J. PAUL OETKEN, District Judge:
This case involves claims against Defendant PricewaterhouseCoopers ("PWC") under the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001, et seq. (2000) ("ERISA"), relating to PWC's Retirement Benefit Accumulation Plan for Employees of PriceWaterhouseCoopers LLP ("the RBAP"). Plaintiffs Timothy Laurent and Smeeta Sharon allege that the RBAP violates ERISA's vesting and accrual standards by defining its "normal retirement age" as five years of service. They also allege that the summary plan description ("SPD") is defective and that it violates ERISA's general fiduciary standards provision. These claims, most of which were addressed and held to survive a previous motion to dismiss in an opinion issued by Judge Mukasey on September 5, 2006, Laurent v. PriceWaterhouseCoopers LLP, 448 F.Supp.2d 537 (S.D.N.Y.2006) ("Laurent I"), are alleged in Plaintiffs' Second Amended Complaint ("SAC"). Seven years after Judge Mukasey issued his ruling, PWC has filed a motion to dismiss the SAC, pointing to intervening decisions from other circuits and reiterating its objections to Laurent I. For the reasons that follow, PWC's motion to dismiss is denied.
To survive a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), a plaintiff must plead sufficient factual allegations "to state a claim to relief that is plausible on its face." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). A claim is facially plausible "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). The Court must accept as true all well-pleaded factual allegations in the complaint, and "draw [] all inferences in the plaintiff's favor." Allaire Corp. v. Okumus, 433 F.3d 248, 249-50 (2d Cir.2006) (internal quotations omitted). That said, "the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Iqbal, 556 U.S. at 678, 129 S.Ct. 1937. In a summary of the plausibility standard, the Second Circuit explained that:
Any questions of law ruled upon earlier in this litigation are revisited through the lens of law of the case doctrine, which provides that "when a court has ruled on an issue, that decision should generally be adhered to by that court in subsequent stages in the same case." United States v. Uccio, 940 F.2d 753, 758 (2d Cir.1991) (citing Arizona v. California, 460 U.S. 605, 618, 103 S.Ct. 1382, 75 L.Ed.2d 318 (1983)). This doctrine serves the purpose of "maintain[ing] consistency and avoid[ing] reconsideration of matters once decided during the course of a single continuing lawsuit." 18 Wright, Miller & Cooper, Federal Practice and Procedure § 4478 at 788. It thus plays an important role in the administration of the federal courts, though "unlike the doctrines of res judicata and collateral estoppel, which a court cannot ignore where they apply, the law of the case, as Justice Holmes remarked, `merely expresses the practice of the courts generally to refuse to reopen what has been decided.'" Devilla v. Schriver, 245 F.3d 192, 197 (2d Cir.2001) (quoting Messinger v. Anderson, 225 U.S. 436, 444, 32 S.Ct. 739, 56 L.Ed. 1152 (1912)).
Law of the case doctrine is prudential and discretionary in character, see United States v. Williams, 205 F.3d 23, 34 (2d Cir.2000), and courts "always [have] the power to change a ruling" in light of "further reflection," Corporacion de Mercadeo Agricola v. Mellon Bank Int'l, 608 F.2d 43, 48 (2d Cir.1979); see also United States v. Birney, 686 F.2d 102, 107 (2d Cir.1982) ("The doctrine of the law of the case is not an inviolate rule."). That rule holds true even where a case has been reassigned to a new judge. See In re U.S., 733 F.2d 10, 13 (2d Cir.1984). Under law of the case doctrine, the principal bases for departure from a prior ruling include "an intervening change of controlling law, the availability of new evidence, or the need to correct a clear error or prevent manifest injustice." Doe v. New York City Dep't of Soc. Servs., 709 F.2d 782, 789 (2d Cir. 1983). Courts remain sensitive in this context to the potential for prejudice that can result from a lack of notice or "a lack of sufficient opportunity to prepare armed with the knowledge that the prior ruling is not deemed controlling." Uccio, 940 F.2d at 758 (quotation marks, citation, and alterations omitted).
Count One alleges that the RBAP-defined "normal retirement age" ("the RBAP NRA") of five years of service is invalid under ERISA. The parties' dispute over the validity of the RBAP NRA is subject to law of the case doctrine. In September 2006, relying principally on Duchow v. New York State Teamsters Conference Pension and Ret. Fund, 691 F.2d 74 (2d Cir.1982), Judge Mukasey concluded that the RBAP NRA is invalid. See Laurent v. PriceWaterhouseCoopers LLP, 448 F.Supp.2d 537, 545 (S.D.N.Y.2006) (Laurent I); see also id. ("The RBAP does not specify one consistent age as the normal retirement age ... each employee will be a different age at the time he reaches the normal retirement age. Such a normal retirement age is invalid under the Second Circuit's interpretation of ERISA.").
