Filed: Feb. 18, 2009
Latest Update: Feb. 12, 2020
Summary: UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 07-2040 DENNIS P. BRADY, Plaintiff - Appellee, v. THE DOW CHEMICAL COMPANY RETIREMENT BOARD; UNION CARBIDE EMPLOYEES' PENSION PLAN, formerly known as Retirement Program Plan for Employees of Union Carbide Corporation and its Participating Subsidiary Companies, Defendants - Appellants. Appeal from the United States District Court for the Southern District of West Virginia, at Charleston. Robert C. Chambers, District Judge. (2:0
Summary: UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 07-2040 DENNIS P. BRADY, Plaintiff - Appellee, v. THE DOW CHEMICAL COMPANY RETIREMENT BOARD; UNION CARBIDE EMPLOYEES' PENSION PLAN, formerly known as Retirement Program Plan for Employees of Union Carbide Corporation and its Participating Subsidiary Companies, Defendants - Appellants. Appeal from the United States District Court for the Southern District of West Virginia, at Charleston. Robert C. Chambers, District Judge. (2:06..
More
UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 07-2040
DENNIS P. BRADY,
Plaintiff - Appellee,
v.
THE DOW CHEMICAL COMPANY RETIREMENT BOARD; UNION CARBIDE
EMPLOYEES' PENSION PLAN, formerly known as Retirement
Program Plan for Employees of Union Carbide Corporation and
its Participating Subsidiary Companies,
Defendants - Appellants.
Appeal from the United States District Court for the Southern
District of West Virginia, at Charleston. Robert C. Chambers,
District Judge. (2:06-cv-00025)
Argued: December 3, 2008 Decided: February 18, 2009
Before NIEMEYER and MICHAEL, Circuit Judges, and Rebecca Beach
SMITH, United States District Judge for the Eastern District of
Virginia, sitting by designation.
Affirmed by unpublished per curiam opinion.
ARGUED: Robert Matthew Martin, PAUL, HASTINGS, JANOFSKY &
WALKER, Atlanta, Georgia, for Appellants. John Francis Dascoli,
Charleston, West Virginia, for Appellee. ON BRIEF: Erin E.
Magee, JACKSON & KELLY, P.L.L.C., Charleston, West Virginia, for
Appellants.
Unpublished opinions are not binding precedent in this circuit.
2
PER CURIAM:
This appeal involves a dispute about whether the Dow
Chemical Company Retirement Board (the “Dow Retirement Board,”
“Dow Board,” or the “Board”) and the pension plan it administers
for employees of the Union Carbide Corporation (“UCC”) failed to
provide plan participants adequate notice of substantial plan
amendments pursuant to the requirements of 29 U.S.C. § 1054(h).
Dennis Brady sued the Board and the amended plan under the
Employee Retirement Income Security Act of 1974 (“ERISA”), 29
U.S.C. § 1132, alleging a violation of those notice
requirements. The district court granted summary judgment to
Brady. We affirm.
I.
Effective February 6, 2001, UCC became a wholly owned
subsidiary of Dow Chemical Company (“Dow”). For the next two
years the Dow Retirement Board continued to administer the
traditional defined benefit pension plan that had been available
to UCC employees: the Retirement Program Plan for Employees of
Union Carbide Corporation and its Participating Subsidiary
Companies (the “Prior UCC Plan”). As of February 7, 2003,
however, the Board substantially amended the Prior UCC Plan and
renamed it the Union Carbide Employees’ Pension Plan (the
“UCEPP”).
3
The changes transformed the Prior UCC Plan into a
pension equity plan whereby benefits accrued under a different
formula than under the Prior UCC Plan. The UCEPP also uses
different variables in its formula than the Prior UCC Plan.
Benefits became available under the new UCEPP formula on
February 7, 2003, but the UCEPP also grandfathered in certain
Prior UCC Plan benefits. The UCEPP guaranteed plan participants
the benefits that would have been available to them under the
Prior UCC Plan had they retired on February 6, 2003. The Board
refers to this as the “frozen February 6, 2003 pension benefit”
or “the February 6, 2003 grandfather benefit.” J.A. 118; 195.
