Adams v. U.S. Bancorp, 22-CV-509 (NEB/LIB)

CourtUnited States District Courts. 8th Circuit. United States District Court of Minnesota
Writing for the CourtNANCY E. BRASEL, UNITED STATES DISTRICT JUDGE.
PartiesSUE ANN ADAMS, PATRICIA J. PETTENGER, and MARLA K. SNEAD, on behalf of themselves and all others similarly situated, Plaintiffs, v. U.S. BANCORP, the BENEFITS ADMINISTRATION COMMITTEE, and JOHN/JANE DOES 1-5, Defendants.
Docket Number22-CV-509 (NEB/LIB)
Decision Date17 October 2022

SUE ANN ADAMS, PATRICIA J. PETTENGER, and MARLA K. SNEAD, on behalf of themselves and all others similarly situated, Plaintiffs,
v.

U.S. BANCORP, the BENEFITS ADMINISTRATION COMMITTEE, and JOHN/JANE DOES 1-5, Defendants.

No. 22-CV-509 (NEB/LIB)

United States District Court, D. Minnesota

October 17, 2022


ORDER ON MOTION TO DISMISS AND STRIKE CLASS ALLEGATIONS

NANCY E. BRASEL, UNITED STATES DISTRICT JUDGE.

A few years back, former employees of U.S. Bancorp sued their employer with materially identical claims to those alleged here. Smith v. U.S. Bancorp, No. 18-CV-3405 (PAM/KMM), 2019 WL 2644204 (D. Minn. June 27, 2019). The employees asserted that U.S. Bancorp decreased the value of their pensions in violation of the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001 et seq. (“ERISA”). Id. at *1. The court denied U.S. Bancorp's motion to dismiss, concluding that it was plausible that the company violated 29 U.S.C. Sections 1054(c)(3) and 1053(a) of ERISA. Id. at *3-4. Later, however, the court declined to certify the plaintiffs' class, leading them to voluntarily

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dismiss their claims with prejudice. Thorne v. U.S. Bancorp, No. 18-CV-3405 (PAM/KMM), 2021 WL 1977126, at *4 (D. Minn. May 18, 2021).[1]

Attempting a do-over, a different group of former U.S. Bancorp employees-Sue Adams, Patricia Pettenger, and Marla Snead (“Plaintiffs”)-bring this putative class action. Plaintiffs attempt to dodge the class certification issues that plagued their peers in Smith. But their underlying claims largely remain the same. Plaintiffs retired before turning sixty-five, so their monthly pension benefits needed to be adjusted downward to account for a longer benefits withdrawal period. (ECF No. 1 (“Compl.”) ¶¶ 2-4.) They allege that the discount and mortality rate assumptions used to make that adjustment led to an improper overall reduction of their total benefits as compared to what they would have received had they retired at sixty-five. (Id. ¶¶ 5-6, 66-68.) Plaintiffs therefore claim that U.S. Bancorp, the Benefits Administration Committee, and the individual members of that committee (“Defendants”) violated Sections 1054(c)(3) and 1053(a). (Id. ¶ 6.)

Defendants move to dismiss, arguing that their methodology did not violate Sections 1054(c)(3) or 1053(a). In the same filing, they also ask the Court to strike Plaintiffs' class allegations, asserting that their revised class definition is an impermissible fail-safe class. The Court denies the motion.

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BACKGROUND

The Court presents the facts in the light most favorable to the non-moving party. Plaintiffs are former employees of U.S. Bancorp. (Compl. ¶¶ 13-15.) They each accrued “Part B” retirement benefits under the U.S. Bank Pension Plan (“Plan”). (Id. ¶ 2, 13-15.) The Plan is a defined-benefit retirement program that provides, in its simplest form, an annuity consisting of monthly payments from age sixty-five (the typical retirement age) until a retiree's passing. (Id. ¶¶ 1, 4, 26.) Plaintiffs worked for at least five years at U.S. Bancorp and retired “early”-before turning sixty-five. (Id. ¶¶ 4, 13-15.) When an eligible employee retires early, the Plan requires a decrease in the employee's monthly pension amount to account for more years of payments. (Id. ¶ 4.) That decrease is necessary to make the early retiree's total retirement benefits “actuarial[ly] equivalent” to what they would have received had they retired at the normal retirement age. (Id. ¶¶ 4-5, 19.) It is the phrase “actuarial equivalence”-and the calculations used to achieve it-that present the conundrum here.

Plaintiffs allege that actuarial-equivalence calculations require a comparison of the present value of the total amount of benefits to be received under two forms of benefits to make sure they are equal. (Id. ¶¶ 22, 44.) Calculating the present value of two benefit forms requires two assumptions: a discount (or interest) rate and a mortality table.[2] (Id. ¶ 45.) Plaintiffs allege that the standards of the actuarial profession require

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that those assumptions be reasonable. (Id. ¶¶ 53, 59.) Indeed, the Actuarial Standards Board's standards of practice expressly instruct that discount-rate assumptions should be “reasonable,” reflecting “historical and current economic data that is relevant as of the measurement date.” (Id. ¶ 53 (citation omitted).) Likewise, mortality assumptions should take “into account historical and current demographic data that is relevant as of the measurement date” and reflect “the actuary's estimate of future experience.” (Id. ¶ 59 (citation omitted).)

