Filed: Apr. 26, 2006
Latest Update: Feb. 12, 2020
Summary: UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 04-2529 WILLIAM J. ADAMS, Plaintiff - Appellee, and JAMES J. SHALVOY, III, Plaintiff, versus LOUISIANA-PACIFIC CORPORATION; ABT BUILDING PRODUCTS CORPORATION; ABTCO, INCORPORATED; ABT BUILDING PRODUCTS CORPORATION SUPPLEMENTAL BENEFIT PLAN #2; RETIREMENT COMMITTEE FOR THE ABT BUILDING PRODUCTS CORPORATION SUPPLEMENTAL BENEFIT PLAN #2, Defendants - Appellants. Appeal from the United States District Court for the Western Distric
Summary: UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 04-2529 WILLIAM J. ADAMS, Plaintiff - Appellee, and JAMES J. SHALVOY, III, Plaintiff, versus LOUISIANA-PACIFIC CORPORATION; ABT BUILDING PRODUCTS CORPORATION; ABTCO, INCORPORATED; ABT BUILDING PRODUCTS CORPORATION SUPPLEMENTAL BENEFIT PLAN #2; RETIREMENT COMMITTEE FOR THE ABT BUILDING PRODUCTS CORPORATION SUPPLEMENTAL BENEFIT PLAN #2, Defendants - Appellants. Appeal from the United States District Court for the Western District..
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UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 04-2529
WILLIAM J. ADAMS,
Plaintiff - Appellee,
and
JAMES J. SHALVOY, III,
Plaintiff,
versus
LOUISIANA-PACIFIC CORPORATION; ABT BUILDING
PRODUCTS CORPORATION; ABTCO, INCORPORATED; ABT
BUILDING PRODUCTS CORPORATION SUPPLEMENTAL
BENEFIT PLAN #2; RETIREMENT COMMITTEE FOR THE
ABT BUILDING PRODUCTS CORPORATION SUPPLEMENTAL
BENEFIT PLAN #2,
Defendants - Appellants.
Appeal from the United States District Court for the Western
District of North Carolina, at Charlotte. Graham C. Mullen, Chief
District Judge. (CA-01-404-3)
Argued: September 21, 2005 Decided: April 26, 2006
Before MOTZ, TRAXLER, and SHEDD, Circuit Judges.
Reversed in part, vacated in part, and remanded by unpublished per
curiam opinion.
ARGUED: Bruce A. Rubin, MILLER NASH, L.L.P., Portland, Oregon, for
Appellants. Sara Wyche Higgins, KENNEDY, COVINGTON, LOBDELL &
HICKMAN, L.L.P., Charlotte, North Carolina, for Appellee. ON
BRIEF: L. Neal Ellis, Jr., HUNTON & WILLIAMS, L.L.P., Raleigh,
North Carolina, for Appellants. Kiran H. Mehta, KENNEDY,
COVINGTON, LOBDELL & HICKMAN, L.L.P., Charlotte, North Carolina,
for Appellee.
Unpublished opinions are not binding precedent in this circuit.
See Local Rule 36(c).
2
PER CURIAM:
In this ERISA case, the Louisiana-Pacific Corporation’s (“LP”)
Retirement Committee, which is the plan administrator of
Supplemental Benefit Plan # 2 (the “Supplemental Plan”), excluded
the stock option income of William J. Adams in calculating his
retirement benefits and also actuarially reduced his benefits
because he retired before age 65. Adams filed suit, alleging that
the LP Retirement Committee improperly reduced his retirement
benefits. After the parties filed cross-motions for summary
judgment, the district court denied the defendants’ motion for
summary judgment but granted Adams’ motion for summary judgment.1
The defendants now appeal. Because we hold that the LP Retirement
Committee did not abuse its discretion, we reverse the district
court’s grant of summary judgment in favor of Adams, vacate its
orders calculating benefits and awarding attorneys’ fees, and
remand for further proceedings.
1
The district court actually also granted part of the
defendants’ motion for summary judgment and denied part of Adams’
motion for summary judgment. Although Adams argued in its motion
for summary judgment that approximately $230,000 of severance pay
he received through October 2000 should have been included in
calculating his benefits, the district court concluded that the
Supplemental Plan prohibited including this income. Because Adams
has not appealed the district court’s grant of summary judgment in
favor of the defendants on this issue, that portion of the district
court’s judgment is not before us.