Upon an independent examination of the merits, the Court reaffirms Laurent I's result, though it departs somewhat from Laurent I's reasoning. Laurent I relied on Duchow to conclude that the RBAP NRA violated ERISA, but upon careful reflection it is clear that Duchow and the other sources cited in Laurent I lend only modest support to that conclusion. Of course, the conclusion that Laurent I's reasoning cannot control does not end the inquiry. Rather, a decision must be reached as to whether the RBAP NRA is invalid for some other reason. Considering the positions advanced by the parties, as well as the logic of recent Fourth and Seventh Circuit cases, the Court identifies another such basis in ERISA's plain text and embraces Laurent I's result.
ERISA § 3(24) defines normal retirement age as follows:
29 U.S.C.A. § 1002(24). Section § 203 of ERISA, in turn, creates minimum vesting standards:
29 U.S.C. § 1053(a).
In Duchow, the Second Circuit held that a plan must provide that pension benefits vest either when a participant reaches normal retirement age or when he satisfies one of the three service-based requirements set forth in 29 U.S.C. § 1053(a)(2). 691 F.2d at 75.
Duchow is readily summarized. Herman Duchow became a member of a pension plan on February 1, 1969, was denied pension benefits at the age of 69 in February 1977, and terminated his employment in May 1977. Id. He then returned to work at the same company for two months in 1979, during which time he once again applied for benefits and was once again denied. Id. The Trustees justified their denials on the undisputed ground that Duchow had not fulfilled the plan's service requirements. Id. Duchow's estate sued and argued that his pension benefits had vested by February 1979, explaining that the plan's purely service-based rules violated ERISA's vesting provisions. Id. at 75-76. The Second Circuit agreed and held that "pension benefits become vested upon an employee's attainment of `normal retirement age,' as defined in [ERISA]." Id. at 75. Because Duchow had joined the pension plan in February 1969, and sought benefits upon reaching normal retirement age in February 1979 (his 10-year anniversary of commencing participation in the plan), the Circuit concluded that Duchow had vested and was entitled to pension benefits. Id. at 80. As part of that analysis, it held that "anniversary" means "a date rather than the years between the date and the past event." 691 F.2d at 79.
Duchow's holding that pension benefits must vest by the time a plan member reaches normal retirement age hinged on a determination that § 203 imposes two distinct kinds of vesting requirements. In reaching that result, the Circuit disagreed with the pension plan, which had argued that § 203 requires nothing more than satisfaction of the requirements set forth in § 203(a)(2), all of which are linked to an employee's years of service. Id. at 77.
Reasoning from statutory text and structure, Duchow noted that § 203 "indicate[s] that two discrete vesting requirements are imposed, the first linked to age and the second depending on length of service without regard to age." Id. at 77. Duchow also looked to legislative history, which revealed a clear intent to impose the requirement that an employee must be fully vested by the time he reaches normal or stated retirement age. Id. at 77-78. The Second Circuit thus concluded that, whereas § 203(a)(2) imposes vesting standards linked to an employee's years of service, § 203(a) imposes a vesting standard keyed to normal retirement age. Id. at 77; see also id. ("Each pension plan shall provide that an employee's right to his normal retirement benefit is nonforfeitable upon the attainment of normal retirement age." (quoting § 203(a))).
As a result, Duchow explained that "§ 203(a)'s provisions with regard to employer contributions are properly interpreted as imposing two distinct types of minimum vesting requirements, one of
Laurent I's invalidation of the RBAP NRA was based almost entirely on the foregoing line from Duchow. 448 F.Supp.2d at 545. Laurent I also recited Duchow's other formulation of this point: "`[B]oth the format of § 203(a) and the disparate contents of its conjoined parts indicate that two discrete vesting requirements are imposed, the first linked to age without regard to length of service and the second depending on the length of service without regard to age.'" Id. (quoting Duchow, 691 F.2d at 77) (emphasis in original). Laurent I reasoned that any service-based definition of normal retirement age would violate the vesting rules set forth in § 203(a), as interpreted by Duchow, by impermissibly rendering both of the discrete vesting requirements dependant on length of service without regard to age. Id.
This interpretation, however, reads more into Duchow's holding than it can bear.
When Duchow drew a sharp line between age- and service-based requirements, and referred to age-based requirements "independent" of length of service, it did not consider the possibility of a service-based normal retirement age. Rather, Duchow concerned itself with the existence of a discrete requirement under § 203(a) that pension benefits vest no later than normal retirement age. Thus, when Duchow referred to "age," it used that word as a shorthand for "normal retirement age" under § 203(a) and in contradistinction to the three service-based vesting rules set forth in § 203(a)(2). Normal retirement age, in turn, is defined under ERISA as the earlier of a plan's definition of normal retirement age or a statutory default (the later of attaining age 65 or the tenth anniversary of commencing participation). Duchow interpreted and applied only the anniversary provision of the statutory default.
