George v. Duke Energy Retirement Cash Balance Plan, C/A No. 8:06-cv-373-RBH.

Citation560 F.Supp.2d 444
Decision Date02 June 2008
Docket NumberC/A No. 8:06-cv-373-RBH.
PartiesKenneth Walton GEORGE, Dennis Reed Bowen, Clyde Freeman, George Moyers, Jim Matthews, and Henry Miller, on their own behalf and on behalf of a class of persons similarly situated, Plaintiffs, v. DUKE ENERGY RETIREMENT CASH BALANCE PLAN and Duke Energy Corporation, Defendants.
CourtUnited States District Courts. 4th Circuit. United States District Court of South Carolina

Andrew Hoyt Rowell, III, Robert S. Wood, Thomas Christopher Tuck, Richardson Patrick Westbrook and Brickman, Mt. Pleasant, SC, Carl Frederick Muller, Wallace K. Lightsey, Wyche Burgess Freeman and Parham, James Robinson Gilreath, William Mitchell Hogan, Gilreath Law Firm, Greenville, SC, Terry Edward Richardson, Jr., Richardson Patrick Westbrook and Brickman, Barnwell, SC, Thad Lee Myers, Alyssa Caroline Smith, Charles W. Whetstone, Jr., Cheryl F. Perkins, Whetstone Myers Perkins and Young, J.C. Nicholson, III, James C. Anders and Associates, Columbia, SC, Mona Lisa Wallace, Wallace and Graham, Salisbury, NC, for Plaintiffs.

Kristofer Karl Strasser, Robert Oliver King, Ogletree Deakins Nash Smoak and Stewart, Greenville, SC, David B. Johnson, Laura Deanne Warren, Priscilla E. Ryan, Sidley and Austin, Erin E. Kelly, Sidley Austin Brown and Wood, Chicago, IL, Joseph Robert Guerra, Sidley Austin LLP, Washington, DC, Margaret H. Campbell, Ogletree Deakins Nash Smoak and Stewart, Atlanta, GA, for Defendants.

ORDER

R. BRYAN HARWELL, District Judge.

Pending before the court are: 1) Defendants' [Docket Entry #83] motion for judgment on the pleadings; 2) Plaintiffs' [Docket Entry # 98] motion for partial summary judgment; 3) Defendants' [Docket Entry # 106] cross motion for partial summary judgment; and 4) Plaintiffs' [Docket Entry # 116] motion to amend the scheduling order and the complaint. The court held a hearing on the above-mentioned motions on December 19, 2007.

Also pending before the court is Plaintiffs' motion to certify class [Docket Entry # 33], which will be addressed in a subsequent order.

Background

Plaintiffs brought this lawsuit against Duke Energy Corporation and the Duke Energy Retirement Cash Balance Plan (collectively referred to as "Duke"). This case arises from Duke's conversion of its traditional defined benefit plan to a cash balance plan. Under the traditional defined benefit plan, benefits were calculated using a formula based on factors including years of participation in the plan and the employee's annual salary. In January 1997, Duke converted its traditional defined benefit plan to a cash balance plan. Cash balance plans, sometimes referred to as hybrid plans, are defined benefit plans that combine attributes of a 401(k) plan (defined contribution plan 1) and a traditional pension plan (defined benefit plan2). The basic cash balance formula consists of a pay or compensation credit and an interest credit similar to the salary contribution and investment return of a 401 (k) plan. Compensation credits end after a participant terminates employment but the interest credits continue until the participant withdraws his benefit.

Under the cash balance formula used by Duke in the implementation of its Cash Balance Plan, participants were assigned initial cash balance accounts. The cash balance accounts are hypothetical accounts to the extent that separate individual accounts were not actually established for each participant. The hypothetical cash balance accounts were set up alongside the participant's frozen accrued benefit under the prior Duke plan. The Plan provides that once an employee has vested in the Plan through five years of participation, he can elect to receive his retirement benefit in a lump sum payment or in an annuity. Before the benefit is paid, the employee's hypothetical account is converted into a dollar benefit based on actuarial assumptions stated in the Plan.

Under ERISA, a plan amendment may not decrease, or "cut-back," previously accrued benefits. 29 U.S.C. § 1054(g). In an attempt "to ensure that the plan did not reduce a participant's accrued benefit the Plan utilized a "greater of formula, which converted the hypothetical cash balance account to an annuity, then compared it to the frozen accrued benefit under the prior Duke plan. The participant is then entitled to receive the greater of their frozen benefit under the prior plan, or the amount of their cash balance account. If the opening balance in the cash balance account is less than the value of the frozen accrued benefit under the prior plan, the credits earned under the Cash Balance Plan will not result in larger retirement benefits until they exceed the value of the frozen benefit.