The UCEPP also provided that plan participants would continue to
earn benefit accruals under the Prior UCC Plan through December
31, 2005. The Board refers to this as the “December 31, 2005
grandfather benefit.” J.A. 196.
The Prior UCC Plan provided both normal retirement
benefits and early retirement benefits. Normal retirement
benefits were payable to those age 65 or older with one month of
service, those age 62 or later with 10 years of service, or
those whose age plus years of service totaled 85 (the parties
refer to these participants as having 85 “points”). Plan
participants not yet eligible for normal retirement benefits
were nevertheless eligible for early retirement benefits in the
form of a percentage of their full retirement benefits. This
4
percentage -- or “reduction factor” -- was based on length of
service and age and was slightly more generous for individuals
who were forced to retire early than for individuals who retired
early voluntarily. The applicable reduction factors appear in
Table 1 and Table 2 of the Prior UCC Plan. Table 1 was
applicable to those individuals who retired early voluntarily,
and Table 2 was applicable to those individuals terminated early
involuntarily. Table 2 incorporated a benefit that “bridged”
individuals from 83 to 85 points. That is, those individuals
whose age plus years of service exceeded 83 were eligible for
full benefits under Table 2.
Dennis Brady was employed by UCC until July 31, 2004,
at which time he was involuntarily terminated. At the time of
his forced retirement, Brady’s age and years of service equaled
83.01: he was fifty-five years and five months old and had
worked for UCC for twenty-seven years and seven months. Brady
sought benefits under the December 31, 2005, grandfather benefit
of $2,642.97 per month. He argued that he was eligible for full
retirement benefits unreduced by a reduction factor because his
age plus years of service exceeded 83, which meant that he was
bridged from 83 to 85 under Table 2 of the Prior UCC Plan. He
based his argument on the materials that Dow had distributed to
plan participants; those materials indicated that the plan
5
amendments extended benefit accrual under the Prior UCC Plan
through December 31, 2005.
The UCEPP administrators determined that Brady was
only entitled to $2,361.00 per month. The December 31, 2005,
grandfather benefit was applicable as an early retirement
benefit, but the plan amendment specified that the applicable
reduction factors were those indicated under Table 1 of the
Prior UCC Plan without regard to whether a participant retired
early voluntarily or involuntarily. In short, Table 2 was
eliminated for purposes of the December 31, 2005, grandfather
benefit. Pursuant to Table 1 the UCEPP administrators
determined that a reduction factor of 0.9021 was applicable to
Brady’s benefits. Brady does not contest whether the UCEPP did
in fact eliminate Table 2 for purposes of calculating the
December 31, 2005, grandfather benefit.
Brady’s complaint concerns the adequacy of the notice
that the Dow Retirement Board provided to prior UCC Plan
participants when they converted to the UCEPP. The plan
amendments triggered a statutory notice requirement known as
“204(h) Notice.” See ERISA, Pub. L. No. 93-405, § 204(h), 88
Stat. 829 (codified as amended at 29 U.S.C. § 1054(h) (2000)).
The Board did provide Prior UCC Plan participants a document
that it identified as a 204(h) Notice. But Brady argues that
the 204(h) Notice was deficient because it failed to adequately
6
inform plan participants about the elimination of Table 2 from
those benefits grandfathered into the UCEPP through December 31,
2005. Further, Brady argues that this deficiency is an
“egregious failure” to satisfy § 204(h). Section 204(h)
requires notice for certain plan amendments, but it only affords
a remedy to plan participants for an “egregious failure” to
comply with those requirements. 29 U.S.C. § 1054(h)(6). In the
event of such a failure, plan participants are entitled to the
greater of those benefits available prior to the plan amendment
and those benefits currently available under the amended plan.
Id. § 1054(h)(6). Brady thus argues that he is entitled to the
greater benefits he would have received under Table 2 of the
Prior UCC Plan.
Brady filed his complaint in U.S. District Court under
ERISA. See 29 U.S.C. §§ 1132, 1054. The parties stipulated
that the UCEPP is an “employee pension benefit plan” within the
meaning of 29 U.S.C. § 1002(2) and may be sued in its own name
under 29 U.S.C. § 1132(d)(1). Brady’s complaint alleges that
the Dow Retirement Board failed to provide adequate 204(h)
Notice under ERISA (Count I) and that UCEPP administrators
improperly calculated his benefits under a qualified domestic
relations order (Count II). The parties filed cross-motions for
summary judgment. The district court granted summary judgment
to Brady on Count I, but granted summary judgment to the Dow
7
Board on Count II. The Board appeals the grant of summary
judgment to Brady as to Count I. Brady does not appeal the
summary judgment against him as to Count II.