In light of ERISA's text and contemporary business practice, Duchow presumed that normal retirement age would generally be defined in terms of age. In dictum, Duchow then relied on that assumption to describe as "independent of years of service" the statutory requirement that pension benefits vest by normal retirement age. 691 F.2d at 77. Understood in context, and standing alone, that dictum is too slender a reed to bear the weight it is assigned in Laurent I. Though it may gesture in that direction, Duchow did not create an anticipatory prohibition on service-based definitions like the RBAP NRA. Rather, it recognized that § 203(a) imposes two requirements, one based on service and the other on normal retirement age.
In relevant part, Duchow held that "10th anniversary" referred to a date occurring ten years after commencing participation in a plan, not ten statutorily defined "years of service." 691 F.2d at 79. It based this result primarily on plain meaning analysis and the fact that Congress had elsewhere shown a sharp eye for detail with such important terms in ERISA's statutory scheme. Id. Duchow added that "had Congress intended `normal retirement age' to be dependent on ten years of service, it would hardly have selected such convoluted and imprecise (for defendant's purposes) language." Id. at 80. The Second Circuit thus sharply distinguished anniversary-based definitions from service-based definitions.
Laurent I referenced this dictum to explain why its holding was compatible with the statutory reference to anniversaries: although the statutory default allows for normal retirement ages that are not defined as a precise age, the statute creates certainty by using the unmovable anniversary date rather than the variable year-of-service metric. See 448 F.Supp.2d at 545-46 ("[Duchow] explained that the use of the phrase `10th anniversary' in ERISA's definition of the default normal retirement age does not impose a service requirement such that years of service can be used to define a normal retirement age." (citing Duchow, 691 F.2d at 80)). That part of the reasoning in Laurent I is sound and applies to this Court's conclusion as well.
Laurent I misstepped, however, when it summarized Duchow's holding in terms that controlled analysis of the RBAP NRA: "`Congress intended that an employee's pension rights would vest, irrespective of the length of his service' at a certain age." Id. at 546 (quoting Duchow, 691 F.2d at 80). On close inspection, Duchow's discussion of the statutory default is silent on what limits plans must follow when defining normal retirement age. Thus, whereas Laurent I quotes Duchow to show that "`Congress intended that an employee's pension rights would vest, irrespective of the length of his service' at a certain age," id. (quoting Duchow, 691 F.2d at 80), the full quote from Duchow does not support this conclusion: "Congress intended that an employee's pension rights would vest, irrespective of the length of his service, either on his 65th birthday or on the tenth anniversary of his joining the plan, whichever occurred later, unless the plan itself allowed earlier vesting." Duchow, 691 F.2d at 80 (emphasis added). To be sure, Duchow suggested that it would be inconsistent with certain legislative purposes to construe "anniversary" as a service-based term — but as described in Duchow, those purposes mainly involved Congress's desire to create a ceiling on when benefits would vest distinct from the particular service-based requirements set forth in § 203(a)(2). Thus, Duchow offers only a measure of support for a prohibition on definitions like the RBAP NRA.
This conclusion, however, does not end the inquiry and require departure from Laurent I. Rather, it calls for consideration of the parties' remaining arguments to see whether Laurent I nonetheless reached the right result. That inquiry, in turn, directs attention to firmer ground for invalidation of the RBAP NRA: ERISA's text.
"Statutory construction must begin with the language employed by Congress and the assumption that the ordinary meaning of that language accurately expresses the legislative purpose." Gross v. FBL Fin. Servs., Inc., 557 U.S. 167, 175, 129 S.Ct. 2343, 174 L.Ed.2d 119 (2009). "[E]ffect should be given to every word of a statute whenever possible." Leocal v. Ashcroft, 543 U.S. 1, 3, 125 S.Ct. 377, 160 L.Ed.2d 271 (2004). Thus, as Chief Judge Easterbrook noted in 2009, "[h]ow much discretion employers enjoy when selecting a `normal retirement age' depends on the language of ERISA, for the phrase is a defined term." Fry v. Exelon Corp. Cash Balance Pension Plan, 571 F.3d 644, 647 (7th Cir.2009).
