Kiefer v. Ceridian Corp.

• Decision Date: 05 May 1997
• Docket Number: Civ. No. 3-95-818 (RHK/FLN).
• Parties: Kenneth KIEFER and Michael Doyle, on behalf of themselves and all others similarly situated, Plaintiffs, v. CERIDIAN CORPORATION, a Delaware Corporation, Ceridian Corporation Retirement Plan, Service Bureau Corporation, Computing Devices International Corporation, and Empros Systems International Corporation, SBC Retirement Plan, Computing Devices International Retirement Plan, Empros Systems International Retirement Plan, Defendants.
• Court: U.S. District Court — District of Minnesota

976 F.Supp. 829

Kenneth KIEFER and Michael Doyle, on behalf of themselves and all others similarly situated, Plaintiffs, v. CERIDIAN CORPORATION, a Delaware Corporation, Ceridian Corporation Retirement Plan, Service Bureau Corporation, Computing Devices International Corporation, and Empros Systems International Corporation, SBC Retirement Plan, Computing Devices International Retirement Plan, Empros Systems International Retirement Plan, Defendants.

Civ. No. 3-95-818 (RHK/FLN).

United States District Court, D. Minnesota, Third Division.

May 5, 1997.

Order Denying Modification June 2, 1997.

COPYRIGHT MATERIAL OMITTED

Arthur T. Susman and Charles R. Watkins, Susman, Buehler & Watkins, Chicago, IL, Karl L. Cambronne, Chestnut & Brooks, Minneapolis, MN, and Allen C. Engerman, Engerman Law Office, Northbrook, Illinois, for Plaintiffs.

Steven J. Olson and Ann M. Curme, Ceridian Corporation, Minneapolis, MN, James D. Holzhauer and Charles F. Regan, Mayer, Brown & Platt, Chicago, IL, for Defendants.

MEMORANDUM OPINION AND ORDER

KYLE, District Judge.

Introduction

Plaintiffs Kenneth Kiefer ("Kiefer") and Michael Doyle ("Doyle") brought this action on behalf of themselves and all others similarly situated (collectively "Plaintiffs"). Plaintiffs allege that the Defendants failed to pay a class of approximately 12,000 Ceridian Corporation retirees the proper lump-sum retirement benefits to which they were entitled under four, jointly administered, pension plans ("the Plans"). Plaintiffs assert causes of action for violations of the Employee Retirement Income Security Act ("ERISA"); breach of fiduciary duty; breach of contract; and conversion. Before the Court is Defendants Ceridian Corporation ("Ceridian") and Ceridian Corporation Retirement Plan's ("Ceridian Plan") Motion for Summary Judgment.¹ For the reasons set forth below, the Court will grant the Motion in part and deny it in part.

Factual Background

I. The Parties and the Scope of Defendants' Motion Relevant Defendants

Ceridian, the successor of Control Data Corporation ("CDC"), is a corporation primarily engaged in data processing. (See Pls.' Am. Compl. ¶ 6; Pls.' Mem. in Opp'n to Defs.' Mot. for Summ. J. at 2 ("Pls.' Opp'n Mem.").) Formerly a substantial manufacturer of mainframe computers with 61,000 employees, by the early 1990s, CDC had restructured itself into a much smaller company. (See Hammond Aff. ¶¶ 4-5.) Today, Ceridian has approximately 10,700 employees and is a leading information services and defense electronics company, serving the human resources, electronic media, transportation, gaming, and government markets. (Id. ¶ 5.)

The Ceridian Plan, formerly known as the Control Data Corporation Retirement Plan, was created in the 1970s to provide retirement benefits for its participants. (Pls.' Opp'n Mem. at 2.) It is an employee pension benefit plan within the meaning of ERISA, 29 U.S.C. § 1002(2), which Ceridian maintains for the benefit of the current and former employees of Ceridian and CDC.² (Pls.' Am. Compl. ¶ 7.)

Plaintiffs

Kiefer worked for CDC for twenty-four years. (See Pls.' Opp'n Mem. at 3; Pls.' Am. Compl. ¶ 5(b).) In 1989, he was terminated as part of a downsizing effort. (See Kiefer Depo. 6:1-3.) Similarly, Doyle worked for CDC for twenty-four years and was terminated as part of CDC's downsizing. (See Doyle Depo. 6-7; Pls.' Opp'n Mem. at 3.)

Kiefer and Doyle represent a class of approximately 12,000 former employees of Ceridian and three related companies who participated in the Plans. (See Pls.' Opp'n Mem. at 3.) Plaintiffs allege that each class member received an erroneous lump sum benefit³ from one of these four plans between 1990 and 1995. (See id.) Plaintiffs contend that one or more of four distinct payment miscalculations infected their lump sum benefits. (Id.) The instant Motion is addressed to the Ceridian Plan — one of the four Plans at issue — and involves one of four alleged miscalculations.

II. The Structure of the Ceridian Plan & Governing Law

Employee pension plans are regulated under ERISA, 29 U.S.C. § 1001, et seq. For example, ERISA governs the way those plans may be maintained, requires certain employer contributions, and imposes fiduciary duties on the plan sponsors. See 29 U.S.C. § 1104(a); Bigger v. American Commercial Lines, 862 F.2d 1341, 1343-44 (8th Cir.1988). The Internal Revenue Code, 26 U.S.C. § 1, et seq., governs the tax consequences of the pension plans, and the interest rates used to compute benefits.

