Duncan v. Tenn. Valley Auth. Ret. Sys.

• Decision Date: 19 August 2015
• Docket Number: No. 3:10–cv–217.,3:10–cv–217.
• Citation: 123 F.Supp.3d 972
• Parties: Jerry DUNCAN, et al., Plaintiffs, v. TENNESSEE VALLEY AUTHORITY RETIREMENT SYSTEM and Tennessee Valley Authority, Defendants.
• Court: U.S. District Court — Middle District of Tennessee

123 F.Supp.3d 972

Jerry DUNCAN, et al., Plaintiffs,

v.TENNESSEE VALLEY AUTHORITY RETIREMENT SYSTEM and Tennessee Valley Authority, Defendants.

No. 3:10–cv–217.

United States District Court, M.D. Tennessee, Nashville Division.

Filed Aug. 19, 2015.

James Gerard Stranch, III, Joey Paul Leniski, Jr., Michael G. Stewart, Michael J. Wall, Robert Jan Jennings, Branstetter, Stranch & Jennings, Nashville, TN, for Plaintiffs.

Anne Knox Averitt, James S. Christie, Jr., Bradley Arant Boult Cummings LLP, Birmingham, AL, John M. Scannapieco, Baker, Donelson, Bearman, Caldwell & Berkowitz, PC, Nashville, TN, Kathy D. Aslinger, Michael S. Kelley, William E. Mason, Kennerly, Montgomery & Finley, P.C., Knoxville, TN, for Defendants.

MEMORANDUM

ALETA A. TRAUGER, District Judge.

Pending before the court are two overlapping motions: 1) a Motion for Summary Judgment filed by defendant Tennessee Valley Authority ("TVA") (Docket No. 121), to which defendant Tennessee Valley Authority Retirement System ("TVARS") has filed a Response (Docket No. 217), the plaintiffs have filed a Response in opposition (Docket No. 224), and TVA has filed a Reply (Docket No. 227); and 2) a Partial Motion for Summary Judgment filed by the plaintiffs (Docket No. 211), to which TVARS has filed a Response (Docket No. 217), TVA has filed a Response in opposition (Docket No. 220), and the plaintiffs have filed a Reply (Docket No. 231). For the reasons discussed herein, TVA's Motion for Summary Judgment will be granted and the action will be dismissed with prejudice. The plaintiffs' Partial Motion for Summary Judgment will be denied as moot.

BACKGROUND

TVA was created by Congress in the 1930's, at President Roosevelt's request, to manage electric power production, navigation, and flood control in the Tennessee River region. It was initially funded by Congress and over time eventually became a self-supporting enterprise.

In 1939, TVA created TVARS to provide retirement income to TVA employees and their families. TVARS is a legally separate entity from TVA. At the time this action was filed, there were approximately 36,000 current and former TVA employees served by TVARS.

TVARS is governed by the Rules and Regulations of the TVA Retirement System (the "Rules").¹ Rule 3.1² states that the Board of Directors of TVARS (the "Board") "shall have the control over and the responsibility for the general administration of the system in accordance with the Trust Agreement³ and [the Rules] insofar as are involved matters related to the computation of necessary contributions by TVA and the members,⁴ the allowance of benefits, and the rights generally of the beneficiaries of the System."⁵ Rule 3.2 states that the Board "shall consist of seven members, three of whom shall be elected by and from the membership of the System, three of whom shall be appointed by TVA, and one of whom shall be selected by a majority vote of the other six."

The Rules were amended in 1974, after Congress passed the Employee Retirement Income Security Act ("ERISA"), purportedly to allow the Rules to provide some of the same protections to TVARS beneficiaries as were provided to retirees of private corporations under ERISA. Specifically, the 1974 amendments, which became effective on January 20, 1975, rendered certain of the benefits provided by TVARS vested and nonforfeitable, where, prior to 1974, no retirement benefits were vested.

TVARS is funded primarily by contributions from TVA.⁶ TVA's contributions are described in detail in Rule 9.B, which indicates that TVA's annual contributions shall not be less than the amount determined by an actuarial valuation to be necessary to cover the nonforfeitable benefits. Rule 10.D describes the "Excess COLA Account," which is credited with all of TVA's contributions that are over and above the amount necessary to cover the benefits. Rule 9.B.6 indicates that funds from the Excess COLA Account may then be withdrawn, up to a certain amount determined by a formula outlined in Rule 9.B.6, to be credited toward future TVA contributions.

In addition, pursuant to Rules 9A, 19A, and 10B, members may contribute their own money to an Annuity Savings Account and TVARS then provides interest on those funds. The interest rate is not definitively set by the Rules, but Rule 4.5 states: "The regular interest rate or rates to be used in all actuarial and other calculations shall be determined from time to time by resolution of the [B]oard."