II.
The Dow Retirement Board argues that the notice it
issued met the requirements of ERISA § 204(h). In the
alternative, it argues that it made a reasonable, good faith
effort to comply with the statutory requirements sufficient to
satisfy transitional rules applicable at the time the Prior UCC
Plan was amended. Finally, the Board argues that in no event
did any deficiencies in its notice constitute egregious
violations of § 204(h).
We review de novo a district court’s ruling on a
motion for summary judgment. Eckelberry v. Reliastar Life Ins.
Co., 469 F.3d 340, 343 (4th Cir. 2006). Summary judgment is
only appropriate when the moving party demonstrates that “no
genuine issue of material fact exists and that the moving party
is entitled to judgment as a matter of law.” Kimmell v. Seven
Up Bottling Co.,
993 F.2d 410, 412 (4th Cir. 1993).
III.
We first consider whether the 204(h) Notice issued by
the Dow Retirement Board in this case was deficient.
8
Specifically, Brady alleges that the Dow Board failed to provide
adequate notice with respect to the elimination of Table 2 for
purposes of the December 31, 2005, grandfather benefit. Section
204(h) requires notice of “a significant reduction in the rate
of future benefit accrual.” 29 U.S.C. § 1054(h). A separate
ERISA provision makes clear that “a plan amendment which
eliminates or reduces any early retirement benefit or
retirement-type subsidy (within the meaning of subsection
(g)(2)(A)) shall be treated as having the effect of reducing the
rate of future benefit accrual.” Id. § 1054(h)(9). The Board
does not dispute that the reduction in Brady’s benefits that
resulted from the elimination of Table 2 constituted a reduction
in early retirement benefits or retirement-type subsidies. See
also S. Rep. No. 98-585, at 30 (1984), reprinted in 1984
U.S.C.C.A.N. 2457, 2576 (noting that “a subsidy that continues
after retirement” is considered a “retirement-type subsidy”
under 29 U.S.C. § 1054(g)(2)(A) and contrasting it with
disability benefits, death benefits, social security
supplements, or medical benefits).
In determining whether the reduction in benefits in
Brady’s case was significant, we compare the amount of the
benefit under the plan as amended with the amount of the benefit
under the plan prior to the amendment. See Treas. Reg.
§ 1.411(d)-6, Q&A(7) (2003) (valid through April 9, 2003) (see
9
68 Fed. Reg. 17,277, 17,278 (Apr. 9, 2003)); see also Davidson
v. Canteen Corp., 957 F.2d 1404, 1407 (7th Cir. 1992). The
parties’ stipulate that Brady would have been entitled to an
additional $281.97 per month under Table 2 of the Prior UCC
Plan. Thus, the applicable plan amendments resulted in a 10.7
percent reduction in benefits for Brady. We conclude that a
reduction of this magnitude is significant. See
Davidson, 957
F.2d at 1407 (finding reductions in annual pensions of $17,000
and $13,000 significant); Koenig v. Intercont’l Life Corp., 880
F. Supp. 372, 375 (E.D. Pa. 1995) (finding reductions in
pensions between 22 percent and 32 percent significant). We
also conclude that the Board could anticipate decreases in
benefits of this magnitude at the time the amendment was
adopted. See Treas. Reg. § 1.411(d)-6, at Q&A(7) (noting that
whether an amendment provides for a significant reduction in
benefits is determined “based on reasonable expectations taking
into account the relevant facts and circumstances at the time
the amendment is adopted”).
Because the elimination of Table 2 caused a
significant reduction in retirement benefits, adequate notice
was required under ERISA § 204(h). This notice must be “written
in a manner calculated to be understood by the average plan
participant and [must] provide sufficient information . . . to
allow applicable individuals to understand the effect of the
10
plan amendment.” 29 U.S.C. § 1054(h)(2). The Board’s 204(h)
Notice issued to Brady and other plan participants failed in one
respect: it did not provide adequate information about the
elimination of Table 2 for purposes of the December 31, 2005,
grandfather benefit.
