McCutcheon v. Colgate-Palmolive Co.

• Decision Date: 24 August 2020
• Docket Number: 16 Civ. 4170 (LGS)
• Citation: 481 F.Supp.3d 252
• Parties: Rebecca MCCUTCHEON, et al., Plaintiffs, v. COLGATE-PALMOLIVE CO., et al., Defendants.
• Court: U.S. District Court — Southern District of New York

481 F.Supp.3d 252

Rebecca MCCUTCHEON, et al., Plaintiffs,

v.COLGATE-PALMOLIVE CO., et al., Defendants.

16 Civ. 4170 (LGS)

United States District Court, S.D. New York.

Signed August 24, 2020

Albert Huang, Eli Gottesdiener, Gottesdiener Law Firm, PLLC, Brooklyn, NY, Steven Dana Cohen, Wittels Law, Armonk, NY, for Plaintiffs.

Brandon Brigham, Jeremy Paul Blumenfeld, Mara Eileen Slakas Brown, Morgan Lewis & Bockius, LLP, Philadelphia, PA, Darin P. McAtee, Evan R. Chesler, Lauren Kristen Roberta Kennedy, Cravath, Swaine & Moore LLP, Jeffrey A. Sturgeon, Baker & McKenzie LLP, Melissa D. Hill, Morgan, Lewis & Bockius LLP, New York, NY, Robert S. Newman, Covington & Burling LLP, Washington, DC, for Defendants.

OPINION, ORDER AND FINAL JUDGMENT

LORNA G. SCHOFIELD, District Judge:

Plaintiff and class representative Rebecca McCutcheon¹ brings this action, on behalf of herself and others similarly situated, under the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001 et seq. ("ERISA"), against Defendants Colgate-Palmolive Co. ("Colgate"), Colgate-Palmolive Co. Employees’ Retirement Income Plan (the "Plan"), Laura Flavin, Daniel Marsili and the Employee Relations Committee of Colgate-Palmolive Co. (the "Committee").

In its Opinion and Order of July 10, 2020 (Dkt. No. 265), the Court granted Defendants summary judgment on Count I, Count II, Error 2 and Count II, Error 4 as to the Class but not as to Plaintiff McCutcheon. McCutcheon v. Colgate-Palmolive Co. , No. 16 Civ. 4170, 2020 WL 3893303, at *16 (S.D.N.Y. July 10, 2020). At the same time, the Court denied Defendants summary judgment on Count II, Error 1 and Error 3. Id. ; see also 7/29/20 Order (Dkt. No. 274) (supplementing McCutcheon , 2020 WL 3893303 with inadvertently omitted additional reasons for denying Defendants summary judgment on Error 1). Plaintiffs now move for summary judgment on Count II, Errors 1 and 3 and for entry of final judgment under Rule 54(b). This Opinion largely mirrors the language of the decision on Defendants’ motion for summary judgment on the same issues, with the addition of citations and with minor modifications or clarifications, many of which were proposed by Plaintiffs in their proposed order, which the Court requested. For the following reasons, Plaintiffs’ motion is granted.

I. BACKGROUND

The facts below are drawn from the record and are undisputed or there is no genuine issue as to any of the following material facts.

A. History of the Plan

a. Colgate-Palmolive Company and the Committee

Defendant Colgate is a global consumer products company and is the sponsor of the Plan. Ans. (Dkt. No. 49) ("Ans.") ¶ 36; Defs. Rule 56.1 Stmt of Facts (Dkt. No. 237) ("Defs. SOF") ¶¶ 8-9. At all relevant times, Defendant Plan was an "employee pension benefit plan" and a defined benefit plan within the meaning of ERISA; Defendant Committee was the "plan administrator," and, along with non-party the Pension Fund Committee, was a "named fiduciar[y]" of the Plan. Ans. ¶¶ 35, 40, 111; Defs. SOF ¶¶ 10-11. Defendants Daniel Marsili (Senior Vice President of Global Human Resources) and Laura Flavin (Vice President for Global Employee Compensation and Benefits) were members of the Committee. Ans. ¶¶ 46-47.