3
I.
Adams was hired as an executive at ABTco, Inc. in 1992 and
participated in both its Retirement Plan and Supplemental Plan.
The Supplemental Plan was designed to provide additional retirement
benefits for only a select group of ABT’s top executives. The
Supplemental Plan contains many of the same contractual provisions
contained in the Retirement Plan.
In 1998, Adams exercised his ABT stock options worth
approximately $185,000. All of this stock option income was
included in his 1998 Form W-2.
On January 18, 1999, in anticipation of the planned
acquisition of ABT by LP, ABT established a golden parachute plan
entitling Adams and five other ABT top executives to receive
severance benefits after LP acquired control of ABT. This
severance pay package provided for a cash out of stock options,
eighteen months of severance pay, and several other benefits. The
day after ABT established its golden parachute plan LP agreed to
acquire ABT, and the LP Retirement Committee became the plan
administrator of ABT’s Retirement Plan and Supplemental Plan.
Thereafter, any benefits awarded under the Supplemental Plan were
to be funded directly from the general assets of LP.
Adams terminated his employment with ABT on April 30, 1999,
and became an employee of LP the next day. In 1999, Adams cashed
out his remaining ABT stock options worth approximately $870,000.
4
All of this cancellation stock option income was reported on Adams’
1999 Form W-2. Although Adams remained an employee at LP through
2000, he was also paid approximately $230,000 in 2000 in severance
pay under ABT’s golden parachute plan.
Retirement benefits under the Supplemental Plan are based on
the retiring employee’s average “Compensation” over a specified
five-year period multiplied by his years of service. Although
“Compensation” is not defined in the Supplemental Plan, section 4.1
of the Supplemental Plan expressly adopts the definition of that
term in the related Retirement Plan. Section 5.1 of the Retirement
Plan defines “Compensation” as:
the compensation reported as wages on participant’s Form
W-2, plus salary deferral contributions . . . , excluding
other deferred compensation, reimbursements, fringe
benefits, moving expenses and welfare benefits . . . .
J.A. 173 (emphasis added). ABT hired an outside actuary (“the
retained actuary”) to perform its benefits calculations.
One difference between the Retirement Plan and the
Supplemental Plan is that the Retirement Plan has a specific
provision -- section 5.3 -- that actuarially reduces monthly
benefits if a participant retires before age 65. Although the
Supplemental Plan has no such specific provision, it distinguishes
between “normal” and “early” retirement dates. The Supplemental
Plan also provides that “[u]nless otherwise indicated, the terms
used in this Plan shall have the same meaning as set forth in the
Retirement Plan.” J.A. 392. The Retirement Plan defines “normal
5
retirement date” as “the date the participant attains age 65,” and
defines “early retirement date” as “the first day of the calendar
month coincident with or next following the date of the
participant’s retirement from the employ of the company . . .
before his or her normal retirement date but after having attained
age 55.” J.A. 66.
The administrative record reveals that in 1995 the ABT
Retirement Committee considered several issues under the
Supplemental Plan, including whether benefits should be actuarially
reduced for early retirement. The ABT Committee proposed several
amendments to the Supplemental Plan, one of which was to pay early
retirement benefits on an unreduced basis. The retained actuary
analyzed the effect the early retirement amendment would have on
the Plan and recommended that it not be adopted because it would be
too costly. Despite this recommendation, ABT adopted the amendment
to the Supplemental Plan in July 1995, which provided that early
retirement benefits would be paid “on an unreduced basis.” J.A.
