Young v. Verizon's Bell Atlantic Cash Balance Plan, No. 05 C 7314.

• Decision Date: 28 August 2008
• Docket Number: No. 05 C 7314.
• Parties: Cynthia N. YOUNG, on behalf of herself, and others similarly situated, Plaintiff, v. VERIZON'S BELL ATLANTIC CASH BALANCE PLAN, formerly known as Bell Atlantic Cash Balance Plan, formerly known as Bell Atlantic Management Pension Plan, and Verizon Communications, Inc., as successor in interest to Bell Atlantic Corporation, Defendants.
• Court: U.S. District Court — Northern District of Illinois

575 F.Supp.2d 892

Cynthia N. YOUNG, on behalf of herself, and others similarly situated, Plaintiff, v. VERIZON'S BELL ATLANTIC CASH BALANCE PLAN, formerly known as Bell Atlantic Cash Balance Plan, formerly known as Bell Atlantic Management Pension Plan, and Verizon Communications, Inc., as successor in interest to Bell Atlantic Corporation, Defendants.

No. 05 C 7314.

United States District Court, N.D. Illinois, Eastern Division.

August 28, 2008.

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Matthew Thomas Heffner, Matthew Todd Hurst, Arthur T. Susman, Susman Heffner & Hurst LLP, Chicago, XL, for Plaintiff.

Allen Channon Engerman, Law Offices of Allen C. Engerman, P.A., Boca Raton, FL, for Plaintiff.

Jeffrey C. Engerman, Law Offices of Jeffrey C. Engerman, PC, Los Angeles, CA, for Plaintiff.

Abigail A. Clapp, James G. Richmond, Greenberg Traurig, LLP, Chicago, IL, for Defendants.

Jeffrey Huvelle, Frederick G. Sandstrom, Covington & Burling, Washington, DC, for Defendants.

MEMORANDUM OPINION AND ORDER

MORTON DENLOW, United States Magistrate Judge.

This is an ERISA class action suit in which Plaintiff Cynthia N. Young ("Plaintiff) alleges that Defendants Verizon's Bell Atlantic Gash Balance Plan and Verizon Communications, Inc. (collectively "Defendants") calculated her pension benefits, and those of other similarly situated employees, using an improper formula. Plaintiff seeks judicial review of the final decision of Defendant Verizon's Bell Atlantic Cash Balance Plan Administrator denying her claim for additional benefits. The Court conducted a bench trial on the papers and heard oral argument on August 5, 2008. The Court has carefully considered the administrative record, declarations, and the briefs and arguments of counsel. The following constitute the Court's findings of fact and conclusions of law pursuant to Rule 52(a) of the Federal Rules of Civil Procedure.

I. BACKGROUND FACTS

A. General Background

Plaintiff brings her claim on behalf of herself and a class of persons who were participants in the Bell Atlantic Management Pension Plan on December 31, 1995. Compl. ¶ 1.¹ The claim is brought under ERISA § 502(a)(1)(b), 29 U.S.C. § 1132(a)(1)(b), and § 502(a)(3), 29 U.S.C. § 1132(a)(3). Compl. ¶ 2.

Plaintiff was a management employee of Bell Atlantic. VZ 58, VZ 267.² For many years, Bell Atlantic operated a traditional pension plan, known as the Bell Atlantic Management Pension Plan (the "BAMPP"), as part of the compensation package for its employees. VZ 85-180. For those employees choosing early retirement, Bell Atlantic would create "cash out windows" that would allow employees to receive their pension all at once, in the form of a lump-sum, rather than an annuity. VZ 130-135. When she retired in November 1997 with 29 years of credited service, Plaintiff elected to receive her retirement benefits in the form of a lumpsum payment. VZ 50. Plaintiff accrued benefits under a series of defined benefit pension plans, including the BAMPP.

Effective December 31, 1995, Bell Atlantic amended the BAMPP to add a cash balance formula and to adopt a new name, the Bell Atlantic Cash Balance Plan (the "Plan" or "1996 Plan"). VZ 1035-36; VZ 1046-1106. The actual Plan document ("1996 Cash Balance Plan" or the "Cash Balance Plan"), referred to as the "official plan document" was not finalized until July 6, 1996, but was made retroactive to December 31, 1995. VZ 1046-1106. The Plan operated in accordance with this official plan document, the 1996 Cash Balance Plan, until it was amended in 1997 by the 1997 Cash Balance Plan. VZ 182-244. Thereafter, the Plan was amended on a yearly basis, and after Bell Atlantic merged with Verizon, it was renamed as the Verizon's Bell Atlantic Cash Balance Plan. VZ 11712-17; VZ 12586. The 1996 Cash Balance Plan was in effect at the time of Plaintiffs retirement, and is thus the version of the Plan at issue in this case.

B. Cash Balance Plan Operation

The Cash Balance Plan provides pension benefits expressed as a specific dollar amount to be paid upon retirement in any number of forms, including a lump-sum or an annuity. VZ 1055. For participants who worked at Bell Atlantic prior to the conversion to the Cash Balance Plan and who accrued benefits under the BAMPP, the Cash Balance Plan devoted a separate section of the plan to the calculation of the opening balances of their Cash Balance Accounts, § 16.5 "Opening Balance." VZ 1100. That section provided several different formulas for calculating opening balances, depending on the particular circumstances of the participant. VZ 1100-01.

