arenow locked in for the term of the agreement.

Annual increases to the pilots’ monthly contributions for medical/dental coverage are •cappedat7percent.

AnLTDbuy-upoptionwillbeaddedtoallowpilotstobuyupfromthe$5,000maximum•monthlybenefitundertheexistingcompany-paidLTDprogramtoa$10,000maximummonthlybenefit.

Retirement:

Current401(k)companymatchof100percentoffirst8percentcontributedbythepilotwill•increaseto100percentofthefirst9percenteffectiveSeptember2014.

ARoth401(k)optionwillbeaddedtothe401(k)plan.•

Jazz (Effective July 1, 2009; amendable June 30, 2015)Insurance:

Companytomakefixedannualpaymentof$3.8millionasaLossofLicenseoffsetpremium•for each year of the agreement, effectively shifting the 50/50 insurance cost-sharing arrangement in the pilots’ favor.

Retirement:

Thecurrent“hardcap”of$1,722thatlimitedthemaximumbenefitamountperyearof•serviceinthepensionplanwillberemovedwithrespecttoserviceafterJuly1,2010,tobereplaced by the Income Tax Act maximum (as indexed).

Theconversionfromthesinglelifeannuitytothe60percentJ&SA,thenormalformofbenefit•formarriedparticipantsunderCanadianlaw,willbefullysubsidizedwithrespecttobenefitsaccruingafterJuly1,2010,therebyprovidinganunreducedbenefitformarriedparticipants.

PilotcontributiontotheDBplanincreasedfrom5percentto6percenteffectiveJuly1,•2010(DBplansinCanadaaretypicallycontributory).

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Spotlight on InvestmentsCAPITAL MARKETS COMMENTARY AS OF AUGUST 31, 2010Summer2010wasnotarewardingtimeforinvestorsintheU.S.stockmarket.Weakeconomicindicators led to increased concerns among investors that some of the potential promise of economic revitalizationhopedforearlierthisyearmightturnouttobewishfulthinking.Housingsalesforboth existing homes and new construction pulled back considerably after the expiration last spring ofextraordinaryhome-buyertaxincentives;asimilarpatternhasbeenrealizedwithautosalessubsequenttotheexpirationofthe“cashforclunkers”incentiveprogram.Unemploymentcontinuestohoveratcloseto10percent,andthemostrecent(revised)annualizedGDPgrowthrealizedforthesecondquarterof2010was1.6percent,apositivebutanemicrate.

Whilemanylarge,publiclytradedcorporationsarerealizinghigherprofitsandimprovingbalance sheets, much of this improvement is due to tighter cost controls and productivity enhancements instead of top-line sales growth. In contrast to improving conditions for larger companies,manysmallerbusinessescontinuetohavedifficultyinobtainingadequatefinancingfor new equipment purchases and expansion initiatives. The federal government continues, as domanystategovernments,torunrecord-settingdeficits.TheU.S.economyisperceivedtobestagnant and without clear direction.

ThiscurrentprofileoftheU.S.economyhasmanysimilaritiestocounterpartdeveloped-marketeconomies.Asaresult,stockpricesinboththeUnitedStatesandmanyEAFEcountriesdeclinedoverthesummer.Investorsredeployedcapitaltobonds—tosovereignbondsforperceivedsafetyand capital preservation, to corporate debt for higher current income-return potential, and to emergingmarketequities—perceivedtobehigher-growtheconomieswithgreatercapitalgainpotentialthandevelopedmarketequities.Theefficacyofthisrecentshiftremainstobeseen,asanysharporsuddenincreaseininterestrateswouldhurtbondprices,andmajorgeopoliticalevents could impair the return potential in many emerging market economies.

Asalways,investorsshouldconsiderestablishinganappropriatelydiversifiedinvestmentstrategythat takes into consideration risk tolerances and future spending needs during retirement.

Theaccompanyingreturntableandchartsprovidemajorstockandbondmarketdataoverthepast two decades through the end of August 2010.