386. All of the other proposed amendments were also adopted.
However, two months later in September 1995, ABT issued a
revised Supplemental Plan, which included all of the provisions
adopted by ABT in July 1995 except for the provision requiring that
early retirement be paid “on an unreduced basis.” It is undisputed
that all benefits paid under this Supplemental Plan (and all
6
earlier and later versions of the Plan) were actuarially reduced
for those retiring before age 65.2
In September 1999, Adams requested from ABT a benefits
calculation under the Retirement Plan and the Supplemental Plan for
three different start-payment dates, 1999 (when Adams turned 58),
2003 (when Adams turned 62), and 2006 (when Adams turned 65). ABT
provided to its retained actuary the amounts of Adams’ compensation
for the five-year period 1995 through 1999 and requested a benefits
calculation for Adams. In performing the requested calculations,
the actuary included the income Adams received from the
cancellation of his stock options in 1999. The retained actuary
provided its calculations to the LP Retirement Committee,
explaining that it included the stock option income because the
“plan definition of compensation is essentially W-2, thus, if the
exercised options are included in W-2, we will use them.” J.A.
910.
In October 1999, the LP Retirement Committee passed a
Resolution relating to both the ABT Retirement Plan and the
Supplemental Plan. According to this Resolution, “payments
received in 1999 by participants in the Plans . . . in
consideration for the cancellation of certain outstanding stock
2
The retained actuary did not know that the July 1995
amendment requiring payment of early retirement benefits “on an
unreduced basis” had been adopted until after Adams sought a
calculation of his retirement benefits in 1999.
7
options . . . do not constitute “Compensation” as defined in
Section 5.1 of the Retirement Plan and in Section 4.1 of the
[Supplemental Plan].” J.A. 469.
In March 2000, the LP Retirement Committee responded to Adams’
request for benefit calculations, indicating that Adams would
receive approximately $1,000 a month under the Retirement Plan and
approximately $3,000 a month under the Supplemental Plan if he
began receiving retirement benefits at age 65. Contrary to its
retained actuary’s recommendation, the LP Retirement Committee’s
calculation did not include the more than $1 million of income
Adams received from his exercise and cancellation of stock options
in 1998 and 1999.
In May 2000, Adams complained to the LP Retirement Committee
that its benefits calculation significantly underestimated his
Supplemental Plan benefits for several reasons. In particular, he
asserted that the calculation should have included the more than $1
million he received in stock option income in 1998 and 1999. Adams
cited the retained actuary’s previous statement that all income
reported on a retiree’s Form W-2 should be included in the
Supplemental Plan calculation. He also asserted that the $230,000
he would receive in severance pay in 2000 should be included in his
benefits calculation. Moreover, Adams argued that the Supplemental
Plan did not provide for an actuarial reduction in benefits for
retirement before age 65, so he was entitled to begin receiving his
8
benefits on an unreduced basis as of May 1999, when he retired from
ABT. Based on his calculation, Adams claimed he was entitled to
monthly payments of $6,901 under the Supplemental Plan,
substantially more than the estimate provided by the LP Retirement
Committee.
In its October 2000 response to Adams, the LP Retirement
Committee disagreed that Adams’ stock option income should be
included in the benefits calculation. Instead, the Retirement
Committee asserted that, even though stock option income was
included on Adams’ Form W-2, it was properly excluded from Adams’
benefits calculation because it constituted a “fringe benefit”
under the Supplemental Plan’s definition of “Compensation.” J.A.
1292. The Retirement Committee represented that the Supplemental
Plan’s definition of “Compensation” was fashioned after the IRS’s
“safe-harbor” definition to qualify the Plan for certain tax
protections and that the Retirement Committee deemed it appropriate
-- to ensure compliance with the IRS regulations -- to exclude
Adams’ stock option income as a fringe benefit. The Retirement
Committee also indicated that it would be highly unusual to include
such an extraordinary amount of compensation in the calculation
since Supplemental Plan benefits were intended to replace the
retiree’s normal compensation stream, not a compensation stream
abnormally enhanced by exercise and cancellation stock option
income. The Retirement Committee acknowledged, however, that ABT’s
9
prior practice was inconsistent because stock option income was
included in some prior benefits calculations but excluded in
others.
The LP Retirement Committee also asserted that the
Supplemental Plan provides for an actuarial reduction of benefits
for those participants who retire before age 65. It reasoned that
the July 1995 amendment providing that early retirement benefits
would be paid “on an unreduced basis” must have been an
administrative mistake and that, at any rate, it was removed from
the Supplemental Plan just two months later when the revised Plan
document was issued. The Retirement Committee also noted that
section 4.2 of the Supplemental Plan provides that benefits are
payable at normal and early retirement dates. Because the
Retirement Plan requires an actuarial reduction for early
retirement and because the Supplemental Plan generally provides
that its terms have the same meaning as the terms of the Retirement
Plan, the Retirement Committee reasoned that early retirement
benefits paid under the Supplemental Plan should be actuarially
reduced in the same manner that they are reduced under the
Retirement Plan. The Retirement Committee also noted that all
previous Supplemental Plan early retirement benefits calculations
were actuarially reduced. Last, the Retirement Committee agreed
with Adams that he was entitled to draw his benefits starting May
1, 1999.
