Hirt v. Equitable Retirement Plan for Employees

• Decision Date: 09 July 2008
• Docket Number: Docket No. 06-5190-cv (XAP).,Docket No. 07-1680-cv.,Docket No. 06-4757-cv (L).
• Citation: 533 F.3d 102
• Parties: Stefanie HIRT, Barbara Seay, Ann Nussbaum, Susan Chwast and Loretta Ronzca, Plaintiffs-Appellants-Cross-Appellees, v. The EQUITABLE RETIREMENT PLAN FOR EMPLOYEES, MANAGERS AND AGENTS and the Officers Committee on Benefit Plans, as Plan Administrator, Defendants-Appellees-Cross-Appellants. Margaret Bryerton, Cheryl A. Brock, Mark A. Ferraiolo and Michael Cubbins, Plaintiffs-Appellants, v. Verizon Communications, Inc., Verizon Management Pension Plan and Verizon Employee Benefits Committee, Defendants-Appellees.
• Court: U.S. Court of Appeals — Second Circuit

533 F.3d 102

Stefanie HIRT, Barbara Seay, Ann Nussbaum, Susan Chwast and Loretta Ronzca, Plaintiffs-Appellants-Cross-Appellees, v. The EQUITABLE RETIREMENT PLAN FOR EMPLOYEES, MANAGERS AND AGENTS and the Officers Committee on Benefit Plans, as Plan Administrator, Defendants-Appellees-Cross-Appellants.

Margaret Bryerton, Cheryl A. Brock, Mark A. Ferraiolo and Michael Cubbins, Plaintiffs-Appellants, v. Verizon Communications, Inc., Verizon Management Pension Plan and Verizon Employee Benefits Committee, Defendants-Appellees.

Docket No. 06-4757-cv (L).

Docket No. 06-5190-cv (XAP).

Docket No. 07-1680-cv.

United States Court of Appeals, Second Circuit.

Argued in Tandem: April 22, 2008.

Decided: July 9, 2008.

Edgar Pauk, New York, NY, for Hirt Plaintiffs-Appellants-Cross-Appellees.

Eli Gottesdiener, Gottesdiener Law Firm, PLLC, Brooklyn, NY, for Bryerton Plaintiffs-Appellants.

Kenneth S. Geller (Craig W. Canetti, on the brief), Mayer, Brown, Rowe & Maw LLP, Washington, DC, Wilber H. Boies and Nancy G. Ross, McDermott, Will & Emery LLP, Chicago, IL, and Mark D. Wincek, Kilpatrick Stockton LLP, Washington, DC, for the Equitable Defendants-Appellees-Cross-Appellants.

Jeffrey G. Huvelle (Eric R. Sonnenschein, on the brief), Covington & Burling LLP, Washington, DC, for Verizon Defendants-Appellees.

Kent A. Mason and Jason K. Bortz, Davis & Harman LLP, Washington, DC, for Amici Curiae American Benefits Council, AT & T Corp., Business Roundtable, BP America Inc., El Paso Corporation, Honeywell International Inc., Mercer Human Resource Consulting, Inc., Watson Wyatt Worldwide, and Xerox Corporation.

Carol Connor Flowe and Gretchen Dixon, Arent Fox LLP, Washington, DC, and Robin S. Conrad and Shane Brennan, National Chamber Litigation Center, Washington, DC, for Amicus Curiae Chamber of Commerce of the United States of America.

Jeffrey Lewis and Vincent Cheng, Lewis, Feinberg, Lee, Renaker & Jackson, P.C., Oakland, CA, Stephen R. Bruce and Allison C. Caalim, Stephen R. Bruce Law Offices, Washington, DC, Lynn Lincoln Sarko, Derek Loeser, Amy Williams-Derry, and Karin Swope, Keller Rohrback, LLP, Seattle WA, and Marissa M. Tirona, National Employment Lawyers Association, San Francisco, CA, for Amicus Curiae National Employment Lawyers Association.

