Kifafi v. Hilton Hotels Ret. Plan

• Decision Date: 31 August 2011
• Docket Number: Civil Action No. 98–1517(CKK).
• Parties: Jamal J. KIFAFI, individually and on behalf of all others similarly situated, Plaintiff, v. HILTON HOTELS RETIREMENT PLAN, et al., Defendants.
• Court: U.S. District Court — District of Columbia

826 F.Supp.2d 25

Jamal J. KIFAFI, individually and on behalf of all others similarly situated, Plaintiff,

v.HILTON HOTELS RETIREMENT PLAN, et al., Defendants.

Civil Action No. 98–1517(CKK).

United States District Court, District of Columbia.

Aug. 31, 2011.

Allison C. Pienta, Stephen Robert Bruce, Stephen R. Bruce Law Offices, Washington, DC, for Plaintiff.

Andrew M. Lacy, Thomas C. Rice, Simpson Thacher & Bartlett, LLP, Washington, DC, Jonathan K. Youngwood, Simpson Thacher & Bartlett LLP, New York, NY, for Defendants.

MEMORANDUM OPINION

COLLEEN KOLLAR–KOTELLY, District Judge.

This action is brought by Plaintiff Jamal J. Kifafi, on behalf of himself and similarly situated individuals, to recover for violations of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), 29 U.S.C. §§ 1001 et seq., in the Hilton Hotels Retirement Plan (the “Plan”). Defendants are the Plan, the individual members of the Committee of the Plan, the Hilton Hotels Corporation, and individual Hilton officers or directors (collectively, “Defendants” or “Hilton”). On May 15, 2009, this Court granted-in-part Plaintiff's motion for summary judgment, finding that Defendants had violated ERISA's anti-backloading provision, 29 U.S.C. § 1054(b)(1), and had violated the Plan's vesting provisions with respect to the rights of four certified subclasses. See Kifafi v. Hilton Hotels Retirement Plan, 616 F.Supp.2d 7 (D.D.C.2009). Having found that Defendants violated ERISA, the Court ordered the parties to submit briefs regarding the equitable relief appropriate to remedy the violations. On September 7, 2010, the Court issued a ruling that addressed the parties' proposed remedies. See Kifafi v. Hilton Hotels Retirement Plan, 736 F.Supp.2d 64 (D.D.C.2010). Among other things, the Court endorsed Defendants' plan to remedy the backloading violation by amending the Plan's benefits formula and ordered Hilton to search its corporate records for information relating to class members' union service, which must be credited for vesting purposes. Following the Court's ruling, the parties submitted additional briefs regarding final equitable relief.

The Court held a hearing on July 28 and 29, 2011 to address the remaining remedial issues. Following the hearing, the parties submitted additional briefing regarding two discrete issues that were raised at the hearing. This Memorandum Opinion sets forth the Court's rulings and incorporates the discussion held on the record during the hearing. The rulings described below reflect the Court's judgment and discretion about the proper scope of equitable relief for the ERISA violations previously found by the Court.

I. BACKGROUND

The history of the case is most thoroughly laid out in the Court's prior opinions, most significantly its opinion on summary judgment, see Kifafi v. Hilton Hotels Retirement Plan, 616 F.Supp.2d 7 (D.D.C.2009), and its most recent opinion regarding equitable remedies, see Kifafi v. Hilton Hotels Retirement Plan, 736 F.Supp.2d 64 (D.D.C.2010). The Court assumes familiarity with these opinions. Nevertheless, the Court shall review the facts of this case insofar as they are relevant to the issues discussed herein.

The Hilton Hotels Retirement Plan (the “Plan”) is a defined benefit pension plan subject to ERISA. Benefits under the Plan accrue according to a formula based on an employee's average compensation and years of service, with an offset for the employee's Social Security benefits. See 616 F.Supp.2d at 13–14. ERISA prevents employers from “backloading” benefits, i.e., using a benefit accrual formula that postpones the bulk of an employee's accrual to his later years of service. Id. at 11. In order to prevent backloading, ERISA requires defined benefit plans to satisfy one of three alternative minimum accrual rules, known as the “3% rule,” the “133 1/3% rule,” and the “fractional rule.” Id. at 11–12; see 29 U.S.C. § 1054(b)(1). Beginning in 1976 and continuing until 1999, the Plan contained an accrual schedule that was supposed to comply with ERISA's “133 1/3% rule.” 616 F.Supp.2d at 14. In 1999, after this lawsuit was filed, Hilton amended the Plan's benefit accrual formula seeking to comply with the fractional rule. Id. at 16. The 1999 amendment (Amendment 1999–1) also changed two unrelated aspects of the Plan that lowered benefits for participants. Id. Following briefing on summary judgment, this Court held that the pre-amendment Plan failed to comply with any of the three minimum accrual rules and that the pre-amendment Plan was required to comply with the 133 1/3% rule. Id. at 24. The Court concluded that “the Plan's participants are entitled to receive the benefits they would have accrued had the Plan complied with the 133 1/3% rule.” Id. at 24. The Court also concluded that the 1999 amendment to the Plan did not moot the ERISA violation found by the Court. Id. at 25–28. The Court's ruling applies to a certified class of current and former Hilton employees (the “benefit-accrual class”).¹