10
In December 2000, Adams appealed the LP Retirement Committee’s
adverse determinations. Adams cited Treas. Reg. § 1.61-21(a)(1),
which lists several examples of fringe benefits. Because stock
option income is not on that list, Adams reasoned that the IRS did
not consider stock option income to be a fringe benefit. Adams
also asserted that the IRS has several alternative safe-harbor
definitions of “Compensation,” one of which specifically excludes
stock option income. Thus, Adams asserted that the Plan sponsor
must have intended to include stock option income or it would have
incorporated the safe-harbor definition specifically excluding it.
Adams also argued that the LP Retirement Committee’s rationale
for concluding that the Supplemental Plan incorporated the
Retirement Plan’s actuarial reduction for early retirement was
flawed in several respects. He argued that the Supplemental Plan
included the terms “normal” and “early” retirement dates merely to
specify when payment of retirement benefits are allowed to
commence. Adams also noted that the Supplemental Plan does not
specifically cross-reference section 5.3 of the Retirement Plan --
the provision that mandates an early retirement actuarial reduction
-- which ABT easily could have done if it intended to actuarially
reduce early retirement benefits. Adams further noted that ABT
specifically included an actuarial reduction in the Supplemental
Plan in the case of those participants entitled to a joint and
survivor annuity. Thus, Adams reasoned, ABT knew how to
11
actuarially reduce a benefit but “chose to be silent as to
actuarial reductions for pre-age 65 commencement of benefits.”
J.A. 1306 n.7. In response to the Retirement Committee’s assertion
that all prior Supplemental Plan early retirement benefits
calculations had been actuarially reduced, Adams asserted that this
prior practice had no relevance because the clear language of the
Supplemental Plan does not provide for an actuarial reduction of
early retirement benefits.
After receiving Adams’ appeal, the LP Retirement Committee
obtained a report from Robert Weatherford, the consulting actuary
it hired to analyze ABT’s prior practice of calculating benefits
under its retirement plans. As part of his review, Weatherford
interviewed the former administrator of ABT’s Retirement Committee
and reviewed extensive documentation of ABT’s prior benefits
calculations. Weatherford determined that there was only one
instance, the calculation of retirement benefits for Ron Green, in
which the ABT Retirement Committee expressly directed its retained
actuary in writing regarding the elements of compensation that
should be included in benefits calculations. In the Green
calculation, the ABT Retirement Committee staff directed that only
“base pay, overtime and bonus amounts can be used in the benefit
calculation,” and, as a result, more than $900,000 in stock option
income was excluded from Green’s retirement benefit calculation.
J.A. 767. Weatherford determined generally that ABT’s retained
12
actuary treated stock option income very inconsistently when
calculating retirement benefits under the ABT Retirement plans. In
most instances, stock option income was included, but in many
instances stock option income was excluded. When stock option
income was included in benefits calculations, it appeared that such
inclusions resulted from the ABT payroll department providing the
retained actuary with only lump sum compensation figures that
included stock option income and not from any intentional decision
by the ABT Retirement Committee to include stock option income. In
some instances, these lump sums also included obvious fringe
benefits like moving expenses and automobile allowances that
clearly should have been excluded from the benefits calculations.
In summary, Weatherford concluded:
It seems reasonable to assume that prior to the date of
[the acquisition of ABT by LP], at no time did the ABTco
Plan Administrator or the Retirement Committee make an
identifiable effort to consciously include stock options
as an element of compensation used in benefit
calculations for either the Retirement Plan or [the
Supplemental Plan]. It appears more likely that the
stock options included in the pension compensation
provided to the prior actuary were a result of human
error during the process of programming the payroll
system, rather than a conscious act on the part of the
[ABT] Plan Administrator.