Specifically, ERISA § 3(24) provides that "normal retirement age" can mean "the time a plan participant attains normal retirement age under the plan," at least when the plan's definition results in a normal retirement age earlier than the statutory default. As Defendant observes, this language "grants [pension plans] broad discretion to define `normal retirement age.'" But, contrary to Defendant's argument that "ERISA expressly gives a plan sponsor flexibility to define `normal retirement age' as it likes," § 3(24) does not confer limitless discretion. See Fry, 571 F.3d at 646 (noting that "employers are entitled to vary by contract those aspects of pension plans ERISA makes variable" (emphasis added)). For instance, a plan could not say that an employee reaches "normal retirement age" on the first occasion that a double rainbow appears over Tokyo, or when Meryl Streep wins her next Emmy, or when the plan participant consumes his fiftieth cupcake. See Fry, 571 F.3d at 647 (suggesting that it would be impermissible for a plan to provide that "an employee reaches normal retirement age when he owns ten umbrellas.").
The reason is simple: plans are given flexibility to create something that ERISA calls "normal retirement age." Presumably, Congress did not choose these words by happenstance. If Congress wanted to confer complete discretion on pension plans, it could easily have said that "normal retirement age" is the earlier of the statutory default or "whatever age a plan member has reached when conditions set forth in the plan for this requirement are satisfied." Instead, Congress decided to require that a participant "attain[] normal retirement age under the plan." This decision, in a "complex statute replete with
In Fry, Chief Judge Easterbrook examined a similar plan and concluded that it satisfied these requirements. Focusing on "normal" and "retirement," he explained:
Fry, 571 F.3d at 647. This analysis is persuasive and the Court adopts it here. The RBAP NRA is "normal" and satisfies the "retirement" requirement for the reasons set forth in Fry.
This still leaves the critical question whether the RBAP NRA defines an "age," as ERISA requires. Fry involved a pension plan in which employees reached normal retirement age upon their fifth anniversary of commencing participation. Id. When an employee joined that plan, she could know with certainty the date and age at which she would reach normal retirement age under the plan. Chief Judge Easterbrook concluded that this plan accorded with ERISA because "the Plan's formula — the participant's age when beginning work, plus five years — is an `age.'" Id. "It is employee specific," he admitted, but "`age + 5'" remains an age." Id. In support of this reasoning, he relied on the anniversary rule in the statutory default as proof that "ERISA does not require the `normal retirement age' to be the same for every employee." Id.
This reasoning undoubtedly rests at the outermost periphery of the meanings that "age" can support. The Oxford English Dictionary provides more familiar definitions of "age" when it reports that "age" means "time that any animal or vegetable has lived," "a period of existence," "a period of time," and "a lifetime taken as a measure of time." Oxford English Dictionary (2d ed. 1989). As a matter of ordinary usage, the query "what's your age?" should not be met with the response, "the first time I went to work, as modified by an algorithm that I'll now describe," or the euphemistic rejoinder, "it's the third anniversary of my 49th birthday." Rather, the usual answer would take the form of a discrete chronological age, such as "30" or, if the interlocutor is a pre-teen and eager to show his maturity, "seven and a half." Congress, of course, is ordinarily thought
As evidenced by its reliance on the default's "anniversary" provision, and its disavowal of "when he owns ten umbrellas" as an "age," Fry's holding that "`age + 5'" remains an age" for purposes of ERISA appears to rest on two related considerations. First, setting aside death, the age at which a participant will reach normal retirement age and vest in an "age + 5" plan can be known with certainty at the outset of participation in the plan. Second, this certainty is assured by the fact that the "age" in an "age + 5" plan is defined through units of time that accumulate without regard to any particular feature of the world. It does not matter whether Meryl Streep once again offers a dazzling performance or whether cupcakes suddenly fall out of favor. We can rest assured that the inevitable passage of time will unfold toward the vesting of benefits.
Unlike Fry, this case involves the RBAP NRA, which defines normal retirement age by reference to five "years of service." ERISA defines a "year of service" as 1000 hours of service. 29 U.S.C. § 1053(b)(2)(A). As should be apparent from this definition, a "year of service" is not the same thing as an "anniversary." Observing that only a "strained construction" would lead a reader to equate these terms, Duchow confirmed that they bear distinct meanings — and that those differences are significant for purposes of ERISA's statutory scheme. 691 F.2d at 79.
Thus, even accepting Fry's holding that "`age + 5' remains an age" for purposes of ERISA, it does not follow that "age + five years of service" is an "age" of the sort that plans are given discretion to define under ERISA. Nor can it follow. Duchow may not have anticipated and prohibited definitions like the RBAP NRA, but its explication of the difference between years of service and anniversaries bears directly on why this case is unlike Fry. Notably, Defendant has failed to propose any ground for distinguishing years of service from the cupcake, rainbow, and Streep examples. While five years of service will presumably cluster around employees' fifth anniversaries, that clustering will likely take the form of a wide probability band distributed around the fifth anniversary mark. Yet once the ex ante certainty of an anniversary date is abandoned in favor of the supposed high probability that five years of service will often land in the same ballpark — a fact, in any event, that is not alleged in the Complaint and has no business controlling a motion to dismiss — it is unclear where to draw the line between plan-defined conditions that are similar enough to anniversaries to qualify as "ages" and conditions that fail this nebulous test. Defendant's argument essentially boils down to its suggestion that years of service are close enough to anniversaries, a position that rests on facts beyond the scope of this motion and on a legal standard that would almost certainly prove unworkable in practice. Simply put, as a matter of plain text and ordinary language, the RBAP NRA is not an "age."