Eli Gottesdiener, Gottesdiener Law Firm, PLLC, Brooklyn, NY, for Amicus Curiae Pension Rights Center.

Jeffrey P. Englander, Morrison Cohen LLP, New York, NY, for Amicus Curiae Young Women's Christian Association Retirement Fund, Inc.

Before: JACOBS, Chief Judge, KEARSE and KATZMANN, Circuit Judges.

KATZMANN, Circuit Judge:

In 2006, Congress enacted the Pension Protection Act ("PPA"), which amended the Employee Retirement Income Security Act of 1974 ("ERISA") to specifically allow for cash balance defined benefit plans. Pub.L. No. 109-280, § 701(a)(1), 120 Stat. 780, 981 (2006). The amendment, however, applies only to periods beginning on or after June 29, 2005. Id. § 701(e)(1), 120 Stat. 991. This opinion addresses two appeals, both raising the same issue: whether, prior to June 29, 2005, cash balance defined benefit plans ran afoul of the prohibition in ERISA § 204(b)(1)(H)(i) against age-based reductions in the rate of benefit accrual. 29 U.S.C. § 1054(b)(1)(H)(i). Our charge is a limited one — to interpret the relevant statute, faithful to Congress's meaning.

All of our sister circuits that have considered this question have found that, even prior to amendment by the PPA, ERISA did not proscribe cash balance defined benefit plans. See Drutis v. Rand McNally & Co., 499 F.3d 608 (6th Cir.2007); Register v. PNC Fin. Servs. Group, Inc., 477 F.3d 56 (3d Cir.2007); Cooper v. IBM Personal Pension Plan, 457 F.3d 636 (7th Cir.2006). There has been some uncertainty among district courts in this Circuit, however, concerning whether our decision in Esden v. Bank of Boston, 229 F.3d 154 (2d Cir.2000), dictates another result. Compare In re Citigroup Pension Plan ERISA Litig., 470 F.Supp.2d 323, 341-45 (S.D.N.Y.2006) (concluding cash balance plans violate ERISA § 204(b)(1)(H)), In re J.P. Morgan Chase Cash Balance Litig., 460 F.Supp.2d 479, 488 (S.D.N.Y.2006) (same), Richards v. FleetBoston Fin. Corp., 427 F.Supp.2d 150, 167 (D.Conn. 2006) (same), and Parsons v. AT & T Pension Benefit Plan, No. 3:06CV552, 2006 WL 3826694, at * 1 (D.Conn. Dec. 26, 2006) (same), with Amara v. Cigna Corp., 534 F.Supp.2d 288, 318-20 (D.Conn.2008) (concluding cash balance plans do not inherently violate ERISA § 204(b)(1)(H)), Custer v. S. New England Tel. Co., No. 3:05CV1444, 2008 WL 222558, at *8-10 (D.Conn. Jan.25, 2008), Bryerton v. Verizon Commc'ns Inc., No. 06 Civ. 6672, 2007 WL 1120290, at *4-5 (S.D.N.Y. Apr. 17, 2007) (same), Laurent v. PriceWaterhouse-Coopers LLP, 448 F.Supp.2d 537, 552 (S.D.N.Y.2006) (same), and Hirt v. Equitable Ret. Plan, 441 F.Supp.2d 516, 550 (S.D.N.Y.2006) (same). We write today to clarify that we share the view of cash balance plans put forth by the Third, Sixth, and Seventh Circuits: Even prior to the PPA, cash balance plans could survive scrutiny under ERISA § 204(b)(1)(H)(i).

The parties in Hirt v. Equitable Retirement Plan, 06-4757 and 06-5190, raise a number of other arguments which we dispose of in a summary order also filed today. We therefore affirm both judgments below.

