McDaniel v. Chevron

• Decision Date: 09 February 2000
• Docket Number: No. 98-16363,98-16363
• Citation: 203 F.3d 1099
• Parties: (9th Cir. 2000) CHARLES R. MCDANIEL, on behalf of himself and all others similarly situated, Plaintiff-Appellant, v. THE CHEVRON CORPORATION; THE CHEVRON CORPORATION PENSION OPINION PLAN; THE CHEVRON CORPORATION RETIREMENT PLAN ADMINISTRATOR, Defendants-Appellees
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1099

203 F.3d 1099 (9th Cir. 2000)

CHARLES R. MCDANIEL, on behalf of himself and all others similarly situated, Plaintiff-Appellant, v. THE CHEVRON CORPORATION; THE CHEVRON CORPORATION PENSION OPINION PLAN; THE CHEVRON CORPORATION RETIREMENT PLAN ADMINISTRATOR, Defendants-Appellees.

No. 98-16363

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

Argued and Submitted January 13, 2000

Filed February 9, 2000

[Copyrighted Material Omitted]

[Copyrighted Material Omitted]

[Copyrighted Material Omitted] COUNSEL: Edward S. Zusman, Zelle & Larson, San Francisco, California, for the plaintiff-appellant.

Robert A. Gordon (on the briefs) and Craig E. Stewart (argued), Pillsbury Madison & Sutro, San Francisco, California, for the defendants-appellees.

Edgar Pauk, Legal Services for the Elderly, New York, New York for the amicus. Mary Ellen Signorille, American Association of Retired Persons, Washington, District of Columbia, for the amicus. Paula Brantner, National Employment Lawyers Association, San Francisco, California, for the amicus.

Appeal from the United States District Court for the Northern District of California; Charles A. Legge, District Judge, Presiding. D.C. No. CV-96-02891-CAL

Before: Arthur L. Alarcon, A. Wallace Tashima, and Barry G. Silverman, Circuit Judges.

ALARCON, Circuit Judge:

Charles R. McDaniel, a participant of the Chevron Corporation Retirement Plan, and a class of similarly situated plaintiffs (collectively, the "class") appeal from the district court's final order granting summary judgment in favor of the Chevron Corporation ("Chevron"), the Chevron Corporation Retirement Plan (the "Chevron Plan"), and the Chevron Corporation Retirement Plan Administrator (the "Plan Administrator").¹ The class primarily contends that the Plan Administrator violated the unambiguous requirements of the Chevron Plan in calculating the amount of retirement benefits that must be paid to participants who elect to receive actuarially equivalent benefits, including a single lump sum payment of cash. The restatement of the plan provided that those benefits would be calculated either "based on" or "in accordance with" the mortality assumptions set forth in the "UP-1984 Mortality Table." The Plan Administrator interpreted the Chevron Plan's reference to the "UP-1984 Mortality Table" as authorizing a nine month set forward to avoid understating the correct mortality assumptions due to the difference in life expectancy of males and females.

We have jurisdiction pursuant to 28 U.S.C. S 1291. We conclude that the disputed mortality assumptions, which were qualified by the words "based on" or "in accordance with," were ambiguous as used in the Chevron Plan and that the Plan Administrator did not abuse its discretion in applying a nine month set forward in calculating the mortality assumptions of participants who elected to receive actuarially equivalent forms of benefits. We affirm, because we conclude that none of the class's remaining challenges to the judgment is meritorious.

I

The Chevron Plan is a defined benefit pension plan that is governed by ERISA and tax qualified under S 401(a) of the Internal Revenue Code ("IRC"). See 29 U.S.C. S 1002(2)(A); 26 U.S.C. S 401(a). The plan's special tax qualified status allows the plan sponsor, the Chevron Corporation, to immediately deduct contributions to the plan, exempts earnings in the plan from taxation, and provides that plan participants will not be taxed on their benefits until the benefits are distributed. See 26 U.S.C. SS 404(a), 501(a), 402(a). The Chevron Plan also allows plan participants to elect to have their benefits paid in the form of one of three types of annuities or, alternatively, in the form of a single lump sum payment of cash. Approximately ninety-five percent of the plan's participants choose to receive their benefits in a lump sum payment of cash.

The Chevron Plan calculates the amount of contributions to be made, and determines the amount of benefits that the plan must pay, by using an interest rate assumption and a mortality assumption. An interest rate assumption is used to estimate the present value of benefits to be paid in the future. A mortality assumption, which is derived from a standard mortality table, is used to estimate the probability that a person will survive, and therefore receive benefits, to a given age. At issue in this case is whether Chevron used the correct mortality assumptions when it calculated the class members' benefits.

