Layaou and Frommert v. Xerox Corp.
| Decision Date | 01 August 2000 |
| Docket Number | Docket No. 99-9336 |
| Citation | 238 F.3d 205 |
| Parties | (2nd Cir. 2001) JOHN LAYAOU, Plaintiff-Appellant, PAUL J. FROMMERT, ET AL., Intervenors, v. XEROX CORPORATION, PETER DEMAURO, individually and in his capacity as an employee of Xerox Corporation and THE RETIREMENT INCOME GUARANTEE PLAN (RIGP), Defendants-Appellees |
| Court | U.S. Court of Appeals — Second Circuit |
Plaintiff-appellant John Layaou appeals from a grant of summary judgment entered in the United States District Court for the Western District of New York (Larimer, C. J.) on September 29, 1999, in favor of defendants-appellees dismissing Layaou's claim under the Employee Retirement Income Security Act, 29 U.S.C. § 1101 et seq. We find as a matter of law that the summary plan description violated the disclosure requirements of ERISA, 29 U.S.C. § 1022. We therefore vacate the district court's grant of summary judgment on Layaou's ERISA claim and remand for further proceedings.
Vacated and remanded in part.
NIRA T. KERSMICH, Rochester, NY, for plaintiff-appellant.
ROBERT H. JAFFE, Robert H. Jaffe & Associates, P.A., Springfield, NJ, for intervenors.
MARGARET A. CLEMENS, Nixon Peabody L.L.P., Rochester, NY, for defendants-appellees.
Before: MESKILL, CALABRESI, and SOTOMAYOR, Circuit Judges.
Plaintiff-appellant John Layaou ("Layaou") appeals from a September 29, 1999 grant of summary judgment entered in the United States District Court for the Western District of New York (David G. Larimer, Chief Judge) in favor of Xerox Corporation ("Xerox") and The Retirement Income Guarantee Plan (the "Plan") dismissing Layaou's claim for additional benefits under the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C § 1101 et seq.1 Layaou v. Xerox Corp., 69 F. Supp. 2d 419 (W.D.N.Y. 1999) ("Layaou II"). We hold that the summary plan description violated the disclosure requirements of ERISA, 29 U.S.C. § 1022. For the reasons discussed below, we vacate the district court's grant of summary judgment on Layaou's ERISA claim and remand for further proceedings.
Layaou began working for Xerox in 1972 and voluntarily left the company in 1983 during a period of layoffs. At that time, Xerox distributed to Layaou the retirement benefits he had earned, amounting to a lump-sum distribution of approximately $22,400.2 In September 1987, Xerox rehired Layaou as a full-time employee, where he remained until he was laid off as part of a reduction-in-force in January 1994. Layaou earned retirement benefits during this second period of employment with Xerox.
Xerox's retirement plan provides that an employee will receive benefits upon retirement in an amount equal to the highest result of three alternative calculation methods. The first calculation method is the retirement plan formula ("RIGP Formula"), which is a guaranteed annuity calculated by multiplying years of service (up to thirty years) by 1.4 percent of the highest-average yearly pay.3 If an employee retires early, defined as retiring after the age of 55 but before the age of 65, that individual's RIGP Formula benefit is reduced by five percent for each year that he or she receives retirement benefits before reaching the age of 65. For rehired employees, the number of years of service includes the total time they worked for Xerox, not just the period of employment following rehire.
The second method for calculating retirement benefits under the Plan is based on the employee's Cash Balance Retirement Account ("CBRA"), which consists of yearly contributions by Xerox of an amount equal to five percent of the employee's salary, accruing interest at a yearly fixed rate of one percent above the one-year Treasury Bill rate. For those employees having commenced their tenure with Xerox prior to the end of 1989, their CBRA also includes the transferred balance of a Profit Sharing Retirement Account that Xerox maintained for each employee up until December 31, 1989.
Finally, the third calculation method under the Plan is based on the employee's Transitional Retirement Account ("TRA"). The TRA is only applicable to employees hired by Xerox prior to 1989. The TRA consists of the employee's transferred Profit Sharing Retirement Account balance as of December 31, 1989, increasing based on the investment results of the funds in which the employee's Profit Sharing Retirement Account was invested as of that date.
Each year Xerox gave its employees a copy of a brochure entitled "You and Xerox - Benefits for Salaried Employees" to fulfill its ERISA obligation of providing employees with a summary plan description ("SPD") of the Plan. Xerox also gave its employees a yearly estimate of their individual benefits to date. Xerox did not distribute a copy of the Plan itself to its employees, but it was available to them at the company's Human Resources office.