The Plan provides its own specific method to calculate “actuarial equivalent” values without any mention of reasonableness. (Id. ¶ 4.) It uses Plan-defined early commencement factors (“ECFs”) to reduce benefits by a set percentage. (Id.) For example, if a Plan participant retires early at age fifty-five, the Plan applies an 0.38 ECF, which would turn a hypothetical $1,000 monthly pension into $380. (Id. ¶ 34.) The Plan does not specify the mortality and discount-rate assumptions underlying its ECF values (Id. ¶ 66.) But the ECFs that apply to Plaintiffs have not changed since 2002, and life expectancies and discount rates have changed “substantial[ly]” since then. (Id.)

Plaintiffs therefore contend that the ECF multipliers are “unreasonable, excessive, and punitive.” (Id. ¶ 5.) They allege that the original assumptions on which they are based were “unreasonable and outdated” in 2002, let alone today. (Id.) To compare, Plaintiffs reference the actuarial assumptions prepared by the U.S. Department of the Treasury. (Id. ¶¶ 5, 67.) Plaintiffs assert that for some Plan

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participants, benefits were reduced roughly forty percent more than they would have been had Defendants used the Treasury's discount and mortality rate figures. (Id. ¶ 5.) The result, according to Plaintiffs, is that they are receiving less in benefits than they are entitled to each month. (Id. ¶ 6.)

Plaintiffs bring this putative class action under Rule 23 of the Federal Rules of Civil Procedure on behalf of themselves and others whose early-retirement benefits were reduced by the Plan's ECFs. (Id. ¶ 78.) They seek declaratory and equitable relief under 29 U.S.C. Section 1132(a)(3), which authorizes civil actions to redress ERISA violations. (Id. ¶ 88.) Plaintiffs allege two such violations: first, that the Plan's ECF methodology resulted in early-retirement benefits that are not “actuarial[ly] equivalent” to what they would have received had they retired at sixty-five, in violation of 29 U.S.C. Section 1054(c)(3); and second, that the Plan's methodology required them to forfeit benefits in violation of 29 U.S.C. Section 1053(a). (Id. ¶ 87.) They bring a claim for breach of fiduciary duty based on the violation of those provisions as well. (Id. ¶ 95.)

Defendants move to dismiss. (ECF No. 21.) As to the first claim, they argue that Section 1054(c)(3) does not require pension plans to calculate early-retirement benefits with “reasonable” assumptions-and that the Plan's definition of the ECFs controls. (ECF No. 23 at 3-4.) As to the second claim, they assert that Section 1053(a)'s antiforfeiture provision does not apply to early retirees. (Id. at 4-5.) Finally, Defendants

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move to strike Plaintiffs' class allegations, arguing that the putative class definition is an impermissible fail-safe class. (Id. at 5.)

ANALYSIS

The Court begins by addressing Defendants' motion to dismiss Plaintiffs' ERISA claims, and then turns to Defendants' motion to strike Plaintiffs' class allegations.

I. Defendants' Motion to Dismiss

To survive a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure, “a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quotation marks and citation omitted). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. The Court must “accept as true” all plausible factual allegations. Id. “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. “Though matters outside the pleading may not be considered in deciding a Rule 12 motion to dismiss, documents necessarily embraced by the complaint are not matters outside the pleading.” Ashanti v. City of Golden Valley, 666 F.3d 1148, 1151 (8th Cir. 2012) (citation omitted).

As noted above, Plaintiffs allege two ERISA violations. They contend that Defendants reduced their benefits to less than what they would have received had they

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retired at age sixty-five, causing them to forfeit part of their pension in violation of Sections 1054(c)(3) and 1053(a). (Compl. ¶ 6.) The Complaint “necessarily embrace[s]” the Plan, so the Court will consider the Plan when addressing the motion to dismiss the alleged ERISA violations. Ashanti, 666 F.3d at 1151.

A. Section 1054(c)(3)

Section 1054(c)(3) addresses what a plan owes its participants if it allows for early retirement. The statute provides:

[I]n the case of any defined benefit plan, if an employee's accrued benefit is to be determined as an amount other than an annual benefit commencing at normal retirement age, or if the accrued benefit derived from contributions made by an employee is to be determined with respect to a benefit other than an annual benefit in the form of a single life annuity (without ancillary benefits) commencing at normal retirement age, the . . . benefit . . . shall be the actuarial equivalent [of an annual benefit commencing at normal retirement age].

29 U.S.C. § 1054(c)(3) (emphasis added). Put another way, Section 1054(c)(3) requires that “the accrued benefit under a defined benefit plan must be...

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