Allen v. Honeywell Retirement Earnings Plan

Citation382 F.Supp.2d 1139
Decision Date08 July 2005
Docket NumberNo. CV-04-424-PHX-ROS.,CV-04-424-PHX-ROS.
PartiesBarbara ALLEN, et al., Plaintiffs, v. HONEYWELL RETIREMENT EARNINGS PLAN, et al., Defendants.
CourtUnited States District Courts. 9th Circuit. United States District Courts. 9th Circuit. District of Arizona

Daniel Lee Bonnett, Jennifer Lynn Kroll, Susan Joan Martin, Martin & Bonnett PLLC, Phoenix, AZ, for Plaintiffs.

Amy Promislo, Azeez Hayne, Michael L. Banks, William J. Delany, Morgan, Lewis & Bockius LLP, Philadelphia, PA, David B. Rosenbaum, Dawn L. Dauphine, Osborn Maledon PA, Phoenix, AZ, John Ferreira, Morgan, Lewis & Bockius LLP, Pittsburgh, PA, for Defendants.

ORDER

SILVER, District Judge.

On March 31, 2005, the Court issued an Order ruling on various pending Motions in this action and promising that a written opinion would follow.1 This is that opinion. This is a putative class action brought under the civil enforcement provision of the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1132(a). Plaintiffs are former salaried employees of the Garrett Corporation, now part of Honeywell International, Inc. ("Honeywell"). They claim, among other things, that they have suffered reductions in accrued benefits as a result of various amendments to their retirement plans. Pending before the Court were Defendants' Motion to Dismiss the Complaint and Plaintiffs' Motion for Partial Summary Judgment. Also currently pending is Defendants' Motion to Dismiss the Amended Complaint, which incorporates Defendants' first Motion to Dismiss by reference and also seeks to dismiss Plaintiffs' new Count V. For the reasons stated below, the Court granted in part and denied in part both Defendants' Motion to Dismiss the Complaint and Plaintiffs' Motion for Partial Summary Judgment. By this Order, the Court also applies its ruling on Defendants' Motion to Dismiss the Complaint to Defendants' Motion to Dismiss the Amended Complaint. Additionally, it grants Defendants' request to dismiss Count V.

BACKGROUND
A. The Pre-1984 Garrett Retirement and Severance Plans

Unless otherwise indicated, the facts set forth in the following sections are undisputed or incontrovertible.2 In 1960, the Garrett Corporation ("Garrett") established the Supplemental Retirement and Severance Program for Employees of the Garrett Corporation, consisting of the Garrett Retirement Plan and the preexisting Garrett Severance Plan (collectively, the "Garrett Plans").3 (See Garrett Retirement Plan, attached as Exh. A. to Promislo Decl. [Doc. # 16]; Garrett Severance Plan, attached as Exh. B. to Promislo Decl.; Promislo Decl. Exhs. K & O.).

The Retirement Plan was funded by Garrett and provided eligible participants with a traditional defined benefit pension, i.e., a monthly pension payable during retirement based on the employee's service and compensation history as of the date of retirement. (DSOF ¶ 7; Garrett Retirement Plan §§ 3.1, 4.1(b).) The Severance Plan was also funded by Garrett, but worked differently. (Garrett Severance Plan § 3.2.) It provided for an individual account (a "Secured Benefit Account") for each participant and for benefits based solely on the amount contributed to the account.4 (Id. §§ 4.1-4.3.)

B. The Floor-Offset Arrangement

The Garrett Plans were coordinated in a floor-offset arrangement. (See Garrett Retirement Plan § 4.1(a).) A floor-offset arrangement consists of two separate plans, a defined benefit and defined contribution plan. See Regina T. Jefferson, Rethinking the Risk of Defined Contribution Plans, 4 Fla. Tax Rev. 607, 669 (2000). The defined benefit plan operates as the "floor" plan, while the defined contribution plan is the "base plan." Id. If the base plan provides a benefit at least equal to the minimum established under the floor plan, the participant receives the defined contribution account balance as her retirement benefit. Id. at 669-70. In that case, no benefit is paid from the floor plan. Id. at 670. "If, however, the defined contribution plan provides less than the minimum benefit established under the floor plan, as a result of investment performance or inflation, for example, payments will be made from the floor plan to offset the shortfall in the base plan benefit." Id.

