JENSEN v. SOLVAY Chem.S INC.

• Decision Date: 07 September 2010
• Docket Number: No. 09-8082.,09-8082.
• Citation: 625 F.3d 641
• Parties: Wade JENSEN; Donald D. Goff, individually and on behalf of all others similarly situated, Plaintiffs-Appellants, v. SOLVAY CHEMICALS, INC.; Solvay America, Inc.; Solvay America Companies Pension Plan, Defendants-Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

625 F.3d 641

Wade JENSEN; Donald D. Goff, individually and on behalf of all others similarly situated, Plaintiffs-Appellants,

v.SOLVAY CHEMICALS, INC.; Solvay America, Inc.; Solvay America Companies Pension Plan, Defendants-Appellees.

No. 09-8082.

United States Court of Appeals,Tenth Circuit.

Sept. 7, 2010.

Stephen R. Bruce, Stephen R. Bruce Law Offices, Washington, D.C., (Allison C. Pienta, Stephen R. Bruce Law Offices, and Richard Honaker, Honaker Law Offices, LC, Rock Springs, WY, with him on the brief), for Plaintiffs-Appellants.

J. Richard Hammett, Baker & McKenzie LLP, Houston, TX, (Scott M. Nelson, Baker & McKenzie LLP; Paul J. Hickey and O'Kelley H. Pearson, Hickey & Evans, LLP, Cheyenne, WY, with him on the brief), for Defendants-Appellees.

Before HARTZ, HOLLOWAY, and GORSUCH, Circuit Judges.

HARTZ, Circuit Judge.

Wade E. Jensen and Donald D. Goff (Plaintiffs) represent themselves and a class of current and former employees of subsidiaries of Solvay America, Inc. who are at least 40 years old, participated in the Solvay America Companies' Pension Plan before January 1, 2005 (the old plan), and since that date have been subject to the plan's Retirement Account Balance Formula (the new plan), a type of formula known as a cash-balance formula. ¹ Plaintiffs sued Solvay (the plan sponsor and administrator) in the United States District Court for the District of Wyoming, claiming that Solvay's conversion to the cash-balance formula violated the Employee Retirement Income Security Act of 1974 (ERISA), Pub.L. No. 93-406, 88 Stat. 829 (codified in 29 U.S.C. §§ 1001- 1461, and in various sections of Title 26) and the Age Discrimination in Employment Act of 1967 (ADEA), 29 U.S.C. §§ 621- 634. Under ERISA they sought the benefits to which they would have been entitled if the old plan had continued. See 29 U.S.C. § 1054(h)(6)(A). Under the ADEA they sought double damages. See id. §§ 216(b), 626(b).

The district court granted Solvay's motion for summary judgment on all claims. Plaintiffs appeal, arguing (1) that the court improperly adopted verbatim the findings and analysis proposed by Solvay; (2) that Solvay violated ERISA by not properly disclosing the extent to which conversion to the cash-balance formula reduced benefits; and (3) that Solvay's actions in converting to the new plan violated the ADEA by negatively impacting older workers more than younger ones.

Exercising jurisdiction under 28 U.S.C. § 1291, we affirm on all but one issue. We reject the challenge to the district court's use of Solvay's proposed findings and conclusions. We hold that Solvay's notices to employees were adequate under ERISA except that they failed to explain how early-retirement benefits were calculated under the old plan. And we reject the ADEA claim because it was undisputed that the new plan conforms to the requirements of ADEA § 4(i), and under § 4(i)(4) the plan is therefore protected against Plaintiffs' challenge.

I. BACKGROUND A. Solvay's Pension Plans

Before 2005, Solvay's pension plan determined the annual retirement benefit for an employee retiring at 65 (the normal retirement age) by multiplying the employee's years of qualified service by a percentage of the employee's highest average five-year compensation ² (plus a smaller percentage of the portion of that compensation exceeding the “Covered Compensation” for persons of that age in the current IRS table, see, e.g., Rev. Rul. 98-53, 1998-2 C.B. 630 (1999 Covered Compensation Tables)). If the employee took retirement benefits before age 65, benefits were reduced based on age, though there was no reduction for those retiring after reaching age 55 whose age plus service years totaled at least 85.