b. Conversion to Cash Balance Plan as of 1989

The Plan originally operated as a traditional defined benefit plan, which guaranteed that each member (or "Participant") receive an "accrued benefit" expressed as an annuity upon reaching "normal retirement age," here, age sixty-five. Ans. ¶¶ 35, 55; Defs. SOF ¶¶ 9, 11. Prior to July 1, 1989, the Plan determined the level of benefits using a final average pay formula (the "Grandfathered Formula"), based on a Participant's final average earnings and years of credited service. Participants received their Plan benefits only in the form of an annuity. Defs. SOF ¶ 12-13.

The Plan was amended in 1994, effective as of July 1, 1989, and reflected the terms of the Plan in effect and applicable to all Class Members paid between July 1, 1989, and the effective date of the 2003 Plan, including Plaintiff. 30(b)(6) Deposition Transcript ("30(b)(6) Tr."), Ex. 1C ( Dkt. No. 242-1) 78:23-81:15, 85:23-87:20, 232:16-20; Ans. ¶ 59; Defs. SOF ¶ 34; Pls. SJ Opp (Dkt. No. 241) ("Pls. Opp.") at 3. Effective July 1, 1989, the Plan was converted to a cash balance plan. Ans. ¶ 59; Defs. SOF ¶ 11. As a cash balance plan, each Participant had a "cash balance" account called the Personal Retirement Account balance, which reflected a set percentage of yearly pay plus interest (the "PRA Formula"). Defs. SOF ¶ 16. Unlike the prior version of the Plan using the Grandfathered Formula, the cash balance plan allowed Participants to elect to receive their benefits either as a lump sum or an annuity beginning on the "benefit commencement date" (i.e., the first date of the first period when a Participant is paid). Id.

Because the Plan is considered a defined benefit plan under applicable law, Internal Revenue Code ("IRC") § 417(e) and ERISA § 205(g) require any lump sum payment to be no less than the actuarial equivalent of the Participant's accrued benefit expressed as a single life annuity payable at normal retirement age. I.R.C. § 417(e) ; ERISA § 205(g), 29 U.S.C. § 1055(g) ; accord Esden v. Bank of Bos. , 229 F.3d 154, 164 (2d Cir. 2000) ; Ans. ¶ 57; Defs. SJ Br. (Dkt. No. 236) at 25; Defs. SOF ¶ 18; 9/4/19 Collins Decl. (Dkt. No. 238) ¶ 42; 6/17/19 Expert Report of Jeff Leonard (Dkt. No. 259) (Leonard Rep.) ¶¶ 42, 46-47. If a benefit is paid even partially as a lump sum, IRC § 417(e) applies, with the result that the total value of the benefit paid cannot be less than the value of the accrued benefit determined using IRC § 417(e). See Rev. Rul. 89-60; Treas. Reg. § 1.417(e)-1(d) ; Defs. 6/4/15 Ltr. (Dkt. No. 21-6) at 13-14; Ans. ¶ 57. To determine actuarial equivalence, a plan administrator projects the cash balance forward to normal retirement age, converts that cash balance to an age sixty-five annuity and then converts that age sixty-five annuity to a lump sum and discounts back the lump sum to present value. Defs. SOF ¶ 18; Leonard Rep. ¶ 46. A plan can select a different rate to project the cash balance forward into an age sixty-five single-life annuity, but the discount rate to determine the present value of the accrued benefit (annuity) is prescribed by IRC § 417(e). See I.R.C. § 417(e) ; Esden , 229 F.3d at 164 ; accord Defs. SOF ¶ 19; Leonard Rep. ¶ 47.