The Ceridian Plan is a "defined benefit plan"; employees who work long enough earn a vested, non-forfeitable right to defined benefit options. (See Pls.' Opp'n Mem. at 3.) Under ERISA, vested benefits cannot be altered, reduced, or eliminated. 29 U.S.C. § 1054(g) ("The accrued benefit of a participant under a plan may not be decreased by an amendment of the plan, other than an amendment described in section 1082(c)(8) or 1441 of this title.").

Contributions

Under the Ceridian Plan, employees are required to make pre-tax contributions. While this pre-tax money is technically considered Ceridian's money, it comes out of the employees' pay-checks. (See Hammond Depo. 87:13-16 ("On a pre-tax basis, technically it's considered employer money. Now, employers and actuaries will probably have to explain why. To after-tax people, it is considered employee money."); Hammond Depo. 33:1-3 (noting that contributions are made by deductions from employee pay-checks); Moody Depo. 50:2-7.) Ceridian considered the money to be the employees'. (See Drabek Depo. 48-49 ("I remember that the company felt that this money was the employees' money.")). This was especially true since Ceridian itself had made little or no contribution to the Plan.⁴ (Drabek Depo. 47:15-18 ("as I recall, the company probably hadn't had to make any contributions to the plan for a period of time because the employee contributions were supporting it ...")).

Rates

Section 417(e) of the Internal Revenue Code governs the interest rates plans can use to calculate lump sum benefits. See I.R.C. § 417(e); see also 29 U.S.C. § 1055(g) (ERISA § 205(g)). In its original form, this section provided that, in calculating lump sums, plans should use "an interest rate not greater than the interest rate which would be used (as of the date of the distribution) by the Pension Benefit Guaranty Corporation for purposes of determining the present value of a lump sum distribution on plan termination." (Retirement Equity Act ("REA") of 1984, Pub.L. 98-397 § 203(e)(1) (Regan Aff., Ex. 10.).) In mid-1985, the Internal Revenue Service ("IRS") issued temporary regulations interpreting Section 417(e) to require plans to "use an interest rate not greater than the rate used by the Pension Benefit Guaranty Corporation ... to value immediate annuities for plans terminating. ..." ("the PBGC immediate rate") (Temp.Treas.Reg. § 1.417(e)-1T(b)(2)(ii), 50 Fed.Reg. 29, 375 (1985), Regan Aff., Ex. 11).)

The 1985 Plan and Lump Sum Distributions

The instant case focuses on lump sum distributions paid out from the 1989 version of the Plan ("the 1989 Plan"). The 1989 Plan is based on the 1985 version of the Plan ("the 1985 Plan"), thus, an examination of the 1985 Plan is necessary.

Under the 1985 Plan, vested participants could obtain a lump sum benefit only in the following circumstance:

5.14 Payment of Small Amounts. In the discretion of the Administrator, if the actuarially equivalent lump sum value of the benefit to which a Participant, his spouse or designated beneficiary or joint annuitant is entitled under the Plan is Five Thousand Dollars or less, payment of such benefit may be in the form of a lump sum; provided that, if such actuarially equivalent lump sum value is greater than Three Thousand Five Hundred Dollars, the Participant (with consent of his spouse) or such other person who is entitled to receive the benefit, as the case may be, must first request payment in that form.

(Pls.' Ex. C00078 (1985 Revision to Control Data Corporation Retirement Plan).) (emphasis added).

ERISA requires the plans to set forth the actuarial assumptions used to compute lumpsum benefits, in order that the plan provides a "definitely determinable benefit" which precludes employer discretion and change without formal amendment. See 29 U.S.C. § 1102(b)(4) ("Every employee benefit plan shall ... specify the basis on which payments are made to and from the plan."); Id. § 1102(b)(3) ("Every employee benefit plan shall ... provide a procedure for amending such plan, and for identifying the persons who have authority to amend the plan ..."); Id. § 1102(a)(1) ("Every employee benefit plan shall be established and maintained pursuant to a written instrument."); I.R.C. § 401(a)(25) ("A defined benefit plan shall not be treated as providing definitely determinable benefits unless, whenever the amount of any benefit is to be determined on the basis of actuarial assumptions, such assumptions are specified in the plan in a way which precludes employer discretion.").

Exhibit B to the 1985 Plan specified the actuarial factors it would use to compute these lump sums: the U.P.1984 Mortality Table and the Pension Benefit Guaranty Corporation (PBGC) rate of interest. The Plan stated:

Lump Sum Option — the factor to be applied is the product of the factor determined under clause (1) below, multiplied by the factor determined under clause (2) below:

(1) the factor determined on the basis of the U.P.1984 Mortality Table, weighted 60 percent for males and 40 percent for females, with the interest rate for a particular Plan Year being the Pension Benefit Guaranty Corporation rate of interest for immediate annuities, as in effect as of the first day of the Plan Year during which the distribution is made;

(2) the factor determined from the following schedule ...

(Pls.' Ex. 00094-A (Control Data Retirement Plan 1985 Revision Exhibit B).) Thus, Ceridian needed only Exhibit B, the employee's age and the...