Actuaries prepare standard mortality tables based upon the mortality experience of a large segment of the population. See William W. Fellers & Paul H. Jackson Noninsured Pensioner Mortality: The UP-1984 Mortality Table, 25 The Proceedings 456, 456 (1975). In the late 1970s, Chevron began to use the UP-1984 Mortality Table for calculating the amount of contributions that it makes to the Chevron Plan. The UP-1984 Mortality Table is a "unisex" mortality table that is based on the mortality experience of a blended population that is roughly eighty percent male and twenty percent female.² See id. at 483, 485. If used without adjustment, the table is appropriate for calculating mortality assumptions for populations that have a ten percent to thirty percent female content. See id. For populations whose female content is either greater than thirty percent or less than ten percent, the authors of the UP 1984 Mortality Table recommend adjusting the table backward or forward a number of years to avoid overstating or understating the correct mortality assumptions.³ See id.

For funding purposes, the Chevron Plan uses an all male version of the table to calculate its male benefit liabilities, and it used an all female version of the table to calculate its female benefit liabilities. Following the author's instructions, the plan's actuaries created the all male version by setting the UP1984 Mortality Table forward one year, and they created the all female version by setting the table backward four years. See Fellers & Jackson, at 460, 483, 485.

Though the Chevron Plan uses separate, all male and all female versions of the UP-1984 Mortality Table for calculating the plan's funding obligations, federal law prohibits Chevron from using those tables when calculating the amount of benefits that it must pay to plan participants. See Arizona Governing Comm. v. Norris, 463 U.S. 1073, 1074 (1983); Florida v. Long, 487 U.S. 223, 237 (1988). To comply with federal law, the Chevron Plan provides that the Plan Administrator will use a single unisex version of the UP-1984 Mortality Table when calculating actuarially equivalent benefits. The standard version of the table, which was designed for use on populations with a female content of ten to thirty percent, however, is neither valid nor appropriate for calculating those benefits. It understates the mortality assumptions of plan participants by approximately nine months (0.75 year), because the plan pays only five percent of its projected benefits to females on a dollar basis.⁴ Cf. Fellers & Jackson at 460, 483, 485. As a result, the Plan Administrator has uniformly set the UP-1984 Mortality Table forward nine months when calculating actuarially equivalent benefits of plan participants.

McDaniel is a former Chevron employee and plan participant who elected to have his benefits paid in a single lump sum distribution of cash. The Plan Administrator calculated McDaniel's benefits using the UP-1984 Mortality Table with a nine month set forward and paid him roughly $49,900. Had the Plan Administrator used the UP-1984 Mortality Table without a set forward, McDaniel would have been entitled to an additional $405.

In June of 1995, McDaniel filed an administrative claim for additional benefits, contending that the Plan Administrator was required to calculate plan participants' actuarially equivalent benefits using the UP-1984 Mortality Table without a set forward. Chevron denied that claim. McDaniel appealed to Chevron's review panel. The review panel consisted of three randomly selected senior level Chevron employees, who were also plan participants. The review panel concluded that the correct interpretation of the disputed mortality assumption was the UP-1984 Mortality Table with a nine month set forward and, accordingly, denied McDaniel's claim.

McDaniel's claim prompted Chevron to conduct an internal review of the plan's mortality assumption. Concerned that the description of the mortality assumption was not sufficiently specific to qualify the plan for special tax treatment, Chevron voluntarily approached the Internal Revenue Service (the "IRS") through its anonymous Walk-in Closing Agreement Program ("CAP"). See Rev. Proc. 94-16S 3, 1994-1 C.B. 576. The IRS reviewed the Chevron Plan and concluded that the description of the mortality assumptions for actuarially equivalent benefits presented a "form defect" that violated S 401(a)(25) of the IRC and Revenue Ruling 79-90. The IRS found that, while Chevron had operated the plan according to its terms, it had failed to state its mortality assumptions in a manner that "precludes employer discretion." Chevron and the IRS then entered into a closing agreement under which Chevron agreed to pay a fine and to amend the plan retroactively to specify that it adjusts the UP-1984 Mortality Table forward nine months when calculating actuarially equivalent benefits.

On August 13, 1996, McDaniel filed a complaint in the district court alleging that Chevron underpaid McDaniel's benefits in violation of S 502(a) of ERISA. See 29 U.S.C. S 1132(a). He prayed for a declaration that the plan participants were entitled to have their actuarially equivalent benefits determined using the unadjusted version of the UP-1984 Mortality Table and for damages in the amount of his underpayment. The district court certified the matter as a class action pursuant to Rule 23 of the Federal Rules of Civil Procedure. It defined the class to...