J.A. 842.
In February 2001, the LP Retirement Committee formally upheld
its denial of Adams’ claims. In response to Adams’ claim that
Treas. Reg. § 1.61-21 does not include stock option income as a
fringe benefit, the Retirement Committee noted that the regulation
13
lists examples of fringe benefits and does not purport to be an
exhaustive list. Thus, just because stock option income is not
expressly included in the list does not mean that the IRS intended
to exclude it from the list. The Retirement Committee further
stated it was not persuaded by Adams’ argument that the ABT would
have used the safe-harbor definition that specifically excluded
stock option income if it had intended to exclude stock option
income. The Retirement Committee reasoned that there were several
other reasons why ABT may have decided to use the alternative safe-
harbor definition not specifically excluding stock option income.
For instance, the definition ABT chose is perhaps the easiest to
administer and, while it does not specifically exclude stock option
income, fringe benefit is a sufficiently broad category to
encompass stock option income.
As additional support for its conclusion that stock option
income should be considered a fringe benefit, the Retirement
Committee referenced IRS Publication 15-B, “Employer’s Tax Guide to
Fringe Benefits.” Because this publication includes a discussion
of how to treat income derived from stock options, the Retirement
Committee reasoned that “in the IRS’s view, exercise and
cancellation [stock option] income are fringe benefits.” J.A. 952.
The Retirement Committee also referenced in detail the recent
findings of Weatherford, its consulting actuary, who determined
that the past practice by ABT was generally to exclude stock option
14
income under the Supplemental Plan for the most highly compensated
executives whenever the benefit calculations were processed
manually outside the automated payroll system. It adopted
Weatherford’s theory that the inclusion of stock option income was
most likely a function of how the payroll system was programmed
rather than any conscious decision by ABT to include it. Notably,
in denying Adams’ claim that stock option income should be included
in his benefits calculation, the Retirement Committee did not rely
on its October 1999 Resolution excluding cancellation stock option
income received in 1999 from “Compensation.”
The Retirement Committee also upheld its determination that
Adams’ benefits under the Supplemental Plan should be actuarially
reduced because he retired from ABT before age 65. While
acknowledging that Adams’ interpretation -- that the Supplemental
Plan provides for an unreduced benefit -- was a reasonable
interpretation, the Retirement Committee concluded that its
contrary interpretation more likely was consistent with ABT’s
intention, especially when the Supplemental Plan is read in context
with the Retirement Plan and when viewed in light of ABT’s prior
consistent practice of actuarially reducing all Supplemental Plan
early retirement benefits. The Retirement Committee also reasoned
that there would have been no reason for ABT to attempt to amend
the Supplemental Plan in July 1995 to provide for unreduced
15
benefits if the Supplemental Plan already prohibited actuarial
reduction of early retirement benefits.
After exhausting his administrative remedies, Adams filed this
ERISA action against the defendants. Following discovery, the
parties filed cross-motions for summary judgment.
In granting summary judgment in favor of Adams, the district
court concluded that the Retirement Committee’s adoption of the
October 1999 Resolution violated the plain terms of section 7.2 of
the Supplemental Plan, which prohibits amending the Supplemental
Plan without first obtaining written consent of the affected
participant. Thus, because Adams did not consent to this amendment
to the Supplemental Plan, the district court ruled that the
Retirement Committee abused its discretion by refusing to include
Adams’ stock option income in his benefits calculation.
The district court also concluded that the LP Retirement
Committee was bound to apply the July 1995 amendment to the
Supplemental Plan mandating that benefits “be paid on an unreduced
basis,” because there was no documentation establishing that ABT
had revoked the amendment. Thus, the district court ruled that the
LP Retirement Committee abused its discretion by actuarially
reducing Adams’ benefits in contravention of the July 1995
amendment.
After issuing its summary judgment order, the district court
ordered the parties to recalculate Adams’ Supplemental Plan
16
benefits consistent with its rulings. Without waiving their
objections to the court’s rulings, the defendants calculated Adams’
monthly benefits to be $6,315.83. Adams calculated that his
monthly benefits should be $6,770.25. The district court adopted
Adams’ calculation, and entered judgment accordingly.
II.