For Class Members who, like McCutcheon, received their benefit between 1989 and 2002, the Plan document used a projection rate of the 20-year Treasury bill interest rate plus 1% ("20+1% rate"). 1994 Plan (Dkt. No. 21-9) § 1.3; 2003 Plan § 1.3 (as in effect through February 28, 2002) (Dkt. No. 21-48); 5/16/19 Expert Report of Lawrence Deutsch (Dkt. No. 261) ("Deutsch Rep.") at 4. This projection rate, used to convert the cash balance into an age sixty-five annuity (for Participants younger than sixty-five), was dictated by § 1.3 of the Plan, which defined "Actuarial Equivalent" and in its first paragraph states that "for purposes of converting a Member's Account into a single life annuity payable for the life of the Member starting at Normal Retirement Date" (i.e. age 65) the 20+1% rate is applied. 1994 Plan § 1.3; 2003 Plan § 1.3 (as in effect through February 28, 2002). The discount rate to determine the present value of the accrued benefit (annuity) as prescribed by IRC § 417(e) at the time of the adoption of the Plan in 1989 until February 28, 2002 (i.e. the day before the effective date of the 2003 Plan), was a blend of interest rates equal to the Pension Benefit Guaranty Corporation ("PBGC") rate. I.R.C. § 417(e)(3)(A)(ii)(II) (current version at I.R.C. § 417(e)(3)(C)); I.R.S. Notice 87-20, 1987-1 C.B. 456 (Feb. 9, 1987); Deutsch Rep. ¶ 24. The 20+1% rate from 1989 through February 28, 2002 was consistently and substantially higher than the PBGC rate. Morgan Tr., Ex. 1A (Dkt. No. 242-1) 550:19-23; Deutsch Rep. ¶¶ 37(2)-(3), 45.

c. Plan Appendices -- Preservation of Benefits Under Grandfathered Formula

When the cash balance plan and PRA Formula were adopted as of 1989, employees who were then still employed by Colgate were given the option to continue benefits under the Grandfathered Formula as set forth in Appendices A through D of the Plan. 1994 Plan, Appendix C § 2; Defs. SOF ¶ 20; Defs. SJ Br. at 1; Pls. Opp. at 7. The Appendices offered protection to Participants, like McCutcheon, who worked at Colgate prior to 1989, remained employed after the conversion to the cash balance plan but had accrued benefits under the previous Grandfathered Formula. Id. Under Appendix C, these Participants could elect to make contributions to continue to accrue benefits under the Grandfathered Formula. 1994 Plan, Appendix C § 2; Defs. SOF ¶ 24; Defs. SJ Br. at 18; Leonard Rep. ¶ 14 ("employee contributions allowed [those] individuals to continue to accrue benefits under the Grandfathered Formula"). If a Participant elected to make these contributions, and did so until her separation from service, she would be entitled to a benefit no less than her accrued benefit under the PRA Formula plus her employee contributions to maintain the Grandfathered Formula, in the form of either a lump sum or an annuity. 1994 Plan, Appendix C § 2; Defs. 3/24/17 Ltr. (Dkt. No. 47) at 2-3; Defs. 6/4/15 Ltr. at 7, 13; Ans. ¶¶ 211, 214; Defs. SJ Br. at 18; Defs. SOF ¶¶ 26, 28-29.

d. The Residual Annuity Amendment and 2005 Implementation

In 2004, it came to Colgate's attention that the lump sum payments that the Plan had been paying to Participants -- who continued making contributions to maintain Grandfathered Formula benefits -- were less than the Participants would have otherwise received had they elected to receive an annuity. Defs. 6/4/15 Ltr. at 11; Ans. ¶¶ 68-69, 107; Defs. SJ Br. at 6-7, 20-22, 27; Leonard Rep. ¶¶ 102-03, 105, 108, 164-65; Defs. SOF ¶¶ 48-51, 54, 57, 59; 5/11/14 Mellon Presentation (Dkt. No....