This textual reading, moreover, may well accord with Congress's employee-protective purposes in drafting ERISA. If pension plans were free to define normal retirement age without any meaningful limitation based on the "age" requirement, whether by reference to cupcakes and rainbows or by use of more devious definitions, the role of normal retirement age as a robust participant-protective mechanism in ERISA's vesting rules might be compromised. Employees could have a harder time comprehending how the normal retirement age works and employers could condition normal retirement age on aspects
Because it violates ERISA, the RBAP NRA must be excised as the mechanism for determining "the time a plan participant attains normal retirement age under the plan."
Count Five of the SAC alleges violations of ERISA's vesting and anti-backloading rules; the heart of this claim, however, involves backloading. In 2009, the Second Circuit explained in general terms how the backloading regulations function and what purposes they serve:
The parties focus virtually all of their energy on IRS Notice 2007-69. See IRS Notice, Relief Related to Plan Amendment of Definition of Normal Retirement Age, Published Aug. 27, 2007, 2007 WL 2285348 ("the Notice"). Two sections of the Notice are relevant to this case:
Id. At bottom, the parties disagree on four critical points: (1) whether Plaintiffs have alleged an "injury" and therefore have standing to assert this claim; (2) whether the 2007 Notice applies only prospectively; (3) whether the Notice merits judicial deference; and (4) if the Notice does apply, whether the RBAP NRA falls within the scope of its statement that "a plan under which a participant's normal retirement age changes to an earlier date upon completion
In a single paragraph, Defendant asks the Court to dismiss this count on the ground that Plaintiffs were fully vested when they left PWC and therefore suffered no "injury," since "Plaintiffs do not allege that the Plan's definition of normal retirement age changed the time at which they vested, or that they would have vested earlier had the RBAP conformed to their proffered interpretation of ERISA's vesting requirements." Particularly in light of the Court's conclusion that the RBAP NRA is invalid as a definitional matter, this argument cannot succeed. As alleged in the Complaint, by accepting lump-sum cash-outs when the RBAP illegally defined normal retirement age as five years of service, Plaintiffs unwittingly forfeited a portion of their accrued benefits — namely, the portion of those benefits attributable to future interest credits through an otherwise-valid normal retirement age. Alternatively, it is also possible that Plaintiffs would have a basis for seeking relief for a violation of the accrual rules if the remedy for such a violation would mirror the remedy for liability on Count One — namely, a whipsaw calculation.
Defendant argues that the Notice has no bearing on this case and characterizes Plaintiffs' argument to the contrary as an unsupported assertion "that the IRS retroactively changed the vesting rules when it issued Notice 2007-69." Both of these arguments miss the mark.
First, Plaintiffs do not claim that the IRS changed the law in 2007. Rather, they argue that the Notice afforded the IRS an opportunity to indicate how it interprets an ERISA regulation dating back to 1977. In other words, Plaintiffs argue that the Notice provides an authoritative interpretation of existing law, not an announcement of how the law will be applied in the future. In that regard, the Notice is relevant as an aid to interpretation, not as a source of new law.
Second, the plain text of the Notice is incompatible with Defendant's claim that the IRS said nothing about application of preexisting accrual rules. Defendant relies heavily on the undisputed fact that the Notice is focused principally on a Treasury regulation promulgated after the time period relevant to this case. To be sure, the Purpose section of the Notice leads with this very concern: "This notice provides temporary relief, until the first day of the first plan year that begins after June 30, 2008, for certain pension plans under which the definition of normal retirement age may be required to be changed to comply with the regulations relating to a plan's normal retirement age that were recently issued under § 401(a) of the Internal Revenue Code."