Investment Performance Returns (%) for Periods Ending August 31, 2010*One

MonthThree Months

YTD

One Year

Three Years

Five Years

Ten Years

Twenty Years

Wilshire5000 –4.65 –3.65 –3.95 5.75 –8.13 –0.52 –1.07 8.57

MSCIEAFE –3.09 5.08 –7.61 –1.93 –10.30 1.43 1.53 5.13

MSCIEM(EmergingMarkets) –1.91 5.57 –0.09 18.34 –1.22 12.71 11.55 10.26

BarCapUSAggregate 1.29 3.98 7.83 9.18 7.66 5.96 6.47 7.26

CitiGroup3-MonthT-Bill 0.01 0.04 0.08 0.12 1.13 2.53 2.46 3.68

*Periods less than 1 year are not annualized.

Wilshire 5000:TotalmarketequityindexofU.S.commonstocks.MSCI EAFE:U.S.dollar-denominatedindexthatrepresentscompaniesinstockmarketsofdevelopedcountriesinEurope,Australia,NewZealand,andtheFarEast.MSCI EM:Capitalization-weightedindexofequitiesfromemergingmarketsincludingonlythosestocksthatmaybetraded by foreign investors.BarCap US Aggregate:U.S.investment-gradefixed-ratebondsincludinggovernment/creditsecurities,agencymortgage/pass-throughsecurities,ABS,andCMBS.CitiGroup 3-Month T-Bill:Usuallyconsideredrisk-freeshort-termsecuritiesissuedbytheU.S.government(usuallyusedas a proxy for cash).

1818Interest and dividends reinvested.

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Membership PlansALPA MEMBER BENEFIT PLANS OFFER EXPANDED DISABILITY INSURANCE OPTIONSTheLittleProgramThatCould,whichbeganitslifein1953astheAirLinePilotsMutualAidAssociation(ALPMAA),willundergoyetanothertransformationthisfallwhenALPAintroducesitsnewShortTermDisabilityInsurancePlan.

ALPMAA’sbenefitsfirsttransferredfromatruemutualaidarrangementtoaninsuredprogramin1999,whenNewYorkLifetookitonasashort-termdisabilityplan.In2001,ALPMAAdissolvedafterobtainingALPA’sassurancethattheALPMAA-providedbenefitswouldcontinuetobeavailableunderALPAsponsorship,andthefirstALPA-sponsoredshort-termdisabilityplanwaslaunched.

Now,afterasearchbyALPA’sNationalR&ICommittee,withsupportfromtheALPAPilotWelfareBenefitPlanReviewBoard,areplacementplanhasbeenidentifiedforthatfirstshort-termdisabilityplan.OnNovember1,2010,coveragewillbeprovidedbyUNUMLifeInsuranceCompany,aFortune500companywithastrongrecordofunderwritingdisabilityinsuranceplans.

Thenewprogramwillofferthreechoicesofwaitingperiods:14days,30days,or60daysfordisabilitiesresultingfromaccidentorillness.Benefitswillbeavailableonaweeklybasis,from$100to$1,000(nottoexceed50percentofpre-disabilityincome)and,oncepayable,willextend to up to one year from the date of disability.

ThosememberswhoarecurrentlyreceivingbenefitsorareinawaitingperiodforbenefitsundertheNewYorkLifeplanwillcontinuetobecoveredbyNewYorkLife.AnyinsuredmemberwithadisabilitycommencingpriortoNovember1,2010,willalsobeconsideredforbenefitsundertheNewYorkLifeplan.

LettersweresenttocurrentinsuredmembersduringthefirstweekinSeptember,outliningtheirnewcoverageoptions.ForthosememberswhoalreadycarriedtheNewYorkLifeshort-termdisabilityplan,coverageundertheUNUMplanwillbeprovidedwithoutevidenceofinsurability. Any other members who wish to pursue coverage under any of the three plans will be offered that opportunity without evidence of insurability when an open enrollment window openslaterinthefall.Foranyquestions,contactALPAMemberInsuranceat(800)746-2572.

