327 F.3d 1 (1st Cir. 2003), 02-1695, Campbell v. BankBoston

Docket Nº:02-1695
Citation:327 F.3d 1
Case Date:March 07, 2003
Court:United States Courts of Appeals, Court of Appeals for the First Circuit

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327 F.3d 1 (1st Cir. 2003)

JAMES W. CAMPBELL, Plaintiff, Appellant,



No. 02-1695

United States Court of Appeals, First Circuit

March 7, 2003


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Robert O. Bergerfor appellant.

Robert B. Gordon with whom Joseph P. Mingolla and Ropes & Graywere on brief for appellees.

Before LYNCH, Circuit Judge, FARRIS, Senior Circuit Judge,[*] and LIPEZ, Circuit Judge.

LYNCH, Circuit Judge.

At the heart of this case is the debate over cash balance pension plans, a new type of plan that favors, in many cases, younger workers over those closer to retirement Page 3

age. The plaintiff, James W. Campbell, is a former employee of BankBoston, a business that switched from a traditional defined benefit plan to a cash balance system. He sued, alleging violations of the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1001 et seq. (2000), and the Age Discrimination in Employment Act (ADEA), 29 U.S.C. § 621 et seq. We affirm the district court's entry of summary judgment for the defendants. I.

There is no dispute as to the facts. Campbell was continuously employed by BankBoston, N.A. and its corporate predecessors for thirty-seven years, through September 30, 1998. For the entirety of his employment, he worked in the domestic institutional custody business, which held and traded securities for mutual, pension, and endowment funds. Campbell had reached the position of senior fiduciary specialist; he was primarily responsible for ensuring compliance with Regulation 9 of the Office of the Comptroller of the Currency, in the United States Treasury Department. See 12 C.F.R. pt. 9 (2002) (regulating the fiduciary activities of national banks).

Two different plans are at issue in this case. The first is a Separation Pay Plan, adopted in 1996 and amended in 1998. Campbell says he was entitled to benefits under the Plan. The second is the retirement plan, which BankBoston converted to a cash balance plan in 1989 and amended in 1997. The effect of the conversion and amendment, in practice, was to reduce Campbell's retirement benefits by about $3,000 a year from what he would have expected to receive had the plan not been amended in 1997.

A. Separation Pay Plan

BankBoston's predecessor, the First National Bank of Boston, adopted a Separation Pay Plan on June 15, 1996, which provided compensation for employees "whose employment is terminated as a result of work force reduction or job elimination." It did not apply to those who voluntarily left the company. It also required employees to make a "reasonable and effective effort to secure a comparable position" of employment, defined as one with a base salary within 10% of the current job and which "requires a reasonably similar employment background and skill set." The plan paid two weeks base pay for each full year of service. The Plan Administrator was given sole discretion to establish rules to administer the plan, to interpret and construe it, and to determine eligibility. Moreover, the administrator had the power to amend, modify, or discontinue the plan for any reason at any time.

On July 20, 1998, BankBoston announced the sale of its domestic institutional custody business to Investors Bank and Trust (IBT). IBT is not a national bank and thus does not fall under the scope of Regulation 9. See id. § 9.1(c). The agreement with BankBoston required IBT to offer comparable jobs to all BankBoston custody employees. The sale closed on October 1, 1998.

BankBoston announced that it would treat a refusal to accept a position with IBT as a "voluntary resignation" under the separation plan, thus denying the severance package to those custody employees who did not accept a job with IBT. Many employees complained that this interpretation was contrary to the severance plan, which only denied benefits if employees did not pursue "comparable internal job opportunities." The employees took that phrase to mean BankBoston jobs, not job offers from other companies. In response, on September 30, 1998, the last day of employment for those working in the custody Page 4

business, the plan administrator, Helen Drinan, amended the plan. The new amendment excluded those who refuse an offer of employment from "an employer who acquires any of the assets or operations of a BankBoston company or business." Campbell was offered a position at IBT. Because IBT was not a national bank, it did not need to comply with Regulation 9; thus, the job IBT offered to Campbell was not a Regulation 9 compliance position. IBT instead offered Campbell the position of Compliance Manager within its Trust and Custody Unit. Campbell declined the offer of employment. As a result, BankBoston did not pay Campbell under the severance plan. At stake was two weeks of pay for each of the thirty-seven years that Campbell had worked for BankBoston, a total of more than $100,000.