In the very next sentence of its Purpose section, however, the Notice adds that it "also identifies potential violations of the vesting and accrued benefit requirements for defined benefit plans under § 411 that may arise from a definition of normal retirement age based on a minimum period of service." (emphasis added). As used here, "also" means exactly what one would expect: in addition to the thing just mentioned. The structure of the Notice then confirms what the plain language of the Purpose section strongly suggests: Parts II, III, and IV all focus on the new Treasury regulation, while a separate section
Defendant argues in the alternative that the Notice should be disregarded because it was not created through formal adjudication or notice-and-comment rulemaking, the statute is clear, and the Notice offers a qualified conclusion without any evident reasoning. There is some force to this argument: the Notice is no model of thorough legal analysis and offers only the skeleton of an explanation for the correctness of its conclusion. Nonetheless, it would be inappropriate to set the Notice entirely aside — both because the Notice reflects the IRS's guidance as to its own view and because the Notice does not contradict any prior IRS statements. See
Wos v. E.M.A. ex rel. Johnson, ___ U.S. ___, 133 S.Ct. 1391, 1403-04, 185 L.Ed.2d 471 (2013) (Breyer, J., concurring); see also id. ("I cannot measure the degree of deference with the precision of a mariner measuring a degree of latitude. But it is still worth noting that the agency's determination has played some role in my own decision."). Accordingly, the Notice warrants a measure — though only a modest measure — of deference when it states that plans like the RBAP typically will violate ERISA's accrual and vesting rules. At the very least, it suggests the plausibility of Plaintiffs' argument and, by citing the change-the-base regulation, indicates how such a violation would occur.
The Notice states that "a plan under which a participant's normal retirement age changes to an earlier date upon completion of a stated number of years of service typically will not satisfy the vesting or accrual rules of § 411. See, e.g., § 1.411(b)-1(b)(2)(ii)(F)." The regulation that the Notice cites in support of this proposition — § 1.411(b)-1(b)(2)(ii)(F) — provides as follows:
(emphasis added). This regulation, also known as the "change-the-base regulation," illustrates the sort of backloading rule that a normal retirement age defined through years of service might violate. By citing the change-the-base regulation, the Notice plainly suggests that a definition like the RBAP NRA is impermissible for two related reasons: (1) normal retirement age is a key component of a plan's benefit formula and is thus part of the "base"; and (2) normal retirement age "changes" within the meaning of § 1.411(b) when a participant reaches the requisite number of years of service. The question then arises: does this interpretation withstand scrutiny? And the answer quickly follows: yes, it does. Indeed, the Notice's implicit argument represents the best view of the law and must therefore govern separate and apart from the matter of deference.
This argument starts from the familiar proposition that the change-the-base regulation
Defendant pushes back against this position by suggesting that "base" means only "compensation," but this argument is unsupported by text and purpose. If the regulation's drafters intended to clarify that only salary must be held constant, they could easily have done so by using words like "salary" or "compensation" instead of "base." Their decision to speak of a "base" connotes a broader view of the textual object and militates against a reduction of this word's meaning to a narrow term that was certainly within the drafters' linguistic toolkit. More importantly, it would have been nonsensical for the drafters to describe a base in so narrow a fashion. The point of requiring the base to be held constant is to test for improper manipulations of rates; if employers could sneak under and around this rule by tinkering with the value of the accrued benefits through other means, the drafters' objectives in forging accrual rules could be readily thwarted. And this is precisely what might happen when normal retirement age is expressed unconventionally, for instance through reference to years of service rather than as a chronological age, since the value of a retirement benefit must be understood in relation to both its dollar amount and the age of the participant at which the benefit becomes payable. The intuition here is simple: $10,000 today is not worth the same amount as $10,000 after five years of service or $10,000 at age 65. Because normal retirement age can dramatically affect the value of an employee's retirement benefit — as occurs when an employee's retirement age drops from 65 to, say, 35 and that employee loses a portion of her benefits attributable to future investment credits — it would be irrational to restrict the definition of "base" solely to the dollar value of an employee's annual compensation. Thus, when the change-the-base regulation refers to average "compensation," it does so in an exemplary rather than definitional manner. Judge Siragusa impliedly acknowledged this point in 2002, when he noted that in Carollo, "[t]he Eastern District found that by changing the `base,' in that case the average monthly pay, `solely' by reason of a participant's increased service, [a plan] violated 26 C.F.R. § 1.411(b)-1(b)(2)(ii)(F)." Melvin v. UA Local 13 Pension Plan, 204 F.Supp.2d 564, 572 (W.D.N.Y.2002) (emphasis added). Just as the "base" can consist of "average monthly pay," it may
Concluding that normal retirement age is part of the "base," at least under the unique circumstances of the RBAP NRA, prompts the question whether this base "changes" within the meaning of the change-the-base regulation when a participant reaches five years of service. This is a close and difficult question. On the one hand, the base obviously does change: an employee who starts work at age 25 has a normal retirement age of age 65 until the day she completes five years of service, at which point her normal retirement age drops to whatever age she happens to have reached at that point. On the other hand, on the assumption that employees do not leave the plan before attaining normal retirement age and vesting, the RBAP NRA never changes in the sense that it is always the earlier of the date on which an employee completes five years of vesting service or reaches age 65.
