Bilello v. Jpmorgan Chase Retirement Plan
| Citation | 649 F.Supp.2d 142 |
| Decision Date | 12 August 2009 |
| Docket Number | No. 07 Civ. 7379 (DLC).,07 Civ. 7379 (DLC). |
| Parties | Frank BILELLO, individually and on behalf of all others similarly situated, Plaintiff, v. JPMORGAN CHASE RETIREMENT PLAN, JPMorgan Chase Director of Human Resources, as administrator of the JPMorgan Chase Retirement Plan, Defendants. |
| Court | U.S. District Court — Southern District of New York |
Lynn L. Sarko, Amy Williams-Derry, Derek W. Loeser, David S. Preminger, Karin B. Swope, Gretchen S. Obrist, Keller Rohrback LLP, Seattle, WA, Alice McInerney, Peter S. Linden, Kirby McInerney LLP, New York, NY, Joseph H. Meltzer, Edward W. Ciolko, Joseph A. Weeden, Schiffrin Barroway Topaz & Kessler, LLP, Radnor, PA, Edgar Pauk, New York, NY, for Plaintiff and the Proposed Class.
Thomas C. Rice, Jonathan K. Youngwood, Simpson Thacher & Bartlett LLP, Meryl R. Kaynard, JPMorgan Chase Legal Department, New York, NY, for Defendants.
Plaintiff Frank Bilello, on behalf of himself and all others similarly situated, brings this lawsuit under the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001 et seq., and the Internal Revenue Code ("I.R.C."). Bilello was an employee of JPMorgan Chase & Co. ("JPMC") and predecessor banks, including Chemical Banking Corporation ("Chemical"), from 1960 until his retirement in 2008. Bilello's complaint concerns Chemical's 1991 conversion from a traditional defined-benefit retirement plan to a cash balance retirement plan, as well as aspects of subsequent plan amendments issued by Chemical and its successors, including JPMC. This Opinion allows Bilello to file a corrected second amended complaint ("SAC"), and grants in part the defendants' motion to dismiss that pleading. The result of this motion practice is that the plaintiff's principal remaining claims are those that assert that defendants had an obligation to warn plan participants that the conversion to a cash balance plan would mean that some workers would experience periods of zero benefit accrual.
Previous Opinions issued in this matter have explained the types of retirement plans at issue and traced the timeline of their development at Chemical Bank and its successors.1 While familiarity with those Opinions is assumed, the information necessary to address the pending motions is repeated here, beginning with a description of cash balance plans and Chemical's conversion to such a plan.
Since the mid-1980s, hundreds of companies have converted their pension plans for employees to cash balance plans, sparking controversy and litigation. Campbell v. BankBoston, N.A., 327 F.3d 1, 7 (1st Cir.2003). Under a cash balance retirement plan, a hypothetical account is established in each participant's name to keep track of his accrued benefit. Typically, the account contains "pay credits," representing a percentage of the participant's salary that is periodically deposited into the account, as well as "interest credits," which apply a common interest rate to the account balances. See Hirt v. The Equitable Retirement Plan for Employees, Managers, and Agents, 533 F.3d 102, 105 (2d Cir.2008). Pay credits cease to accumulate once an individual's employment ends, but interest credits continue to be allocated until benefits are distributed. See, e.g., Esden v. Bank of Boston, 229 F.3d 154, 160 (2d Cir.2000). Cash balance plans may offer employees the option of a lumpsum payout upon termination of employment in lieu of an annuity, although any such payout must be worth at least as much, in present terms, as the annuity payable at normal retirement age. Id. at 163.
Because a cash balance account earns interest, much of an employee's pension benefit will be earned in his or her initial years of service—the more time there is until retirement, the more time there is for the account to grow. Campbell, 327 F.3d at 7. "[E]ven though early additions to the pension account may be based on a percentage of a much smaller salary, the effects of time mean that these additions will contribute to the final total much more than larger additions to the account entered closer to retirement." Id. at 7-8.
In contrast, under a traditional defined-benefit pension plan, benefits are usually calculated based on years of service to a company and the average of the highest salary, which often occurs at the end of an employee's tenure. Id. at 7. Unlike a cash balance system, a traditional defined benefit pension plan will yield its greatest increases in benefits as an employee approaches retirement. Id. at 7-8.2 This arrangement has contributed to the controversy surrounding transitions from traditional defined-benefit to cash-balance plans, as older workers, nearing retirement, find that their expectation of a substantial increase in benefits has been thwarted. Id. at 8. Despite these differences between the two plans, cash-balance plans are treated as defined benefit plans (as opposed to "defined contribution" plans, such as 401(k) accounts), under ERISA. Hirt, 533 F.3d at 105.