Other NewsGOTBAUM APPOINTED DIRECTOR OF PENSION BENEFIT GUARANTY CORPORATIONInearlyJuly,PresidentObamaannouncedtheappointmentofJoshuaGotbaumtoheadthePensionBenefitGuarantyCorporation(PBGC)asitsdirector.Mostrecently,GotbaumwasanoperatingpartneratBlueWolfCapital,aprivateequityfirm.From2003to2005,heledthereorganizationofHawaiianAirlinesasitsbankruptcytrustee.Mr.GotbaumwasthefirstCEOoftheSeptember11thFundfrom2001to2002,acharitywithover$500millioninassets.Priortothat,GotbaumheldvariousgovernmentalappointmentsduringtheClintonadministration.

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PBGC PUBLISHES THE 2009 PENSION INSURANCE DATA BOOKThePBGCrecentlypublishedits2009PensionInsuranceDataBook.Thisdocumenthasbeenpublishedannuallysince1996andpresentsdetailedstatisticsonPBGCprogramoperationsandbenefitprotections.Thefull120-page2009DataBookisavailableathttp://www.pbgc.gov/docs/2009databook.pdf. Itincludes87chartsandtablesaswellasabriefdescriptionofthetwoPBGCguaranteeprograms.Belowareafewinterestingfactsfromthedocument.

A Tale of Two Guarantee ProgramsThe2009DataBookincludesinformationonthetwoinsuranceprogramsadministeredbyPBGC.Oneprogramcoverssingle-employerdefinedbenefitplans,andtheothercoversmultiemployerplans.Thetwoprogramsareverydifferentfromeachotherwithrespecttothelevelofbenefitsthey guarantee and the mechanism through which those guarantees are provided. Airline pilots aregenerallyfamiliarwiththeguaranteesprovidedthroughPBGC’ssingle-employerprogrambut may not even be aware that there is a separate program covering multiemployer plans.

Single-employerplansareplanstowhichoneemployer(ormorethanonerelatedemployer)contribute.AllofthedefinedbenefitplanscoveringALPApilotsaresingle-employerplans.Inthesingle-employerprogram,thetriggerforaPBGCclaimiswhenacoveredplanisterminated(almostexclusivelywhilethesponsorisinbankruptcy)withoutenoughassetstopayallbenefitsthathavebeenaccruedundertheplan.Undersuchatermination,PBGCbecomesthetrusteeoftheplan,takingovertheassets,determiningthebenefitstowhicheachparticipantisentitledfromPBGC,andpayingbenefitstoretireesandbeneficiaries.Guaranteedbenefitsnotfundedbytheterminatedplan’sassetsarepaidfromotherPBGCassets.

Multiemployer plans are plans maintained pursuant to a collective bargaining agreement between one or more unions that represent the plan’s active participants and two or more unrelated employers that are required to contribute to the plan. These plans are common in industries like construction, trucking, textiles, and coal mining. This type of plan allows the same employee to move around from one contributing employer to another and continue accruingbenefitsundertheplanwithoutinterruption.Multiemployerplansareadministeredby a Board of Trustees consisting of representatives of both labor and the plan sponsors. In the multiemployerprogram,thetriggerforaPBGCclaimisplaninsolvency—theinabilityoftheplantopaybenefitswhendue.Insolvencygenerallyoccurswhenallcontributingemployershavewithdrawnfromtheplanandthereisnofurthersourceofincome.PBGCprovidesinsolventmultiemployerplanswithfinancialassistancetopayguaranteedbenefits(whicharemuchlowerthan under the single-employer program) and administrative expenses. The plan continues to payretireesandbeneficiaries.Unlikethesingle-employersystem,PBGCdoesnotdirectlypayretireesandbeneficiaries,andtheydonottrusteetheplan’sassets.Essentially,theseplansdon’t really terminate.

Single-Employer Program—Selected FactsAsoftheendoffiscalyear2009,PBGChadadeficitof$21.1billion,withassetsof$68.7•billionandliabilitiesof$89.8billion.

Since1975,3,993terminationsofunderfundedplanshaveresultedinclaimsof$42.9•billion.

Totalannualclaimshaverangedfromalowof$28.6millionin1984toahighofmorethan•$11.2billionin2005.