We review a grant of summary judgment de novo, applying the
same standards employed by the district court. Evans v.
Metropolitan Life Ins. Co, 358 F.3d 307, 310 (4th Cir. 2004). When
parties file cross-motions for summary judgment, we must consider
each motion separately and view the facts relevant to each in the
light most favorable to the nonmoving party. Mellen v. Bunting,
327 F.3d 355, 363 (4th Cir. 2003).
In cases in which the ERISA plan vests the plan administrator
with discretionary authority to construe the terms of the plan, we
review the administrator’s benefits determinations for an abuse of
that discretion. Evans, 358 F.3d at 310. Under this deferential
standard, we will not disturb the administrator’s decision if it is
reasonable, even if we would have come to a different conclusion
independently. Booth v. Wal-Mart Stores, Inc. Assocs. Health &
Welfare Plan,
201 F.3d 335, 341 (4th Cir. 2000). A plan
administrator’s determination is reasonable if it is the product of
a deliberate and principled reasoning process and is supported by
17
substantial evidence. Brogan v. Holland, 105 F.3d 158, 161 (4th
Cir. 1997).
However, even when a plan confers discretion on the plan
administrator to construe the meaning of the plan’s terms, the plan
administrator is “not free to alter the terms of the plan or to
construe unambiguous terms other than as written.” Colucci v. AGFA
Corp. Severance Pay Plan, 431 F.3d 170, 176 (4th Cir. 2005). If a
denial of benefits is contrary to the clear terms of the plan, the
plan administrator’s determination “will constitute an abuse of
discretion.” Lockhart v. United Mine Workers of America 1974
Pension Trust,
5 F.3d 74, 78 (4th Cir. 1993).
Section 5.1 of the Supplemental Plan gives the LP Retirement
Committee, as the plan administrator, “full discretionary authority
to determine an individual’s eligibility for benefits . . . and to
otherwise interpret and administer the Plan.” J.A. 452. The
parties agree, based on the Plan’s grant of discretion, that our
review is for an abuse of discretion rather than de novo. However,
Adams argues that the deferential abuse of discretion standard
should be lessened because the LP Retirement Committee was acting
under a clear conflict of interest. He claims that the LP
Retirement Committee had a financial incentive to reduce Adams’
benefits as much as possible because LP would be required to pay
the benefits from its general assets and because only ABT, not LP,
employees are participants under the Supplemental Plan. For
18
purposes of our review, we will assume that the LP Retirement
Committee was acting under a conflict of interest and will,
therefore, reduce the amount of deference to the extent necessary
to counteract any undue influence resulting from the conflict. See
Doe v. Group Hospitalization & Med. Servs., 3 F.3d 80, 87 (4th
Cir. 1993) (“[W]e will review the merits of the [administrator’s]
interpretation to determine whether it is consistent with an
exercise of discretion by a fiduciary acting free of the interests
that conflict with those of the beneficiaries. In short, the
fiduciary decision will be entitled to some deference, but this
deference will be lessened to the degree necessary to neutralize
any untoward influence resulting from the conflict”).3
III.
A.
The defendants argue that the district court erred in
concluding that the LP Retirement Committee abused its discretion
in determining that Adams’ stock option income should not be
3
After oral argument in this case, we issued our opinion in
Colucci, 431 F.3d at 179, in which we stated that “the simple and
commonplace fact that a plan’s administrator is also its funder is
not enough to support a finding of a conflict of interest that
would cause an adjustment to our deference.” Under the particular
facts of that case, we declined to lessen the deference under the
abuse of discretion standard. Although it is possible that Colucci
would support the same result in this case, the defendants have not
attempted to supplement their briefs to argue that Colucci should
apply to the facts of this case.
19
included in the benefits calculation under the Supplemental Plan.
We agree.
The district court ruled that the LP Retirement Committee
contravened the clear language of the Supplemental Plan by adopting
the October 1999 Resolution amending the Supplemental Plan to
exclude stock option income as a component of “Compensation”
without obtaining Adams’ consent. Thus, the district court
concluded that the Retirement Committee abused its discretion by
relying on this improper amendment and excluding stock option
income from Adam’s benefits calculation.
The district court’s ruling is incorrect for three reasons.