The 204(h) Notice included the following information
under the heading, “Grandfathered Provisions”:
It is important to note that when you retire on or
after February 7, 2003, you will continue to have the
right to elect to receive the monthly pension benefit,
and associated eligibility dates and payment options
you earned under the [Prior UCC Plan] through February
6, 2003. You will not receive a monthly pension
benefit less than what you had earned before February
7, 2003.
In addition, to further ease the transition to UCEPP,
you will continue to earn benefit accruals under the
[Prior UCC Plan] formulas through December 31, 2005.
[Except for two modifications inapplicable to the
current dispute that relate to how length of service
is calculated and which indicia of earnings is used],
[t]his benefit will serve as a minimum monthly pension
benefit when you retire.
J.A. 164. This provision affirmatively suggests that the
formulas used under the Prior UCC Plan will continue to be
available through December 31, 2005, with two explicitly
identified modifications but no other exceptions. Indeed, the
February 6, 2003, grandfather benefit retained Table 2,
furthering an understanding that Table 2 is part and parcel of
the Prior UCC Plan formulas a plan participant would expect to
be used in a grandfathered benefit.
11
The Dow Retirement Board argues that the language
makes clear that only “benefit accruals -- not early retirement
subsidies” -- continue through December 31, 2005. Appellant Br.
at 17. We disagree that the Board’s use of the term “benefit
accruals” meant that “early retirement subsidies” were excluded.
The statutory scheme treats benefit accruals as a term of art
that includes retirement subsidies. See Economic Growth and Tax
Relief Reconciliation Act of 2001 (“EGTRRA”), Pub. L. 107-16
§ 659(b), 115 Stat. 38 (codified as amended at 29 U.S.C.
§ 1054(h)(9)) (making clear that early retirement subsidies
should be treated as benefit accruals for purposes of ERISA
§ 204(h)). When Dow used the term “benefits accruals,” it was
incorporating the statutory definition. We therefore conclude
that average plan participants would understand the 204(h)
Notice language quoted above to grandfather into the December
31, 2005, grandfather benefit the formulas used under the Prior
UCC Plan, which incorporate Table 2’s reduction factors.
Other provisions of the 204(h) Notice further this
understanding. The “Questions and Answers” section says,
Q3. What will happen to the pension benefit I earned
under the current Union Carbide Retirement Program?
A3. You will not lose the benefit you have already
earned under the Union Carbide Retirement Program. In
addition, Dow has put transition credits and
grandfathered provisions in place to help you
transition to UCEPP.
12
J.A. 165. The import of this provision is to assure plan
participants that the benefits available under the Prior UCC
Plan, which included Table 2, would remain available under the
UCEPP during the transition. Certainly, nothing in the 204(h)
Notice flags the elimination of Table 2 in the December 1, 2005,
grandfather provision. Insofar as the language of the 204(h)
Notice is misleading about whether Table 2 is retained, it is
inadequate under 29 U.S.C. § 1054(h)(2). See Amara v. Cigna
Corp., 534 F. Supp. 2d 288, 339 (D. Conn. 2008) (finding that
204(h) Notice containing affirmatively misleading statements was
not “written in a manner calculated to be understood by the
average plan participant”). At the very least, the 204(h)
Notice fails to provide sufficient information from which an
average plan participant could understand that Table 2 would not
be available under the December 31, 2005, grandfather benefit.
We therefore agree with the district court’s conclusion that the
204(h) Notice issued in this case was deficient in that respect.
IV.
The deficient notice raises the question of whether
the Dow Retirement Board should nevertheless be treated as
having complied with the requirements of § 204(h) by virtue of
triggering a transitional good faith safe harbor that Congress
created in its 2001 amendments to ERISA. See EGTRRA
13
§ 659(c)(2). Before it reached that question, the district
court analyzed whether the Board committed an egregious failure
to meet the requirements of § 204(h). We proceed in the same
order of analysis for clarity of explanation.
Section 204(h) provides a remedy to plan participants
in the event of an egregious failure to meet its requirements.