B. The Cash Balance Plan

BankBoston's retirement plan prior to 1989 was a traditional defined benefit plan. A defined benefit plan pays an annuity1 based on the retiree's earnings history, usually the most recent or highest-paid years, and the number of completed years of service to the company. The BankBoston plan was determined by a formula which factored in the retiree's years of service, the five-year average compensation at time of retirement, and the retiree's Social Security primary benefit.2

On January 1, 1989, BankBoston adopted the Cash Balance Retirement Plan. Cash balance plans are a type of defined benefit plan that guarantee an employee a certain employer contribution level, usually an annual percentage of salary, plus a fixed percentage of interest. Cash balance plans may superficially resemble defined contribution plans, in which an employer deposits a fixed amount into an account. However, cash balance plans are actually defined benefit plans, because the level of interest is guaranteed.

The plan version adopted in 1989 contained a "Benefit Safeguard Minimum Benefit" guaranteeing that, for long-term employees such as Campbell, the retirement benefits would be at least as much as would have been payable had the previous defined benefit plan still been in place upon their retirement. One effect of this provision was that the benefits due under the previous plan continued to accrue for those long-term employees protected by the grandfather clause.

In 1995, BankBoston commissioned a study of its benefits program, which concluded that this grandfather provision would cost the company a significant amount of money. Thereafter, on January 1, 1997, BankBoston again amended its retirement plan; this amendment eliminated the continued accrual of benefits under the previous defined benefit plan after December 31, 1996. There is no contention that this amendment lacked Internal Revenue Service (IRS) approval. All accrued benefits were converted to cash balance accounts by calculating the value of accrued benefits as of the end of 1996 and crediting that amount in separate conversion accounts, where they continued to earn interest. Because Campbell would Page 5

receive less under a cash balance formulation than under the Benefit Safeguard, even after that provision had ceased to accrue benefits, the December 31, 1996 amendment had the effect of ending Campbell's pension accrual altogether. After the sale of BankBoston's custody business to IBT, Campbell applied for retirement benefits. Under the retirement plan in place before January 1, 1997, Campbell's benefit under the older defined benefit plan would have kept accruing until his retirement on September 30, 1998. He would therefore have expected to receive $31,882.12 per year. However, under the 1997 plan amendment, Campbell was due only $28,798.10 per year, an annual difference of $3,084.02.3


Campbell filed a complaint in federal court on December 10, 1999. The original complaint named only BankBoston as a defendant; Campbell later amended the complaint to include additional defendants: the Separation Pay Plan; Helen Drinan, the plan administrator; the Cash Balance Retirement Plan; and the Retirement Plan Committee. The amended complaint contained seven causes of action. Campbell alleged that the Separation Pay Plan's denial of benefits constituted a violation of ERISA, 29 U.S.C. § 1001 et seq., and a breach of the covenant of good faith and fair dealing. He alleged that the Retirement Plan's replacement of the older defined benefit plan with a cash balance plan violated ERISA, the covenant of good faith and fair dealing, and ADEA. Campbell also alleged that he was wrongly terminated because he was not permitted to continue to work for BankBoston following the sale of the custody business to IBT, and that he was discriminated against on the basis of age because he and other highly compensated employees were not permitted to participate in an early retirement program.

On May 17, 2002, the district court granted the defendants' motion for summary judgment on all seven counts. Campbell v. BankBoston, N.A., 206 F.Supp.2d 70, 73 (D. Mass. 2002). Campbell appeals the grant of summary judgment as to his ERISA challenge to BankBoston's pension plan, his ERISA challenge to the denial of payment of separation plan benefits, and his age discrimination challenge to the retirement plan.4


A. Standard of Review

We review a grant of summary judgment "de novo, construing the record in the light most favorable...

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