Thecompanieswiththe10largestclaimsaccountformorethan63percentofallclaims•againstPBGC.Halfofthosetop10companieswereairlines(#1– United Airlines’ four plans, #4–USAirways’fourplans,#6–DeltaAirLines’pilotplan,#8–PanAmericanAir’sthreeplans,and#9–TransWorldAirlines’twoplans).

Companiesintheairtransportationindustryaccountforalmost33percentofallclaims•againstPBGC,thehighestpercentageofanyonespecificindustry.

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Since1975,over60percentofclaimscamefromplansthatwerelessthan50percent•funded(usingPBGCassumptions)ontheterminationdate.Only$678millionofthe$42.9billion(lessthan1.6percent)intotalclaimscamefromplansfunded75percentorhigheron the termination date.

In2009,PBGCmadebenefitpaymentsofalmost$4.5billiontonearly750,000individuals.•Andthereareanadditional565,000individualsinterminatedplanseligibletoreceivefuturePBGCbenefitpayments.

ThenumberofplanscoveredbyPGBCinsuranceprotectionwas112,000in1985. •In2009only27,650planswerecoveredbyPGBCinsuranceprotectionwithabout33.6million participants. The dramatic decline in the number of covered plans is primarily due to a large number of small plan terminations.

ThepercentageofactiveworkersinPBGC-insuredplanshasdeclinedfrom78percentin•1980to41percentin2007.

Morethan45percentofallPBGC-coveredplanparticipantsareinplanssponsoredby•manufacturingfirms.

Infiscalyear2009,PBGCcollectedover$1.8billionininsurancepremiumsfromcovered•plans.

Multiemployer Program—Selected FactsAsoftheendoffiscalyear2009,PBGChadadeficitof$869million,withassetsof•$1.459billionandliabilitiesof$2.328billion.Theseassetsandliabilitiesarerelatedto10multiemployerplansthatPBGCactuallytrusteedpriorto1980(whenthefinancialassistancemethodologywasintroduced)andforwhichPBGCcontinuestomakebenefitpayments like it does under the single-employer program.

ThenumberofplanscoveredbyPGBCinsuranceprotectionwas2,244in1980.In •2009only1,495planswerecoveredbyPGBCinsuranceprotectionwithabout10.4millionparticipants.Thedeclineinthenumberofplansprimarilyreflectsthelossofplanswithfewerthan1,000participantsandreflectstheimpactofmanyplanmergers.Thenumberofparticipants covered in 2009 represents a 30 percent increase over the 8.0 million covered in 1980.

In2009,morethan75percentofcoveredparticipantswereinplanswith10,000ormore•participants.Thatcomparesto63percentin1980.

ThepercentageofactiveworkersinPBGC-insuredplanshasdeclinedfrom76percentin•1980to45percentin2007.

Morethan36percentofallPBGC-coveredplanparticipantsareemployedinthe•construction trades.

Infiscalyear2009,PBGCcollectedover$95millionininsurancepremiumsfromcovered•plans.

SOCIAL SECURITY TRUSTEES RELEASE 2010 FINANCIAL STATUS REPORTOnAugust5,2010,theSocialSecurityBoardofTrusteesreleaseditsannualreporttoCongressonthefinancialstatusoftheprogram.Thelong-rangeoutlookremainsessentiallyunchanged.Asprojectedinlastyear’sreport,thecombinedassetsoftheOld-AgeandSurvivorsInsuranceandDisabilityInsurance(OASDI)TrustFundsareexpectedtobeexhaustedin2037.Atthattime,therewillbesufficienttaxrevenuecomingintopayonlyabout78percentofbenefits.Benefitsand expenses of the combined programs are expected to exceed tax revenue in both 2010 and 2011,withcashflowthenbecomingpositiveagainthrough2014.Revenueisagainexpectedtofallbelowprogramcostsin2015andremainsofortheremainderofthe75-yearprojectionperiod. The text of the report can be found at www.socialsecurity.gov/OACT/TR/2010/.