An example from the Defendants' brief, using a hypothetical 65 year-old retiree, shows how the floor-offset arrangement worked under the Garrett Plans. (See Defs.' Mot. to Dismiss at 4 [Doc. # 15].) Under the Garrett Retirement Plan, an employee who retired at age 65 would have been eligible to receive an immediate annuity benefit from the Retirement Plan determined by one of several formulas taking into account the employee's years of service and compensation history (i.e., the greatest of the Career Average Benefits, Final Average Benefits, or Minimum Benefits formulas, as those formulas are defined in the Plan). (Garrett Retirement Plan § 4.1(b).) The Retirement Plan referred to this annuity as the "Objective Retirement Income." If the hypothetical employee's Objective Retirement Income equaled $1000.00 per month, this figure would have operated as a "floor" or minimum benefit. (See id.)

To determine how the actual retirement benefit was calculated, however, one had to look at the balance of the Secured Benefit Account and the provisions in the Garrett Retirement Plan that incorporated the Secured Benefit Account. (Garrett Retirement Plan § 4.1.) Assume, for instance, that the same hypothetical 65 year-old employee had a Secured Benefit Account in the amount of $50,000.00. The Garrett Retirement Plan required that the $50,000.00 amount be offset against the employee's Objective Retirement Income. (Id. § 4.1(a).) But to do that, the $50,000.00 amount had to be converted to an annuity payable at the same time — the "Potential Retirement Income" — so that a comparison with the Objective Retirement Income could be made. (See id. § 4.1(c).)

To make that conversion, the Retirement Plan divided the amount in the Secured Benefit Account by a conversion factor of $153.51. (Id. § 4.1(c).) The conversion factor is set forth in Exhibit B to the Retirement Plan. (See id.) Using this methodology, the $50,000.00 in the hypothetical employee's Secured Benefit Account would have been equal to an annuity of roughly $326.00 per month. Under the terms of the Retirement Plan, that amount would have then been offset against the Objective Retirement Income, resulting in the participant receiving a total retirement benefit (referred to as the "Normal Retirement Benefit") as follows: an annuity from the Retirement Plan in the amount of $674.00 per month ($1000.00 per month minus the $326.00 per month annuitized value of the Secured Benefit Account), plus the $50,000.00 balance in the Secured Benefit Account. (Id. § 4.1(a).)

The example above addresses the situation where the employee's Secured Benefit Account, when converted to a monthly annuity, was worth less than the Objective Retirement Income annuity. If the annuitized value of the Secured Benefit Account was worth more than the Objective Retirement Income annuity, then the participant simply received the amount in the Secured Benefit Account.5 (Id. § 4.1.) This effectively ensured that the participant received the greater of the Objective Retirement Income and Potential Retirement Income. In all cases, however, the Objective Retirement Income acted as a floor — that is, the total benefit payable after applying the Secured Benefit Account offset could never be less than the participant's Objective Retirement Income.

Sometimes participants retire or separate from employment before reaching age 65. In such cases, the Retirement Plan included an additional step to determine the participant's Normal Retirement Benefit. This is because the Retirement Plan defined its benefit as an annuity commencing at age 65, while the amount in the participant's Secured Benefit Account was determined at the participant's retirement or termination date. Assume that our hypothetical employee decided to retire at age 60 rather than age 65. To calculate the amount of the Secured Benefit Account offset, the Retirement Plan required the Secured Benefit Account to be projected forward from age 60 to 65 (enabling the projected Secured Benefit Account to be converted into an annuity payable at age 65). (Garrett Retirement Plan § 4.1(c).) The Retirement Plan used an interest rate to make this conversion (referred to as "Credited Interest"). It defined this rate as "3-½% per annum, compounded annually, or at such other rate as may be determined by the Committee from time to time." (Id. § 1.3.)

Further, for those participants who had worked in excess of 35 years for the company, the Garrett Retirement Plan provided that the Secured Benefit Account offset would be reduced by a fraction, "the numerator of such fraction being 360 (420 in the case of participants terminating on and after November 1, 1976), and the denominator of such fraction being his completed months of Credited Service." (Id. § 4.1(c).)

C. The Amendments to the Garrett Plans

By an amendment entitled "Amendment IV," the Garrett Severance Plan was amended, effective December 31, 1983, to provide for its merger with the Signal Companies, Inc. Savings and Stock Purchase Plan (the "Signal Savings Plan"). (Amend. IV to Garrett Severance Plan ¶ 4.) The Amendment provided a final benefit accrual date of December 31, 1983, and a complete discontinuance of any additional contributions to the Severance Plan by the employer as of that date. (Id ¶ 1.) It further provided that immediately after participants were credited with the final company contributions, any excess in the fair market value of the assets of the Plan over the value of the participants' Secured Benefit Accounts would be allocated to participants. (Id. ¶ 2.) This allocation increased the participants' Secured Benefit accounts by almost 50%. (DSOF ¶ 15.) Under the terms of the Amendment, each participant in the Garrett Severance Plan who was...

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