BACKGROUND

I. ERISA and Cash Balance Plans

ERISA recognizes two basic types of retirement plans: "defined contribution plans" and "defined benefit plans." Under ERISA, a defined contribution plan (also known as an "individual account plan") is "a pension plan which provides for an individual account for each participant and for benefits based solely upon the amount contributed to the participant's account, and any income, expenses, gains and losses." 29 U.S.C. § 1002(34). A 401(k) plan is a common defined contribution plan. Any plan that does not meet the definition of defined contribution plan is a defined benefit plan. 29 U.S.C. § 1002(35). We described the traditional defined benefit plan in Esden:

A conventional defined benefit plan[] adopting a final-pay formula would credit the employee with a specific percentage of salary for each year of employment. For instance, an employee might accrue a pension of 1.5% of "salary" for every year of service. After 30 years of service he would have a pension equivalent to 45% of "salary." Salary may be defined as final salary, or the average of salary in the last five years.

229 F.3d 154, 158 n. 4 (2d Cir.2000).

Defined benefit and defined contribution plans differ in who bears the risk of investment performance. Whereas defined benefit plans generally guarantee a specific benefit without regard to how the market performs, defined contribution plans guarantee only that the employer will contribute to the investment account. In defined contribution plans, "[t]he employee is entitled `to whatever assets are dedicated to his individual account.' The employee bears the investment risks and the employer does not guarantee a retirement benefit to the employee." Register v. PNC Fin. Servs. Group, Inc., 477 F.3d 56, 61-62 (3d Cir.2007) (quoting Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, 439, 119 S.Ct. 755, 142 L.Ed.2d 881 (1999)) (internal citation omitted).¹

A cash balance plan is a relatively new form of plan intended to combine attributes of both defined contribution and defined benefit plans. In Esden, we also described the typical cash balance plan:

Under a cash balance pension plan, a hypothetical account is established in each participant's name. Benefits are credited to that "account" over time, driven by two variables: (1) the employer's hypothetical "contributions," and (2) hypothetical earnings expressed as interest credits. Employer "contributions" are usually expressed as a percentage of salary, the rate of which may vary with employee tenure. Interest credits may be at a fixed interest rate, but more often they are tied to an extrinsic index — for example, U.S. Government securities of a specified maturity — and they vary accordingly. Each year an employee receives a statement of her "account" balance, and can therefore see the value of her pension benefit. These features are designed to mimic the simplicity of a defined contribution plan.

229 F.3d at 158. Thus, cash balance plans are often described as "hybrid": they create a benefit structure that simulates that of defined contribution plans, but employers do not deposit funds in actual individual accounts, and employers, not employees, bear the market risks. See, e.g., West v. AK Steel Corp., 484 F.3d 395, 399 (6th Cir.2007). Because the individual accounts and contributions thereto are merely for recordkeeping purposes (and do not actually exist), cash balance plans constitute defined benefit plans under ERISA. See Esden, 229 F.3d at 158 n. 6.

II. Hirt v. The Equitable

Over a four-year period beginning in 1988, The Equitable Life Assurance Society of America ("Equitable") converted the pension plans it offered to employees, managers, and agents from traditional defined benefit plans to a single cash balance plan.² On August 23, 2001, the Hirt plaintiffs filed a putative class action alleging, inter alia, that the cash balance formula violated ERISA § 204(b)(1)(H)(i), which prohibited a pension plan from reducing the "rate of an employee's benefit accrual ... because of the attainment of any age." 29 U.S.C. § 1054(b)(1)(H)(i). The district court certified the class in 2003. Both sides moved for summary judgment, and, in an order dated July 20, 2006, the district court ruled in favor of defendants on the claim here at issue, finding "it is clear that Equitable's plan does not reduce the rate of an employee's benefit accrual because of attainment of any age. The plan merely preserves the time value of money, and thus treats all participants equally." Hirt v. Equitable Ret. Plan, 441 F.Supp.2d 516, 551-52 (S.D.N.Y.2006) (internal quotation marks omitted). Plaintiffs appeal...