29 U.S.C. § 1054(6)(A). The statute provides that
there is an egregious failure to meet the requirements
of [§ 204(h)] if such failure is within the control of
the plan sponsor and is
(i) an intentional failure (including any failure to
promptly provide the required notice or information
after the plan administrator discovers an
unintentional failure to meet the requirements of this
subsection),
(ii) a failure to provide most of the individuals with
most of the information they are entitled to receive
under this subsection, or
(iii) a failure which is determined to be egregious
under regulations prescribed by the Secretary of the
Treasury.
29 U.S.C. § 1054(h)(6)(B). The district court determined that
both subparagraphs (i) and (ii) were implicated in the present
case, although it declined to conclude “that Defendants
intentionally failed to mention the elimination of Table 2 in
the first instance.” J.A. 316. The court instead concluded
that subparagraph (i) was only implicated to the extent that the
Board failed to provide required notice after becoming aware of
an unintentional failure to meet the § 204(h) requirements.
14
We first consider whether the district court properly
determined that the Dow Board failed “to provide most of the
individuals with most of the information they [were] entitled to
receive under this subsection [§ 204(h)].” 29 U.S.C.
§ 1054(h)(6)(B)(ii). We conclude that the evidence proffered by
Brady in support of that determination was not sufficient. It
is not enough that a “discernable subclass of employees” was not
provided “adequate information.” Brady v. Dow Chem. Co. Ret.
Bd., No. 2:06-cv-00025 (S.D. W. Va. Sept. 13, 2007). The
statute requires a court to find that “most of the individuals”
did not receive “most of the information they [were] entitled to
receive.” 29 U.S.C. § 1054(h)(6)(B)(ii). Used as an adjective,
“most” means “the greatest number of,” “the majority of,“ or
“greatest in quantity, extent, or degree.” Webster’s Third New
International Dictionary 1474 (2002). Thus, § 1054(h)(6)(b)(ii)
requires a determination that at least a majority of “applicable
individuals,” as that term is defined in § 1054(h)(8)(A), did
not receive a large degree of information they were entitled to
receive.
The correct denominator for concluding whether “most
of the individuals” received sufficient information is the
number of “applicable individuals” -- or those individuals whose
rate of future benefit accrual is reasonably expected to be
significantly reduced. 29 U.S.C. § 1054(h)(1)(requiring notice
15
to “each applicable individual”); id. § 1054(h)(8) (defining
“applicable individuals” to include “each participant in the
plan”); Treas. Reg. § 1.411(d)-6, at Q&A(9) (requiring notice
only to those individuals whose benefits are reasonably expected
to be significantly reduced). In the present case, the
amendments converting the Prior UCC Plan to the UCEPP affected
every plan participant. The record indicates that 100 percent
failed to receive notice of the elimination of Table 2 in the
December 31, 2005, grandfather benefit.
But the district court did not determine whether plan
participants and other applicable individuals failed to receive
a large degree of information that they were entitled to receive
under § 204(h). A district court must in some way compare the
magnitude of the deficiency in information to the magnitude of
the information required under § 204(h) to find that “most of
the individuals” did not receive “most of the information they
[were] entitled to receive.” See 29 U.S.C. § 1054(h)(6)(B)(ii).
Because the district court failed to make such a comparison, it
could not conclude that there was an egregious violation under
§ 1054(h)(6)(B)(ii).
We next examine whether the district court properly
concluded that the Board “fail[ed] to promptly provide the
required notice or information after the plan administrator
discover[ed] an unintentional failure to meet the requirements
16
of this subsection [§ 204(h)].” 29 U.S.C. § 1054(h)(6)(B)(i).
The court determined that “Defendants clearly knew that
employees were questioning the elimination of Table 2 prior to
Plaintiff’s involuntary separation.” J.A. 316. Undisputed
evidence in the record makes clear that UCEPP administrators
knew that multiple plan participants were confused about the
status of Table 2. Dow’s pension plan leader emailed plan
personnel to inform them that there had been “several inquiries
by UCC employees questioning the elimination of the ‘bridging’
provision as it relates to the grandfathered UCC pension
benefit.” J.A. 24. Moreover, as the court noted, Brady
participated in a lengthy email exchange with Dow’s pension plan
leader in which Brady described why the 204(h) Notice was
misleading with respect to whether the December 31, 2005,
grandfather benefit would retain Table 2’s reduction factors.