The two formulas at issue in this case are found in § 16.5.1(a) (1), which applies to former participants of the BAMPP who were eligible for service pensions on December 31, 1995, and § 16.5.1(a) (2), which applies to former participants of the BAMPP who were not eligible for service pensions on December 31, 1995. VZ 1100.

1. The PBGC Interest Rate under §§ 16.5.1(a)(1) and (a)(2)

Both §§ 16.5.1(a)(1) and 16.5.1(a)(2) require the pension benefits due to participants under the BAMPP as of December 31, 1995, to be converted into a lump-sum. VZ 1100. Generally, to determine the lump-sum, the plan uses a mortality table to determine the participant's life expectancy at the time of the conversion, and applies an interest rate to convert the sum of the expected values of participant's age—65 (normal retirement age) annuity payments into a lump-sum cashout benefit. Id.

Section 16.5 of the Cash Balance Plan sets forth the formulas for converting the benefits to a lump-sum. Section 16.5 states as follows:

16.5 Opening Balance

The provisions of Section 4.3 of the Plan shall be supplemented by the following:

16.5.1 Pension Conversions as of the Transition Date

Where a present value must be determined under this Section 16.[5], the present value shall be determined as follows: (a) using the PBGC interest rates which were in effect for September of 1995 (using the immediate PBGC rate for a Participant who was then eligible for a Service Pension under the 1995 BAMPP Plan, and using the deferred PBGC rates for individuals who were not then eligible for a Service Pension), (b) using the UP-84 mortality table, and (c) taking account of age in years and completed months, either as of December 31, 1995 (for Participants not eligible on the Transition Date for a Service Pension under the 1995 BAMPP Plan) or as of November 15, 1996 (for Participants who were eligible on the Transition Date for a Service Pension).

16.5.1(a) 1995 Active Participants and 1995 Former Active Participants

In the case of a 1995 Active Participant or 1995 Former Active Participant, the opening balance of the Participant's Cash Balance Account on January 1, 1996 shall be the amount described in subsection (1) or (2) below, as applicable:

16.5.1 (a)(1) If Eligible for Service Pension

If, as of December 31, 1995, the Participant was eligible for a Normal Retirement Service Pension or an Early Retirement Service Pension under the 1995 BAMPP Plan, then the amount described in this paragraph (1) is the product of multiplying (A) the Participant's applicable Transition Factor described in Table 2 of this Section, times (B) the lump-sum "cashout value of the immediate annuity benefit under the 1995 BAMPP Plan, determined as if the Participant had retired on December 31, 1995, ignoring any compensation paid after the date of the last paycheck for salary earned in December 1995. For a 1995 Former Active Participant, the date on which the, individual ceased to be an Eligible Employee shall be substituted for December 31, 1995 in the last phrase of the previous sentence.

16.5.1(a) (2) Not Eligible for Service Pension

In the case of a Participant who is not eligible for a Service Pension under the 1995 BAMPP Plan as of the Transition Date, the amount described in this paragraph (2) is the product of multiplying (A) the Participant's applicable Transition Factor described in Table 1 of this Section, times (B) the lump-sum cashout value of the Accrued Benefit payable at age 65 under the 1995 BAMPP Plan, determined as if the Participant had a Severance From Service Date on December 31, 1995, based on Compensation paid through December 31, 1995, multiplied by the applicable transition factor described in Table 1 of this Section. For a 1995 Former Active Participant, the date on which the individual ceased to be an Eligible Employee shall be substituted for December 31, 1995 in the last phrase of the previous sentence.

VZ 1100.

Plaintiff alleges that Defendants used the wrong PBGC interest rate when calculating the opening balance of her account. Defendants used a rate of 120% of the applicable interest rate³ specified by the Pension Benefit Guaranty Corporation ("PBGC") if the amount of the lump-sum, based on the 120% rate, exceeded $25,000; and the applicable PBGC rate if the lump-sum amount did not exceed $25,000, as provided for in § 4.19 of the BAMPP. VZ 11; VZ 133-34; VZ 1100. Because Plaintiff's lump-sum amount exceeded $25,000, Defendants used 120% of the PBGC applicable interest rate. VZ 11-12. The use of this interest rate reduced her opening cash balance to $240,127 compared to $292,383 if 100% of the applicable PBGC applicable interest rate had been used. VZ 10. Plaintiff argues that Defendants should have applied § 16.5.1 of the Cash Balance Plan, and accordingly, should have used 100% of the applicable PBGC rate, rather than applying § 4.19 of the BAMPP.

2. The Transition Factor in § 16.5.1(a)(2)

Plaintiff also contends that Defendants incorrectly calculated her opening balance formula under § 16.5.1(a)(2) by multiplying her applicable transition factor by her lump-sum cashout value only once. To compute her opening balance, Defendants multiplied her lump-sum cashout value by her applicable transition factor. Plaintiff, however, argues...