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AirCanadaJazz(JAZ) RichardPavel

AirTransat(TSC) RichardPavel

Air Transport (ATI) RichardPavel

AirWisconsin(ARW) JimConnolly

AirTran(ATN) JimConnolly

Alaska (ALA) VictoriaBrady

AmericanEagle(EGL) JimConnolly

ASTAR(DHL) RichardPavel

AtlanticSoutheast(ASA) JimConnolly

Bearskin(BRS) RichardPavel

CalmAir(CMA) RichardPavel

CanJet(CJA) RichardPavel

CapitalCargo(CCI) RichardPavel

Colgan(CJC) JimConnolly

Comair(CMR) RichardPavel

CommutAir(CMT) JimConnolly

Compass(CPZ) JimConnolly

Continental(CAL) JackieDugasandJimConnolly

Delta (DAL) KarenBrowne-Fleck

Evergreen(EIA) RichardPavel

ExpressJet(XJT) JimConnolly

FedEx(FDX) JaniceGentry,AnnMuffoletto, andRichardPavel

First Air (FAB) RichardPavel

Hawaiian (HAL) RichardPavel

IslandAir(AIS) JimConnolly

Kelowna(KFC) RichardPavel

Mesa(MAG) JimConnolly

Mesaba(MSA) JimConnolly

MidwestExpress(MEA) RichardPavel

NorthAmerican(NAA) RichardPavel

Piedmont(PDT) JimConnolly

Pinnacle(PCL) JimConnolly

PSA(PSA) JimConnolly

Ryan(RYN) RichardPavel

Spirit(SPA) RichardPavel

SunCountry(SCA) JimConnolly

TransStates(TSA) RichardPavel

United (UAL) RussWoody

Wasaya(WSG) RichardPavel

R&I Dept. ContactsTelephone numbers and e-mail addresses are on the next page.

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ALPA R&I Dept. Staff NAME/JOB TITlE TElEPhONE ASPEN E-MAIl

VictoriaBrady,Sr.Benefits (206)241-3138 1946 victoria.brady@alpa.org Specialist(ALAMEC)

KarenBrowne-Fleck,Sr. (404)763-4932 4932 karen.browne@alpa.org BenefitsSpecialist(DALMEC) (800)USA-ALPA

JimConnolly,Sr.Field (703)689-4128 4128 james.connolly@alpa.org Representative

JackieDugas, (281)925-4696 9696 jackie.dugas@alpa.org BenefitsSpecialist(CALMEC)

VictoriaFortuna, (703)689-4126 4126 victoria.fortuna@alpa.org Sr.BenefitsAttorney (540)987-8526

ColleenGendreau, (703)689-4115 4115 colleen.gendreau@alpa.org Secretary

JaniceGentry,Sr.Benefits (901)842-2208 2208 janice.gentry@alpa.org Specialist(FDXMEC)

StevenHodgson, (703)689-4124 4124 steve.hodgson@alpa.org Manager,MECBenefits

ElizabethKoby, (703)689-4125 4125 elizabeth.koby@alpa.org Sr.ManagingAttorney

DanielMcManus,Pension (703)689-4121 4121 daniel.mcmanus@alpa.org InvestmentCoordinator

GeraldineMiller,Pension (703)689-4286 4286 geraldine.miller@alpa.org Investment Analyst

AnnMuffoletto, (901)842-2207 2207 ann.muffoletto@alpa.org Asst.BenefitsSpecialist

JackParrack, (703)689-4379 4379 jack.parrack@alpa.org EnrolledActuary

RichardPavel,Sr.Field (703)689-4127 4127 richard.pavel@alpa.org Representative

MarianTashjian,Sr.Benefits (703)689-4129 4129 marian.tashjian@alpa.org Specialist(ALPANat’l)

AnngiTipton, (703)689-4114 4114 anngi.tipton@alpa.org Secretary

RussWoody, (847)292-1768 1768 russell.woody@alpa.org Sr.BenefitsAttorney (847)612-0365(cell)

National R&I CommitteeNAME E-MAIl

CaptainBryanGreen(CAL),Chairman bryan.green@alpa.org

F/ORonaldBarnett(DAL) ron.barnett@alpa.org

S/OKenBinder(FDX) ken.binder@alpa.org

CaptainRobertBrand(UAL) bob.brand@alpa.org

CaptainDavidPeyton(JAZ) dave.peyton@alpa.org