Brady explained that the relevant language in the 204(h) Notice
affirmatively suggested that the December 31, 2005, grandfather
benefit would “contain both adjustment tables (a ‘voluntary’
table, and a ‘involuntary’ table).” J.A. 25. Based on this
information, the district court properly concluded that the
Board discovered its failure to provide sufficient information
to allow average plan participants to understand that the plan
amendment would eliminate Table 2 with respect to the December
31, 2005, grandfather benefit.
17
Moreover, the record reveals that the Dow Board failed
to promptly rectify its deficient notice after being put on
notice of it. The Board argues that it notified Brady “on at
least four separate occasions that he would not receive an early
retirement subsidy.” Appellant Br. at 22. The first such
occasion occurred by email in October 2003. That email
described how to calculate Brady’s February 6, 2003, benefit,
for which Table 2 was retained. It did not explain that Table 2
was eliminated for purposes of the December 31, 2005,
grandfather benefit, and it was not adequate under 29 U.S.C.
§ 1054(h)(6)(B)(i). The remaining three occasions cited by the
Board also did not rectify the deficient notice. They occurred
immediately prior to or after Brady retired and were a part of
its communications denying him full retirement benefits under
the bridging benefit of Table 2. We need not reach the question
of what “notice or information” is minimally required under the
statute. It is enough to conclude that the information that the
Board relayed to Brady while denying him retirement benefits was
not sufficient. Congress did not intend for pension plans to be
able to satisfy the strictures of § 204(h) -- a notice
requirement -- by communicating benefits reductions individually
to plan participants at the time they seek and are denied ceased
benefits. We thus agree with the district court that the Dow
18
Board committed an egregious violation of the 204(h) notice
requirements under § 1054(h)(6)(B)(i).
V.
We turn finally to whether the good faith safe harbor
provision requires us to treat the Dow Retirement Board as
meeting the requirements of § 204(h) irrespective of our
conclusions in parts III and IV, above. Congress’s 2001
amendments to ERISA, which made clear that 204(h) Notice was
required for reductions in early retirement benefits and
retirement-type subsidies (in addition to benefit accruals for
normal retirement benefits), provided for a transitional good
faith safe harbor.
Until such time as the Secretary of the Treasury
issues regulations under sections 4980F(e)(2) and (3)
of the Internal Revenue Code of 1986, and section
204(h) of the Employee Retirement Income Security Act
of 1974, as added by the amendments made by this
section, a plan shall be treated as meeting the
requirements of such sections if it makes a good faith
effort to comply with such requirements.
EGTRRA § 659(c)(2). In the regulations subsequently
promulgated, the Secretary of the Treasury similarly provided
that for plan amendments taking effect before the September 2,
2003, effective date of the regulations, the requirements of
“section 204(h), as amended by EGTRRA, are treated as satisfied
if the plan administrator makes a reasonable, good faith effort
19
to comply with those requirements.” 68 Fed. Reg. 17,277,
Q&A(18) (Apr. 9, 2003)(to be codified at 26 C.F.R. pts 1, 54,
and 602). 1 The Dow Board argues that its efforts to satisfy
§ 204(h), even if technically deficient, were reasonable, made
in good faith, and are thus insulated under the above
transitional safe harbor.
The district court concluded that except for the two
respects in which it determined that the Board egregiously
violated § 204(h), “it cannot be said that Defendants failed to
make a ‘reasonable, good faith effort to comply’ with the
statutory requirements.” J.A. 318. Our review is therefore
limited to whether there was an unreasonable or bad faith effort
to comply with § 204(h) as a result of the two egregious
violations identified by the district court. It is further
limited by our conclusion above that there was not sufficient
evidence in the record to allow a determination that the Dow
Board failed to provide “most of the individuals with most of
the information they are entitled to receive.” See 29 U.S.C.
§ 1054(h)(6)(B)(ii). Summary judgment is nevertheless
appropriate if the Dow Board’s failure to promptly rectify its
1
Because we conclude that Dow did not make a good faith
effort to comply with the requirements of § 204(h), we need not
decide whether the “reasonable, good faith effort” contemplated
in the Treasury regulations is the same as a “good faith effort”
under EGTRRA § 659(c)(2).