Rule 11.B.1 states: "Rights to benefits based on a member's own contributions shall be nonforfeitable at all times. A nonforfeitable right to accrued benefits from creditable service based on TVA's contributions shall arise on the retirement of a member; on a member's death in service; on completion by a member who was an employee on June 8, 1987 or thereafter, of five years of such creditable service; on attainment of the age of 60 by an individual who first became a member of the System prior to April 1, 1991, or on completion by a member whose employment ended prior to June 8, 1997, of ten years of such creditable service ...".

Rule 13 states that the Rules "may be amended by the [B]oard from time to time, provided that the [B]oard gives at least 30 days' notice of the proposed amendment to TVA and to the members, and further provided that TVA may, by notice in writing addressed to the [B]oard within said 30 days, veto any such proposed amendment, in which event it shall not become effective. No amendment to [the Rules] shall be adopted which will reduce the then accrued benefits of the existing members or beneficiaries which are nonforfeitable or covered by accumulated reserves held therefor."

In 2009, TVARS was experiencing financial concerns related to underfunding. In June of 2009, TVARS requested an annual contribution from TVA for 2010 in the amount of $300,000,000. TVA responded by offering a lump-sum $1 billion contribution in exchange for amending the Rules such that TVA would not make any additional contributions for 2010–2013 as well as making other changes that would decrease the payouts to beneficiaries over the coming years from that which was presently anticipated.

On August 17, 2009, the Board voted four to three in favor of TVA's proposal and to amend the Rules accordingly, with the changes to become effective as of January 1, 2010 (the "Amendments"). Subsequent to the vote, the Board provided TVARS members with notice of the Amendments, which became official thirty days later, in the absence of a veto from TVA. No official notice had been provided to members prior to the Board's vote.

The Amendments made three primary changes to the Rules:⁷ 1) the "Cost–of–Living Increases" (also referred to as cost-of-living adjustments or "COLAS") for eligible retirees—previously determined by a formula related to the Consumer Price Index ("CPI")⁸ —would be capped at zero for 2010, 3% for 2011, zero for 2012, and 2.5% for 2013; 2) the eligibility age for COLAS was raised from 55 to 60;⁹ and 3) an entirely new provision was added to the Rules, Rule 9.B, which indicated that any requirements for TVA to make contributions to TVARS would be suspended for the years 2010–2013, in exchange for one lump-sum contribution from TVA in 2010 in the amount of $1 billion.¹⁰ In addition, as part of the negotiations surrounding the Amendments, the Board changed the interest rate credited on members' savings (in the Annuity Savings Account) from 7.5% to 6% in future years.¹¹ Following the Amendments, the Board used funds in the Excess COLA account to pay the COLA costs for 2009 through 2013.

PLAINTIFFS' ALLEGATIONS THAT THE BOARD VIOLATED THE RULES¹²

The plaintiffs argue that the Board's actions have violated the Rules, and this argument is the foundation for most of the claims at issue in this case. First, the plaintiffs argue that the procedural steps taken by the Board in enacting the Amendments violated the notice provisions in Rule 13 by not providing notice to members 30 days before the Board voted on the Amendments on August 17, 2009. The plaintiffs claim that the plain language of the provision, specifically the reference to giving notice to a "proposed amendment," unambiguously indicates that notice should be provided before the vote. Further, the plaintiffs assert that only by receiving notice prior to the vote could the members have taken any steps to influence the outcome (such as lobbying their elected representatives), but that, once the vote had taken place, such attempts would become futile. The plaintiffs also argue that this reading is consistent with the interpretation given by the Sixth Circuit and other courts to similar notice provisions in the Administrative Procedures Act ("APA"), which differentiate between a proposed rule and a definite rule. The plaintiffs concede that, historically, notice of changes to the Rules has always been given to members after the Board voted on the changes, including when the Rules were amended in 1974 to establish the benefits that the plaintiffs now claim were reduced or eliminated by the Amendments. The plaintiffs argue, however, that this historical practice should not preclude a finding that the Rules truly require pre-vote notice, nor would such a finding necessitate the invalidation on procedural grounds of earlier amendments, such as the 1974 amendments, as those amendments have gone unchallenged for so long.

Second, the plaintiffs argue that the substantive changes made by the Board to the retirement plan benefits violated the Rules. The plaintiffs allege that changes to the caps and to the eligibility age for COLAS violated the express language of Rule 13, which prohibits amendments to the Rules that reduce benefits "which are nonforfeitable or covered by accumulated reserves held therefor" because 1) the COLAS were vested under Rule 11.B.1, and 2) the anticipated COLAS for 2010–2013 were covered by funds in the Excess COLA Account. While Rule 6.I expressly allows the Board, with TVA's approval, to change...