An additional source of controversy is the "wear-away" effected by many conversions to a cash balance formula. Campbell, 327 F.3d at 8. Certain conversions to cash balance plans create "wear-away" by preventing employees' pension benefits from growing until their benefits calculated under the cash-balance plan equal their accrued benefits under the traditional defined-benefit plan. Id. As Bilello alleges occurred in this lawsuit, it may take several years for a cash balance account to catch up with the pre-conversion balance in a traditional defined benefit account. Wear-away also most detrimentally affects older workers, who cease accruing benefits altogether just when they may have expected to experience the period of greatest accrual, at the end of their career. Id. Despite these effects on the benefits of workers nearing retirement, the Second Circuit has held that cash-balance plans do not violate ERISA's prohibition against age discrimination. Hirt, 533 F.3d at 110.
There are essentially five ERISA plans now at issue in this litigation, beginning with Chemical's first cash balance retirement plan. Chemical converted its conventional defined benefit retirement plan (the "Pre-1989 Plan") into a cash balance plan on January 1, 1991, retroactive to January 1, 1989 (the "1989 Plan"). Chemical announced the conversion to its employees in July 1990. In 1992, Chemical issued a Summary Plan Description ("SPD") describing the 1989 Plan.3 The next year, Chemical's retirement plan merged with that of Manufacturers Hanover Trust ("MHT"), following the 1991 merger of the two companies. The result was the 1993 Chemical Plan (the "1993 Plan"), effective January 1, 1993. A 1994 SPD described the 1993 Plan.
Chemical next merged with the Chase Manhattan Corporation ("Chase") in 1996, and the two companies' plans were merged effective January 1, 1997 (the "1997 Plan"). Chase then merged with J.P. Morgan in 2000, creating JPMC. J.P. Morgan's cash balance pension plan merged into Chase's cash balance plan effective January 1, 2002 (the "2002 Plan"). A July 1, 2004 merger with Bank One Corporation resulted in a merger of the JPMC and Bank One plans effective January 1, 2005 (the "2005 Plan"). The 2005 Plan is administered by defendant JPMorgan Chase Director of Human Resources (the "Plan Administrator").
Following the denial of class certification in the related In re J.P. Morgan Cash Balance Litigation, No. 06 Civ. 732 (S.D.N.Y. filed Jan. 31, 2006), for claims relating to retirement plans in place before 2002, Bilello filed this action on August 17, 2007, challenging the 1989 conversion to a cash balance plan and the subsequent plans arising from the retirement plan mergers of Chemical and its successors Chase and JPMorgan Chase. Discovery has not yet begun in this two-year-old lawsuit, in which multiple rounds of briefing have addressed the viability of the original and first amended complaint ("FAC"). Five weeks after defendants moved to dismiss the complaint on November 16, 2007, instead of filing an opposition to defendants' motion, Bilello filed the FAC, which includes nine class-wide (Counts 1-9) and two individual counts (Counts 10-11) alleging violations of ERISA.
Defendants renewed their motion to dismiss with new briefing filed on February 25, 2008 that sought dismissal of all counts of the FAC pursuant to Rules 8(a), 12(b)(1), and 12(b)(6), Fed R. Civ. P. With the motion to dismiss still pending, this action was reassigned to this Court on October 21, 2008 as related to In re J.P. Morgan Cash Balance Litigation.
An Opinion and Order of January 6, 2009 denied defendants' motion to dismiss the FAC to the extent that it argued that Bilello lacked statutory standing as an ERISA participant because he received a lump-sum distribution of his pension benefit upon retirement. Statutory Standing Opinion, 592 F.Supp.2d at 660-67. Aside from a collateral estoppel argument, which it rejected, the Statutory Standing Opinion did not address the remainder of defendants' arguments for dismissal. Id. at 667-69. An Opinion of March 9 declined to certify the statutory standing issue for interlocutory appeal. Bilello v. JPMorgan Chase Retirement Plan, 603 F.Supp.2d 590, 595 (S.D.N.Y.2009).
On April 10, 2009, another Opinion addressed defendants' argument that the statute of limitations barred Bilello from pursuing the nine class-wide counts in the FAC. SOL Opinion, 607 F.Supp.2d 586. Counts 1, 2, 4 and 6 were dismissed entirely and Counts 3, 7, and 8 were dismissed in part. Id. at 600. An Order filed the same day rejected defendants' arguments that the plaintiff's claims should be dismissed for failure to exhaust administrative remedies, having considered supplemental briefing provided by the...
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