First, the October 1999 Resolution was not an amendment to the
Supplemental Plan that required consent by Adams. Instead, the
Resolution was simply the LP Retirement Committee’s interpretation
of the definition of “Compensation,” and section 5.1 of the
Supplemental Plan expressly authorizes the Retirement Committee
“to interpret” the terms of the Plan. Second, even if the
Resolution were an impermissible amendment to the Plan, there is no
indication that the Retirement Committee relied on the Resolution
in deciding during its administrative review of Adams’ claim that
stock option income was a fringe benefit that must be excluded from
the calculation of Adams’ benefits. Although the Retirement
Committee gave several rationales for its determination that stock
option income was excludable, it never mentioned the October 1999
20
Resolution during its administrative review. Third, the October
1999 Resolution applies only to cancellation stock option income
received in 1999, so the Retirement Committee could not have relied
on that Resolution in deciding to exclude the exercise stock option
income that Adams’ received in 1998.
In deciding whether an administrator has abused its
discretion, we consider several factors, including, but not limited
to: (1) the language of the plan; (2) the sufficiency of the
materials considered in making the decision and the extent to which
they support it; (3) whether the administrator’s determination was
consistent with previous interpretations of the plan; and (4)
whether the decisionmaking process was reasoned and principled.
Booth, 201 F.3d at 342-43. We conclude that all of these factors
support the conclusion that the LP Retirement Committee did not
abuse its discretion by deciding to exclude stock option income
from Adams’ benefits calculation.
First, the language of the Supplemental Plan does not
specifically state whether stock option income should be included
in calculating benefits. Instead, the Plan requires the Retirement
Committee to take into account all compensation reported on the
participant’s Form W-2 and then subtract from that figure several
particular forms of compensation including fringe benefits.
Because the term “fringe benefits” is not defined under the Plan
and its meaning is susceptible to more than one meaning, the
21
Retirement Committee acted within its authority in attempting to
determine if stock option income reasonably fell within that
category of excludable compensation.
Second, the Retirement Committee considered a wide range of
materials in reaching its decision. The Retirement Committee hired
Weatherford to review how ABT treated stock option income in
benefit calculations before LP acquired ABT. Weatherford reviewed
voluminous records and also interviewed ABT employees before
submitting his results to the Retirement Committee. The Retirement
Committee also reviewed various Treasury regulations to determine
whether the IRS considered stock option income to be a fringe
benefit. Although none of these materials conclusively established
that stock option income is a fringe benefit, they provided
sufficient support for the Retirement Committee’s ultimate
conclusion that stock option income should be considered a fringe
benefit and should, therefore, be excluded from Adams’ benefits
calculations.
Third, the LP Retirement Committee’s decision was consistent
with most of ABT’s prior “interpretations” under the Supplemental
Plan. It is undisputed that stock option income was not treated
consistently by the ABT Retirement Committee in calculating
benefits. After reviewing ABT’s past practice, Weatherford
surmised that, when ABT’s Retirement Committee specifically
considered whether to include or exclude stock option income, it
22
decided to exclude it. On the other hand, Weatherford opined that
the inclusion of stock option income in calculations did not appear
to be based on a specific interpretation of the Supplemental Plan
by the ABT Retirement Committee but seemed instead to be the
product of the payroll department reporting stock option income in
the data it forwarded to the retained actuary. That data was often
incorrect because in some instances it failed to exclude even
obvious fringe benefits like automobile allowances and moving
expenses. Under Weatherford’s theory, although the LP Retirement
Committee’s interpretation excluding stock option income was
inconsistent with ABT’s past “practice” of including it in many
instances, it was consistent with those instances in which ABT
specifically “interpreted” the Supplemental Plan to exclude stock
option income.