The Court also found that Defendants had violated ERISA with respect to the vesting of benefits under the Plan, i.e., the time of service required for an employee to obtain a right to his or her accrued benefits.² Employees who terminated after January 1, 1989 need five years of service to become vested; employees who terminated prior to that date needed ten years of service. ERISA requires employers to count all of an employee's years of service for calculating his or her years toward vesting, even if they occur prior to participation in the retirement plan. 29 U.S.C. § 1053(b)(1); 616 F.Supp.2d at 12. ERISA generally requires an employee with 1000 hours of service during a twelve-month period to be credited with one year of service. 29 C.F.R. § 2530.200b–1. In calculating the 1000 hours of service, the employer must count not only hours worked but also hours “during which no duties are performed ... due to vacation, holiday, illness, incapacity ... layoff, jury duty, military duty or leave of absence.” Id. § 2530.200b–2(a). If an employer's existing records do not allow it to properly calculate an employee's hours of service, the employer may “use a permitted equivalenc[y].” Id. § 2530.200b–3(a). One such equivalency focuses on “hours worked,” in which an employee who works 870 hours is credited with 1000 hours of service. Id. § 2530.200b–3(d).

Beginning in 1976 and continuing until the Plan was amended in December 2002, Hilton applied the 1000 hours standard for calculating employees' years of service. 616 F.Supp.2d at 29. By its terms, the Plan required all periods of employment between the date of hire and the date of termination to be taken into account, including leaves of absences and union service. Id. at 14. The Court found that Defendants had violated the Plan's vesting provisions with respect to four certified subclasses: (1) they failed to credit employees' union service for purposes of vesting ³; (2) they failed to properly apply the 1000 hours standard because they kept inadequate records; (3) they failed to credit employees' leaves of absence; and (4) they failed to count the year in which employees became participants in the Plan for vesting purposes. 616 F.Supp.2d at 29–32. Accordingly, the Court ruled that the members of these vesting subclasses should be awarded the vesting credit to which they are entitled.

On September 7, 2010, the Court issued a Memorandum Opinion addressing the parties' competing proposals for equitable relief appropriate to remedy the backloading and vesting violations found by the Court. With respect to the backloading violation, the Court generally endorsed Defendants' proposal to amend the benefits formula by capping the Social Security offset at a certain level, mathematically ensuring that the annual accrual rate never falls below a required minimum. See 736 F.Supp.2d at 71–73. The Court ordered the parties to recalculate benefits for the benefit-accrual class based on Defendants' formula and attempt to resolve any disagreements about the specific amounts owed to particular class members. Id. at 73.

With respect to the vesting violations, the Court's prior remedial order addressed a series of disputes between the parties. The Court rejected Plaintiff's proposal to count all periods of non-participating service as union service, and the Court also rejected Defendants' proposal to award credit for union service only where the Plan records indicate union service. The Court ordered Defendants to conduct a search of their corporate records for information that would indicate union service by subclass members identified by Plaintiff. See 736 F.Supp.2d at 75–76. The Court also ordered the parties to develop a joint proposal for a claims procedure to be administered by Defendants to subclass members who may have union service. Id. The Court determined that there were disputed issues of fact regarding the Plan's application of unlawful equivalencies to salaried employees, and this issue would need to be addressed at the remedies hearing. Id. at 80–81. The Court also indicated that it appeared that additional vesting credit was due to individuals identified in a “Services Prior” table in the Plan database. Id. at 81. The Court ruled that Defendants should credit participants for service based on the hours reflected in the Plan and the proper equivalencies, not based on an elapsed time method. Id. at 82. The Court also declined to rule on Plaintiff's claim that Hilton had improperly revised the Plan records since 2002, finding that the parties had not adequately addressed this issue in their briefs.

II. LEGAL STANDARD

Section 502(a)(1)(B) of ERISA allows a participant or beneficiary to bring a civil action “to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan.” 29 U.S.C. § 1132(a)(1)(B). Pursuant to...