Layaou received from Xerox his 1994 yearly estimate of benefits prior to the effective date of his layoff. This form estimated his RIGP Formula benefit to be $924 per month. It noted that the benefits under the RIGP Formula "will grow as your length of service and your earnings increase . . . [and] may be reduced if you receive amounts before age 65 or receive amounts from another Xerox retirement plan." The form listed the current value of his CBRA as $18,403 and of his TRA as $9,244.
Layaou's retirement from Xerox became effective on April 19, 1995. Upon his retirement, the plan administrator recalculated his benefits to take into account Xerox's prior lump-sum distribution of benefits upon the termination of his first period of employment. Rather than simply subtracting out the value of the prior distribution, the plan administrator recalculated Layaou's benefits using what Xerox terms a "phantom account" offset, an offset of an employee's earned benefits by the value of a hypothetical account containing the original distributed sum plus the amount the distribution would have earned had it been invested.4 As described in full below, this "phantom account" offset applies directly to the calculation of benefits under the TRA and CBRA and indirectly to the RIGP Formula benefit through comparison of the three calculations.
The plan administrator thus determined Layaou's retirement benefit as follows:
(1) The administrator calculated plaintiff's RIGP Formula benefit based on his total length of service (including his time with Xerox prior to his rehire in 1987) and his highest average yearly compensation. This amount was then reduced to account for Layaou retiring prior to reaching the age of 65.5 His RIGP Formula benefit came out to approximately $480 per month.
(2) The administrator then determined plaintiff's TRA amount. The administrator first calculated the amount plaintiff's first distribution would have grown had it remained in the Profit Sharing Retirement Account and the successor TRA. The administrator then added this TRA "phantom account" offset to the amount actually in plaintiff's TRA account. The value of the TRA with the "phantom account" offset was approximately $94,644.
(3) The administrator determined plaintiff's CBRA amount using this same "phantom account" offset. The value of the CBRA with the "phantom account" offset was approximately $98,212.
(4) Because the CBRA with the "phantom account" offset was larger than the TRA with the "phantom account" offset, the plan administrator converted the CBRA with the "phantom account" offset to a monthly annuity of approximately $749 in order to compare it to the RIGP Formula benefit.
(5) The administrator then compared the CBRA monthly annuity with "phantom account" offset of $749, to the RIGP Formula monthly annuity of $480. The administrator chose the larger of the two amounts, the CBRA, as the benefit payment method.
(7) For payment purposes, the plan administrator then subtracted out the "phantom account" offset from the CBRA and converted that value to a monthly annuity. The CBRA benefit was recalculated to be approximately $145 per month.
Thus, the administrator informed Layaou that he would receive a retirement benefit of $145 per month, a payment significantly smaller than any of the three calculation amounts set forth in Xerox's 1994 yearly estimation of benefits for Layaou.
Layaou submitted a request to Xerox for additional benefits, disputing the plan administrator's use of the "phantom account" offset. Xerox denied the request, and the plan administrator denied Layaou's subsequent appeal. After exhausting his remedies under the Plan, Layaou filed this action in federal court.
Layaou's original and amended complaints did not specify the legal theory for his claim for additional benefits. In a March 30, 1998 decision and order, the district court denied defendants' motion for summary judgment on Layaou's benefit claim.6 The district court found that the claim was governed by ERISA and granted Layaou thirty days to replead the ERISA cause of action and to name and timely serve the proper defendants for that claim. Layaou I, 999 F. Supp. at 434-36.
Layaou filed a second amended complaint, alleging a claim for additional benefits under ERISA, 29 U.S.C. § 1132. Defendants' moved for summary judgment on the ERISA claim. In a decision and order entered on September 29, 1999, the district court granted defendants' motion. Because Layaou's complaint did not specify under which subsection of 29 U.S.C. § 1132 his claim fell, the district court identified Layaou's claim as one for benefits under 29 U.S.C. § 1132(a)(1)(B) and not a claim for breach of fiduciary duty under § 1132(a)(2) or for equitable relief under § 1132(a)(3).7 Layaou II, 69 F. Supp. 2d at 422-24. The court then determined that it should review the plan administrator's calculation of benefits under an abuse of discretion standard, rather than conduct a de novo review.8 Id. at 425-26. The district court reviewed Xerox's SPD and...
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