McCutcheon v. Colgate-Palmolive Co.
| Decision Date | 10 July 2020 |
| Docket Number | 16 Civ. 4170 (LGS) |
| Parties | REBECCA MCCUTCHEON, et al., Plaintiffs, v. COLGATE-PALMOLIVE CO., et al., Defendants. |
| Court | U.S. District Court — Southern District of New York |
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"). Defendants move for summary judgment on Counts I and II of the Complaint, which allege, respectively, that Defendants failed to comply with ERISA and accompanying regulations during the administrative phase of the case, and that Plaintiffs were wrongfully denied residual annuity benefits under the Residual Annuity Amendment (the "RAA") and incorporated Plan provisions. Count I is not a class claim. For the following reasons, summary judgment is granted in part and denied in part to Defendants.
Unless otherwise noted, the facts below are drawn from the record and, in general terms unless otherwise noted, are undisputed.2
Defendant Colgate is a global consumer products company and is the sponsor of the Plan. 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. 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.
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. 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.
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. Effective July 1, 1989, the Plan was converted to a cash balance plan. 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"). 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).
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). 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. 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.
For Class Members who, like McCutcheon, separated from service between 1989 and 2000, the Plan used a projection rate of the 20-year Treasury bill interest rate plus 1% ("20+1% rate"). This projection rate, used to convert the cash balance into an age sixty-five annuity (forParticipants younger than sixty-five), was dictated by § 1.3 of the Plan, which defined "Actuarial Equivalent." 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, 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). The 20+1% rate used by Defendants between 1989 and 2000 was consistently and substantially higher than the PBGC rate.
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. 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. Under Appendix C, these Participants could elect to make contributions to maintain benefits accrued under the Grandfathered Formula. If a Participant elected to continue making these contributions, and did so until her separation from service, she would be entitled to her accrued benefit under the PRA Formula plus her contributions under the Grandfathered Formula, in the form of either a lump sum or an annuity.
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. On March 30, 2005, the Committee adopted the RAA to addressthe potential unlawful forfeiture of benefits.
The RAA amended the Plan and granted a residual annuity (the "RAA Annuity") to any Participant who elected a lump sum payment upon separation, and whose age sixty-five single life annuity benefit otherwise payable to the Member under Appendices B, C or D, as applicable, (the "Grandfathered Benefit") was greater than the age sixty-five single life annuity actuarial equivalent of a Participant's lump sum payment (the "Age 65 AE of LS paid"). The amount of the RAA Annuity was the delta between the two amounts. After the Committee adopted the RAA in 2005, it was implemented only for prospective retirees, i.e., those Participants who retired after March 2005, even though the RAA was effective as of July 1, 1989. Retroactive implementation of the RAA did not occur at that time for Participants who had retired between July 1989 and February 2005, such as McCutcheon.
In 2007, a class action was commenced on behalf of several thousand Participants against Colgate, alleging that their pension benefits had been miscalculated. See In re Colgate-Palmolive Co. ERISA Litig. ("Colgate I"), 36 F. Supp. 3d 344 (S.D.N.Y. 2014). In May 2010, the parties in Colgate I reached an agreement in principle to settle that case. Up to that point, counsel for the plaintiffs in Colgate I had not been aware of the RAA. Once plaintiffs' counsel received a copy of the RAA in July 2011, all RAA-related claims were carved out of the settlement agreement. The Court approved the final settlement agreement on July 8, 2014.
After the Colgate I settlement, Defendants retroactively applied the RAA, granting millions of dollars of additional annuity benefits to a few hundred Participants who had taken a lump sum payment between 1989 and 2005 and who had continued to make contributions under the Grandfathered Formula. Defendants contend that all Participants entitled to an RAAAnnuity received one at that time. Plaintiffs dispute this.
McCutcheon was employed by Colgate from 1979 to 1994, and participated in the Plan during that time. After the Plan converted in 1989, she continued to make contributions under the Grandfathered Formula until she resigned from the company at the age of thirty-seven in 1994. She elected to receive her pension benefit as a lump sum distribution of $22,425.64. She did not receive any benefit under the RAA when it was enacted in 2005. On July 30, 2014, she submitted a claim letter to the Committee, stating that she was entitled to an RAA Annuity, in addition to the lump sum payment she had received in 1994. She requested that Defendants begin paying her an RAA Annuity, and provide an explanation of how it was calculated.
Defendant Flavin responded on behalf of the Committee and denied McCutcheon's claim, by letter dated November 4, 2014. Because her Grandfathered Benefit (calculated as $699.58) was less than her Age 65 AE of LS paid (calculated as $752.84), the Committee concluded that McCutcheon was not entitled an RAA Annuity. On January 6, 2015, McCutcheon sent a letter to the Committee, requesting, among other things, certain documents, information and responses to questions described in the letter. On March 5, 2015, Defendant Flavin responded to McCutcheon on behalf of the Committee,...
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