On January 1, 2005, Solvay's plan switched to a new method of calculating benefits, a cash-balance formula. ³ Under the new plan each employee has a hypothetical retirement account, which is credited every quarter with a pay credit (based on compensation for that quarter and the sum of age and years of service) and an interest credit (equal to the account balance multiplied by the interest rate on 30-year Treasury securities). The employee may take the account balance as a single lump-sum payment; or the employee may take the balance as a monthly annuity whose value is the actuarial equivalent of the account balance when the annuity begins, whatever the employee's age at that time. To calculate the actuarial equivalence, the plan uses the mortality table prescribed by the Secretary of the Treasury and an annual discount rate, which may change over the history of the plan but was assumed to be 5% when the plan conversion occurred.

The calculation under the new plan is somewhat more complicated for employees who had worked for Solvay while the old plan was in effect and continued to work for Solvay after December 31, 2004, under the new plan. ⁴ The opening balance of their hypothetical accounts is the actuarial equivalent of their normal-retirement benefit (which is, essentially, the monthly pension available if the employee begins receiving benefits at age 65) accrued under the old plan as of December 31, 2004. That is, roughly speaking, the opening balance would be a sum that could purchase an annuity that would pay the same monthly benefit as the already vested age-65 pension. Also, when an employee takes early retirement (before age 65), if the monthly benefit under the cash-balance formula is less than the monthly benefit that the employee had accrued under the old plan by December 31, 2004, the employee receives the monthly benefit accrued under the old plan.

Plaintiffs' concerns relate to two consequences of the conversion to the new plan. First, employees who continued to work for Solvay would not receive as large a pension as they would have if Solvay had retained the old plan. Second, employees who continued to work for Solvay might have to work several years before their early-retirement benefit increased beyond what had vested on the date of the plan conversion. Plaintiffs refer to the second consequence as a wear-away of benefits. They assert that both negative consequences affect older employees (those in Plaintiffs' class for this litigation) more than younger employees. It is worth taking a moment to explain both consequences.

To begin with, we describe how the benefits under the new plan would be less than what employees would have received if they had continued to be covered by the old plan as they worked for Solvay after December 31, 2004. Because of additional complexities that arise with respect to early-retirement benefits-complexities that we will address in the upcoming discussion of wear-aways-we will consider only the benefit that an employee would receive if the employee waited until age 65 to start taking benefits (although the employee may have ceased working for Solvay years earlier). On the first day under the new plan, the employee was entitled to the same age-65 retirement benefit as the employee would have received under the old plan. This result follows from the method by which the employee's initial cash-balance account was calculated. That initial balance was the actuarial equivalent of the value of the age-65 pension. In other words, if on December 31, 2004, the employee had a vested benefit under the old plan of $1,000 a month when the employee reaches age 65, then the employee's initial cash balance under the new plan would have been the amount of money it would take to buy an annuity that would pay the employee $1,000 a month once the employee turns 65. ⁵ From that date on, however, the benefits under the old and new plans diverge. Under the new plan the employee's age-65 pension benefit would increase every quarter because pay and interest credits are added to the cash-balance account. This increase, however, would not be as rapid as the benefit increase would have been under the old plan. As a result, if the employee continued working until age 65, the pension would be significantly less than it would have been if the old plan had continued, sometimes less than half as much. This is the first consequence that Plaintiffs have concerns about.

The description of the second consequence-wear-aways-is more complex. As we shall see, wear-aways result from Solvay's subsidy for early-retirement benefits (received after reaching age 55 but before age 65) under the old plan, a subsidy that was not continued under the new plan. ⁶ We have already noted that on the day of conversion from the old plan to the new plan, the cash-balance-account pension at age 65 would be the same as the age-65 pension under the old plan. But the pension that the employee would receive upon retirement at an earlier age (say, age 55) would be more under the old plan than would be calculated under the cash-balance method. Under the old plan, an employee who decides to take early retirement would receive a monthly benefit equal to the benefit that the employee would receive at age 65, less a percentage of that amount for every year early the pension starts (unless one has reached age 55 and one's age plus service years equals at least 85, in which case there is no reduction). The annual percentage reduction is 3% if the employee had reached age 55 before leaving Solvay employment; otherwise it is 4% per year. Thus, one who leaves Solvay at age 55 and immediately begins to take retirement benefits will receive a monthly benefit that is 30% (10 x 3%) less than she would have received if she left work at age 55 but deferred receiving benefits until age 65. If the employee would have received $1,000 a month at age 65, the employee would receive $700 a month at age 55.

Under the new plan the early-retirement benefit is calculated differently. Just as the age-65 retirement benefit is determined by calculating the monthly annuity at age 65 that is actuarially equivalent to the hypothetical cash-balance account, the early-retirement annuity (say,...