This result is based on two considerations. First, the Notice suggests that the IRS prefers this understanding of what it means for a base to change under § 1.411(b)-1(b)(2)(ii)(F). Given the closeness of the question, the Notice serves as a tiebreaker. Second, this interpretation best secures the purpose of the change-the-base regulation. If plans were free to test for backloading by assuming that any time-of-service conditions that affect the
For example, in Carollo, Judge Nickerson addressed a plan that changed the base after 25 years and applied that change retroactively. He explained that a plan "may not change the base because of length of service," adding that "the Plan does exactly that. It raises the base in the 25th year of service, restricts that raise to the few who have had no break in service longer than two years and at least one year of service after 1980, and gives those favored few a bonanza by making the raise retroactive over their whole careers." 964 F.Supp. at 683. The fact that some employees reached that 25th year and had been subject throughout their employment to that condition did not mean that there was no "change" as to those employees' bases, since the result of retroactive application of this benefit was to massively backload benefits. See id.
Accordingly, the RBAP does violate § 1.411(b)-1(b)(2)(ii)(F). This interpretation is aided, but not controlled, by the Notice. While it may seem odd to apply an anti-backloading provision to a plan like the RBAP, which Plaintiffs accuse of frontloading rather than backloading (since the value of the accrued benefits decreases when an employee hits his fifth year of service, vests, and loses the whipsaw calculation), the text of the regulation does not make this distinction. It provides only that "[a] plan shall not satisfy the requirements of this subparagraph if the base for the computation of retirement benefits changes solely by reason of an increase in the number of years of participation." § 1.411(b)-1(b)(2)(ii)(F). In that regard, it does not operate as a one-way ratchet and its plain text encompasses the RBAP NRA.
In any event, ERISA's change-the-base regulation is not the only source of statutory and regulatory protection for employees. Section 411(b)(1)(G) further provides that once a benefit has accrued, it may not be reduced solely because an employee continues to work. See 26 U.S.C. § 411(b)(1)(G) ("Notwithstanding the preceding subparagraphs, a defined benefit plan shall be treated as not satisfying the requirements of this paragraph if the participant's accrued benefit is reduced on account of any increase in his age or service."). For reasons similar to those set forth above with respect to § 1.411(b)-1(b)(2)(ii)(F), the RBAP runs afoul of this accrual provision.
In Laurent I, Judge Mukasey held that Plaintiffs had alleged adequately that Defendant's
As to the first claim, Defendant argues that normal retirement age is a term of art that need not be specifically defined in SPDs, there is no conflict between the RBAP and the SPD, and Plaintiffs fail adequately to allege "actual harm" susceptible to remedy under CIGNA Corp. v. Amara, ___ U.S. ___, 131 S.Ct. 1866, 179 L.Ed.2d 843 (2011). Because they were addressed and decided in Laurent I, the first and second of these arguments are subject to law of the case doctrine. Judge Mukasey's reasoning in that opinion bears repetition here, as it persuasively controls the analysis:
Laurent I, 448 F.Supp.2d at 546-47. This logic was then affirmed in Laurent II and Laurent III.
Here, Defendant does not offer any new arguments addressed to Laurent I's conclusion that the SPDs were deficient; more importantly, Defendant's arguments remain unpersuasive. Plaintiffs quote a Department of Labor Regulation that plainly requires "a statement describing the plan's normal retirement age, as that term is defined in section 3(24) of the
Contrary to Defendant's protestation that Plaintiffs can no longer demonstrate any sound legal basis for equitable relief, the intervening change of law wrought by CIGNA does not produce a different result.
Thus, whereas estoppel requires detrimental reliance, no such requirement attaches to reformation or surcharge. See id. Rather, reformation of contracts like the RBAP may be appropriate "where fraudulent suppressions, omissions, or insertions materially ... affected the substance of the contract, even if the complaining party was negligent in not realizing its mistake, as long as its negligence did not fall below a standard of reasonable prudence and violate a legal duty." Id. (citations, quotation marks, and alterations omitted). Although the Ninth Circuit has observed that "[i]t is unclear whether we should analyze reformation in the context of trust law or contract law because retirement plan documents are similar to both trusts and contracts," that same court recognizes that "[u]nder both theories... reformation is proper only in cases of fraud and mistake." Skinner, 673 F.3d at 1166. In Amara, the Court hinted that reformation may have been
In the alternative, CIGNA explains that the equitable remedy of surcharge may apply where a plaintiff can show "actual harm," which "may sometimes consist of detrimental reliance, but... might also come from the loss of a right protected by ERISA or its trust-law antecedents." 131 S.Ct. at 1881. On the facts before him, Justice Breyer reasoned in CIGNA that "it is not difficult to imagine how the failure to provide proper summary information, in violation of the statute, injured employees even if they did not themselves act in reliance on summary documents — which they might not themselves have seen — for they may have thought fellow employees, or informal workplace discussion, would have let them know if, say, plan changes would likely prove harmful." Id. Ultimately, "to obtain relief by surcharge for violations of §§ 102(a) and 104(b), a plan participant or beneficiary must show that the violation injured him or her ... [a]lthough it is not always necessary to meet the more rigorous standard implicit in the words `detrimental reliance,' actual harm must be shown." Id. at 1881-82.
