433 F.3d 254 (2nd Cir. 2006), 04-4609, Frommert v. Conkright
|Citation:||433 F.3d 254|
|Party Name:||Paul J. FROMMERT and Alan H. Clair Plaintiffs-Appellants, Donald S. Foote, Thomas I. Barnes, Ronald J. Campbell, Frank D. Commesso, William F. Coons, James D. Gagnier, Brian L. Gaita, William J. Ladue, Gerald A. Leonardo Jr., Frank Mawdesley, Harold S. Mitchell, Walter J. Petroff, Richard C. Spring, Patricia M. Johnson, F. Patricia M. Tobin, Nancy|
|Case Date:||January 06, 2006|
|Court:||United States Courts of Appeals, Court of Appeals for the Second Circuit|
Argued: July 11, 2005
Appeal from a June 3, 2002 grant of partial dismissal and from a July 30, 2004 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 Defendants-Appellees dismissing the Plaintiffs' claims for improper calculation of benefits under the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1101 et seq.
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Robert H. Jaffe, Esq., Robert H. Jaffe & Associates, P.A., Springfield, N.J., for Plaintiffs-Appellants.
Margaret A. Clemens, Esq., Ryan T. Jenny, Esq., Nixon Peabody L.L.P., Rochester, N.Y, for Defendants-Appellees.
Before: POOLER and SACK, Circuit Judges, and GARAUFIS,1 District Judge.
GARAUFIS, District Judge.
Plaintiff-appellants appeal from a June 3, 2002 grant of partial dismissal and from a July 30, 2004 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")2, the Xerox Corporation Retirement Income Guarantee Plan ("the Plan"), and individually named Plan Administrators dismissing the plaintiffs' claims for improper calculation of their benefits under the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1101 et seq. Frommert v. Conkright, 206 F.Supp.2d 435 (W.D.N.Y. 2002) ("Frommert 2002"); Frommert v. Conkright, 328 F.Supp.2d 420 (W.D.N.Y. 2004) ("Frommert 2004"). The central issue in this appeal is whether the manner in which the defendants instituted a "phantom account" offset, through which the hypothetical growth of an employee's previous lump sum retirement benefits distribution is factored into his current benefits calculation, violates ERISA. We hold that it does.
For the reasons set forth below, we find that the Plan has not always contained a phantom account, that it was not properly
added to the Plan through amendment until 1998, that its application to employees rehired prior to 1998 violates ERISA's anti-cutback provision by impermissibly reducing their benefits, and that its adoption in 1998 was made without proper notice to Plan participants. We also conclude that in light of our view of the applicable law set forth below, the district court should reassess whether the plaintiffs have stated a claim for equitable relief concerning their allegations that the defendants breached their fiduciary duties by misrepresenting the terms of the Plan. We therefore vacate the district court's decision granting summary judgment to the defendants and remand for further proceedings consistent with this opinion.
Plaintiffs are a group of over 100 Xerox employees who left the company at one time or another and were subsequently rehired. At the time of their initial departure from Xerox, they received lump-sum distributions of the retirement benefits they had earned to date. Upon being rehired by Xerox, they once again began to earn retirement benefits under the Plan. The dispute in this case centers on the manner by which the rehired employees' previous distributions are factored into the calculation of their retirement benefits after returning to Xerox.
Under Xerox's retirement plan, a retiring employee's benefits are determined by looking to the highest result of three alternative calculation methods. See Layaou v. Xerox Corp., 238 F.3d 205, 206 (2d Cir. 2001). The first of these methods is the retirement plan formula ("RIGP"), which is calculated by multiplying years of service, up to thirty, by 1.4 percent of the highest-average yearly pay, a figure based on the average of the employee's five highest-paying calendar years with Xerox. For employees rehired by Xerox, the number of years of service includes the total time the employee worked for Xerox, not just the period of employment following rehire.
Second, the Plan looks to 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. This account accrues interest at a yearly fixed rate of one percent above the one-year Treasury Bill rate. For employees who commenced working at Xerox before the end of 1989, the CBRA account also includes the transferred balance of a Profit Sharing Retirement Account that Xerox maintained for each employee until December 31, 1989. According to the record, the transferred balance for the plaintiffs was $0 because they had withdrawn the balance of their accounts when they originally retired from Xerox.
The third and final method of calculation is called the Transitional Retirement Account ("TRA") and is only available to employees hired by Xerox prior to 1989. It consists of the balance, if any, that an employee had in the Retirement Account as of December 31, 1989, plus hypothetical gains based on the investment results of the funds in which the employee's Profit Sharing Retirement Account were invested as of that date.
In order to avoid paying duplicative benefits to rehired employees who had previously received a lump sum distribution, the Plan has always contained provisions concerning the offset of prior distributions. Without such provisions, rehired employees would receive a windfall upon their second departure from Xerox because they would receive benefits based on their initial tenure at the company on two separate occasions. It is the manner by which the offset of prior distributions is applied,
along with the means by which it was incorporated into the Plan, that are the central subjects of dispute in this case.
The Plan's 1989 Restatement reflects a significant redesign of the pension benefit scheme previously employed by Xerox. Most notably, the Plan eliminated the Profit Sharing Plan and transferred balances within it to employees' TRA and CBRA accounts. Before 1989, TRA and CBRA accounts did not exist. The Plan provided for an individual to have a retirement account and also included a calculation somewhat similar to the RIGP formula described above (total years of service multiplied by percentage of average monthly compensation). The main difference, however, was that, in determining benefits, the Plan did not compare the monthly value of the RIGP calculation to the monthly value of the individual's retirement account. Instead, to determine benefits, a certain percentage of the individual's retirement account was deducted from the RIGP to offset the earlier lump-sum distribution.
The 1989 Restatement also contained provisions regarding the non-duplication of benefits for plan participants, who are referred to as "Members." In particular, Section 9.6 of the Restatement provided as follows:
Nonduplication of Benefits. In the event any part of or all of a Member's accrued benefit is distributed to him prior to his Normal Retirement Date, if Section 8.8 [dealing with incompetent beneficiaries] does not apply to such distribution and such Member at any time thereafter recommences active participation in the Plan, the accrued benefit of such Member based on all Years of Participation shall be offset by the accrued benefit attributable to such distribution.
The term "Accrued Benefit" as used in Section 9.6 is defined in Section 1.1 of the 1989 Restatement in pertinent part as follows:
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