Finally, although the LP Retirement Committee’s interpretation
was not consistent with its retained actuary’s recommendation that
stock option income be included, the Retirement Committee’s refusal
to adopt the retained actuary’s recommendation is reasonable. In
his September 1999 letter to the LP Retirement Committee, the
retained actuary insisted that “the plan definition of compensation
is essentially W-2, thus, if the exercised options are included in
W-2, we will use them.” This assertion, however, ignores the clear
definition of “Compensation” in the Supplemental Plan requiring
that several components of “Compensation” that are included on Form
23
W-2, including fringe benefits, must be excluded for purposes of
calculating benefits.4
Fourth, the LP Retirement Committee’s decisionmaking process
was reasoned and principled. The LP Retirement Committee
thoroughly reviewed ABT’s prior practices and interpretations,
consulted related Treasury regulations, and carefully responded to
Adams’ many countervailing arguments. In sum, even considering the
Retirement Committee’s conflict of interest, its decision to
exclude stock option income as a fringe benefit from Adams’
benefits calculation was reasonable and supported by substantial
evidence.
B.
The defendants next argue that the district court erred in
determining that the LP Retirement Committee abused its discretion
in deciding to actuarially reduce Adams’ benefits for early
retirement. We agree.
The district court ruled that the Retirement Committee was
required to apply the July 1995 amendment mandating that early
4
Adams also cites to the retained actuary’s November 1999
correspondence to the LP Retirement Committee, even though this
letter was not included in the administrative record. Assuming
that this letter is properly before us, it does not affect our
ruling. The retained actuary reasserts his opinion that
“Compensation” is “basically W-2 compensation.” J.A. 1076. This
letter, like his September 1999 correspondence, does not discuss
whether stock option income can be subtracted as a fringe benefit.
24
retirement benefits be paid “on an unreduced basis,” because there
was no evidence in the administrative record that this amendment
had formally been revoked. We conclude that this ruling is not
supportable under the particular facts of this case.
Even assuming that the July 1995 amendment was not properly
revoked in 1995, Adams would be entitled to rely on it only for his
benefits that vested prior to the September 1995 version of the
Supplemental Plan, which did not incorporate the July 1995
amendment. It is undisputed that none of Adams’ Supplemental Plan
benefits vested until after 1995, so the July 1995 amendment would
not apply to any of Adams’ benefits.
Having found that the basis of the district court’s ruling was
incorrect, we also conclude that the Retirement Committee’s
decision to actuarially reduce Adams’ benefits was the product of
a deliberate and principled reasoning process and is supported by
substantial evidence. See Brogan, 105 F.3d at 161. Adams’
principal argument that the Retirement Committee abused its
discretion because actuarially reducing benefits contravenes the
clear language of the Supplemental Plan is not persuasive. The
Supplemental Plan does not expressly provide that early retirement
benefits must be paid on an unreduced basis. Instead, the Plan
sets out a formula to calculate benefits but also distinguishes
between “early” retirement and “normal” retirement. Although Adams
insists that this distinction is only meant to determine when
25
benefits may commence, the reason for this distinction is
susceptible to more than one reasonable interpretation. Because
the Supplemental Plan supplements benefits under the Retirement
Plan and shares many of the same terms and meanings, we conclude
that it was reasonable for the Retirement Committee to draw
inferences from how the Retirement Plan treats early retirement
benefits in determining how they should be treated under the
Supplemental Plan.
Moreover, we conclude that the Retirement Committee reviewed
adequate materials (the prior plan revisions and amendments and
prior ABT calculations) in reaching its decision and thoroughly
responded to all of the contrary arguments raised by Adams.
Finally, it is undisputed that actuarially reducing benefits for
early retirement is entirely consistent with ABT’s prior practice
under the Supplemental Plan.
C.
The defendants also argue that the district court erred in
adopting Adams’ calculation of benefits and awarding attorneys’
fees. Because our opinion reversing the judgment of the district
court on the stock option and early retirement issues will
necessarily affect the district court’s benefits calculations, we
decline to address the defendants’ additional arguments at this
time. Instead, we vacate the district court’s orders calculating
26
benefits and awarding attorneys’ fees and remand for further
proceedings.
IV.
We hold that the LP Retirement Committee did not abuse its
discretion in deciding to exclude Adams’ stock option income in his
benefits calculation. We also hold that the LP Retirement
Committee did not abuse its discretion in actuarially reducing
Adams’ benefits for early retirement. Accordingly, we reverse the
grant of summary judgment in favor of Adams, vacate the orders
calculating benefits and awarding attorneys’ fees, and remand for
further proceedings consistent with this opinion.
REVERSED IN PART,
VACATED IN PART,
AND REMANDED
27