Plaintiffs allege that when Duke converted its pension plan to a cash balance plan on January 1, 1997, it violated the Employee Retirement Income Security Act, 29 U.S.C. §§ 1001-1461 ("ERISA") and the Age Discrimination in Employment Act, 29 U.S.C. §§ 621-634 ("ADEA"). Plaintiffs' initial complaint contained six causes of action.3

Count one alleges an ERISA age discrimination claim under 29 U.S.C. § 1054(b). Plaintiffs maintain that Duke factors age into the calculation of interest credits, which results in older employees/participants receiving less interest credits than younger employees/participants. Plaintiffs contend that calculating interest credits in such a way violates § 1054(b), which prohibits reduction of an employee's rate of benefit accrual because of that employee's age. Plaintiffs seek a declaration that the Plan violates § 1054(b) and that Duke be required to restore all lost interest credits to participants plus any loss of benefits arising from the failure to properly award credits. Plaintiffs also request that Duke be required to pay participants any lost benefits arising from the alleged failure to properly pay interest credits and that any such payment be based on a single life age 65 annuity.

Count two alleges a disparate treatment claim and a disparate impact claim under the ADEA. Plaintiffs allege that Duke knowingly and willfully adopted a cash balance plan that discriminated against employees over the age of 40. Similiar to count one of the complaint, Plaintiffs' disparate treatment claim is based on the allegation that Duke reduces the rate of an employee's benefit accrual because of age. Plaintiffs' disparate impact claim appears to be based upon the allegation that the implementation of the Plan resulted in a "wear away" effect of Plan benefits, which disparately impacted individuals over the age of 40.4 Plaintiffs contend that Duke knew or recklessly disregarded the fact that employees over the age of 40 would disproportionately suffer as a result of the conversion in that the conversion would effectively freeze benefit accruals for most employees over the age of 40. Plaintiffs seek an award of the lost benefit accruals resulting from the conversion as well as liquidated amounts based on such lost benefit accruals.

Count three alleges an ERISA claim for benefits under 29 U.S.C. § 1132(a)(1). Plaintiffs state that Duke failed to properly calculate the lump sum distributions that participants are entitled to under the Plan. Plaintiffs allege that Duke, rather than using the appropriate interest rate to reduce participants' retirement benefit to present value, used an interest rate that deprives participants of the full benefit promised under the Plan. Plaintiffs contend that Duke's method of calculating lump sum distributions effectuates an unlawful reduction in accrued retirement benefits in violation of ERISA's anti-cut back rule, 29 U.S.C. § 1054(g), and the express terms of the Plan. Plaintiffs seek a declaration that Duke's method of calculating lump sum distributions violates ERISA's anti-cut back provisions and the express terms of the Plan. Plaintiffs also request that Duke be required to restore any lost benefits resulting from Duke's alleged unlawful Calculation of lump sum distributions.

Count four also alleges an ERISA claim for benefits under 29 U.S.C. § 1132(a)(1). Plaintiffs allege that during the 1997 and 1998 Plan years, Duke failed to follow the procedure specified in the Plan for calculating the appropriate interest rate credit. Plaintiffs allege that as a result of this failure, participants who received lump sum distributions or monthly annuity payments did not receive the full amount they were entitled to under the Plan. Plaintiffs further allege that participants who have not yet retired will not receive the full amount of benefits they are entitled to unless the error in calculation is corrected and an appropriate amount is credited to their "hypothetical" accounts.5 Plaintiffs seek a declaration that Duke erroneously calculated interest credits during the 1997 and 1998 Plan years and that such error resulted in the wrongful denial of benefits to retirees. Plaintiffs request that Duke be required to restore any lost benefits resulting from their alleged erroneous calculation of interest credits.

Count five alleges that the implementation of the Cash Balance Plan resulted in an impermissible back loading of benefits. According to Plaintiffs, the Plan used an approximate 7 percent interest rate to calculate the present value of accrued benefits under the prior plan. Plaintiffs allege that because accruals under the Cash Balance Plan were based on a lower interest rate, the present value of accrued benefits under the prior plan was substantially greater than the accrued benefits under the cash balance formula. Plaintiffs allege that under the Cash Balance Plan participants do not accrue any additional benefits until the value of their hypothetical cash balance account exceeds the present value of accrued benefits under the prior plan. Thus, Plaintiffs contend that the manner in which Duke implemented the Cash Balance Plan effectively froze...

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    ...but also "incomplete, inconsistent, or contradictory disclosures that misinform beneficiaries." George v. Duke Energy Ret. Cash Balance Plan, 560 F. Supp. 2d 444, 474 (D.S.C. 2008) (citing Griggs v. E.I. DuPont de Nemours & Co., 237 F.3d 371, 380 (4th Cir. 2001)). In order to establish a cl......
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    ...remedies is required in a particular ERISA case is a matter within the discretion of the trial court.” George v. Duke Energy Ret. Cash Balance Plan, 560 F.Supp.2d 444, 469 (D.S.C.2008) (citing Vogel, 728 F.Supp. at 1223 ).1. Futility An exception to the exhaustion requirement exists when “t......
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    • James Publishing Practical Law Books Age Discrimination Litigation
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