20
deficient 204(h) Notice was tantamount to an unreasonable or bad
faith effort to comply with § 204(h)’s requirements.
The district court concluded that there was a failure
to provide notice after the plan administrator discovered an
inadvertent deficiency in the plan’s 204(h) Notice. The
district court expressly declined to conclude that there was an
intentional failure “in the first instance.” J.A. 316. We must
thus determine whether the failure that did occur is sufficient
to establish that the plan failed to “make[] a reasonable, good
faith effort to comply with [the] requirements [of section
204(h)].” 68 Fed. Reg. 17,277 Q & A(18). We conclude that it
does.
The Board is not protected under the good faith safe
harbor unless it acted in good faith in its efforts to comply
with all of § 204(h)’s requirements. Those requirements include
a continuing obligation to supplement a deficient § 204(h)
notice. The statutory safe harbor provides that “Until such
time [as regulations are issued interpreting IRC § 4980F and
ERISA § 204(h)] a plan shall be treated as meeting the
requirements of such sections if it makes a good faith effort to
comply with such requirements.” EGTRRA § 659(c)(2). This
language indicates that the good faith effort contemplated by
Congress was an ongoing obligation. It is not enough to have
21
made a good faith effort at the outset of a plan amendment. The
text of § 204(h) further supports this understanding:
[T]here is an egregious failure to meet the
requirements of this subsection [§ 204(h)] if [there
is a] failure to promptly provide the required notice
or information after the plan administrator discovers
an unintentional failure to meet the requirements of
this subsection [§ 204(h)].
29 U.S.C. § 1054(h)(6)(B) (emphasis added). This provision
affirms that there is a continuing obligation to correct a
deficient § 204(h) notice. An act constituting an egregious
failure to meet the requirements of § 204(h) necessarily
constitutes a violation of § 204(h). 2 Congress may have been
concerned about the ability of pension plans to satisfy the
requirements of § 204(h) before Treasury clarified those
requirements, but it apparently concluded that it was affording
pension plans sufficient protection by placing any pension plan
acting in good faith into its safe harbor.
We affirm the district court’s conclusion that
irrespective of whether the Board acted in good faith when it
2
We do not reach any conclusions about the applicability of
Internal Revenue Code (IRC), 26 U.S.C. § 4980F, which imposes a
tax on pension plans that fail to exercise reasonable diligence
in complying with notice requirements or fail to correct
inadequate notice within thirty days “beginning on the first
date such person knew, or exercising reasonable diligence would
have known, that such failure [to provide adequate notice]
existed.” 26 U.S.C. § 4980F(c)(2). In particular, we do not
offer an opinion on what reasonable diligence entails.
22
originally published its 204(h) Notice, it was no longer acting
in good faith when it failed to promptly supplement its 204(h)
Notice upon discovering a deficiency. The plan administrator
received a coherent and compelling explanation that the 204(h)
Notice was misleading with respect to whether the December 31,
2005, grandfather benefit retained Table 2’s benefits. The
language of the 204(h) Notice patently failed to provide
sufficient information for an average plan participant to glean
that Table 2’s benefits would be eliminated with respect to the
December 31, 2005, grandfather benefit. The record also
contains undisputed evidence that the Board knew that multiple
employees were in fact confused about this aspect of the plan
amendment. This evidence supports the district court’s
determination that the Board failed to act in good faith when it
declined to clarify its misleading (and thus deficient) 204(h)
Notice.
VI.
In sum, we hold that the district court properly
concluded that the § 204(h) Notice the Dow Retirement Board
provided to plan participants was deficient. Moreover, the
deficiency amounted to an egregious failure to provide adequate
§ 204(h) notice because the Board failed to promptly provide
additional notice or information upon discovering the
23
deficiency. We also conclude that summary judgment was
appropriate notwithstanding the transitional safe harbor that
insulates reasonable and good faith efforts to comply with
amended § 204(h). The Board did not act reasonably and in good
faith to satisfy its continuing obligation to supplement its
deficient notice. Accordingly, the district court’s order
granting summary judgment to Dennis Brady is
AFFIRMED.
24