In Laurent I, Judge Mukasey applied the Second Circuit's pre-CIGNA standards to test for the requisite harm. See 448 F.Supp.2d at 547. He concluded that
Plaintiffs further allege that they lost the opportunity "to challenge [] Defendants' benefit calculation methodology" and "to timely react to, internally challenge and/or externally contest Defendants' forfeiture of their benefits" (¶ 102), and that they were deprived of a chance to "file[] suit to seek the relief sought via this action" (¶ 104). Had the SPD complied with ERISA, it is also possible that plan members may have altered their investment strategies, sought alternative employment (either in pursuit of what they perceived to be a superior pension plan or out of disgust with Defendant's perceived machinations), or demanded government intervention. Cf. Laurent I, 448 F.Supp.2d at 547. These allegations suffice to satisfy the requirement post-CIGNA that Plaintiffs plausibly allege actual harm resulting from the alleged violation. As a result, it is plausible that Plaintiffs may be entitled to the equitable remedy of surcharge.
Accordingly, as in Laurent I, Defendant's motion to dismiss Plaintiffs' cause of action arising from deficient SPDs must be denied.
This leaves only Plaintiffs' claim thatDefendant's misleading descriptions of the RBAP NRA in SPDs and other class-wide communications distributed to participants violated ERISA's general fiduciary standards provision, § 404(a). Here, Defendant responds by identifying three grounds for dismissal: (1) the absence of any benefit forfeiture scheme; (2) the three-year statute of limitations for fiduciary duty claims under ERISA; and (3) failure to allege actual harm. The first of these responses can be set aside at the outset, since it depends on the already-rejected assumption that the RBAP NRA does not violate ERISA's vesting standards or accrual rules, and the third response falters for the reasons set forth in the discussion supra regarding harm under CIGNA.
This leaves only Defendant's second argument, which does not succeed. The statute of limitations defense relies on 29 U.S.C. § 1113, an "enigmatic — almost chimerical — statute of limitations that applies to actions for breach of fiduciary duty under the Employee Retirement Income Security Act ("ERISA")." Caputo v. Pfizer, Inc., 267 F.3d 181, 184 (2d Cir.2001). "Held together by chewing gum and baling wire," id. at 188, it provides:
except that in the case of fraud or concealment, such action may be commenced not later than six years after the date of discovery of such breach or violation.
In Caputo, the Second Circuit held that "the six-year statute of limitations should be applied to cases in which a fiduciary: (1) breached its duty by making a knowing misrepresentation or omission of a material fact to induce an employee/beneficiary to act to his detriment; or (2) engaged in acts to hinder the discovery of a breach of fiduciary duty." 267 F.3d at 190.
Defendant argues that Plaintiffs had actual knowledge of the basis for their claim no later than April and May 2002, at which time they did not receive any whipsaw calculation and should have been placed on notice that the RBAP was not paying them such amounts. Relying on this premise, Defendant argues that the three-year statute
Based on the facts alleged in the Complaint, Plaintiffs knew in April and May 2002 that their lump sum payment was equal to their account balances. But they knew little more about the alleged breach of fiduciary duty. As they allege in ¶ 112 of the Second Amended Complaint:
Plaintiffs further allege in ¶ 136 that "Defendants' disclosure violations delayed the discovery of their benefit forfeiture scheme until 2004 when Mr. Laurent learned of it only through counsel who independently discovered and informed Plaintiff of it."
For the foregoing reasons, Defendant's motion to dismiss is DENIED.
The Clerk of Court is directed to terminate the motion entry at Dkt. No. 137.
SO ORDERED.
Fry v. Exelon Corp. Cash Balance Pension Fund, No. 06 Civ.3723, 2007 WL 2608524, at *4 (N.D.Ill. Aug. 31, 2007), amended on reconsideration in part, No. 06 Civ. 3723, 2007 WL 4569872 (N.D.Ill. Dec. 21, 2007), aff'd sub nom. Fry v. Exelon Corp. Cash Balance Pension Plan, 571 F.3d 644 (7th Cir.2009) (internal citations omitted).
H.R.Rep. No. 93-807 (Feb. 21, 1974), 1974 U.S.C.C.A.N. 4670, 4688.
688 F.3d at 176.
Amara, 925 F.Supp.2d at 253 (quotation marks and citations omitted).
