Plotnick v. Computer Scis. Corp.
| Citation | 182 F.Supp.3d 573 |
| Decision Date | 26 April 2016 |
| Docket Number | Case No. 1:15-cv-01002 |
| Court | U.S. District Court — Eastern District of Virginia |
| Parties | Jeffrey Plotnick, et al., Plaintiffs, v. Computer Sciences Corporation Deferred Compensation Plan for Key Executives, et al., Defendants. |
Kira Layne-Schwabe Hettinger, Cohen Milstein Sellers & Toll PLLC, Washington, DC, Simon Bahne Paris, Saltz, Mongeluzzi, Barrett & Bendesky, PC, Philadelphia, PA, for Plaintiffs.
Thomas Anton Linthorst, Morgan Lewis & Bockius LLP, Princeton, MJ, Andrew George Sakallaris, Morgan Lewis Bockius LLP, Washington, DC, for Defendants.
Plaintiffs in this Employee Retirement Income Security Act ("ERISA")1 case are former executives for defendant Computer Sciences Corporation and current participants in defendant Computer Sciences Corporation Deferred Compensation Plan for Key Executives ("Plan").2 The Consolidated Complaint alleges four counts. Counts I, II, and III are alternative theories aimed at obtaining the same relief, namely the invalidation of an amendment to the Plan that plaintiffs allege harms their interests. Count IV alleges a procedural violation of ERISA in that plaintiffs contend they were not afforded a full and fair review of their claims for benefits. With respect to Counts I, II, and III, plaintiffs moved to certify a class action including all similarly situated former employees of CSC whom the challenged amendment affected. CSC opposes class certification and seeks summary judgment on all counts.
Plaintiffs' motion for class certification and CSC's motion for summary judgment have been fully briefed and argued. This Memorandum Opinion disposes of both motions.
CSC is a Fortune 500 company that provides information technology services worldwide. Since 1995, CSC has sponsored the Plan at issue in this lawsuit. The Plan is what is known as a "top-hat plan," which means it is "unfunded" and 29 U.S.C. § 1051(2). Pursuant to the Plan, eligible Plan participants—select, highly compensated key executives—can defer each year portions of their base salary and up to 100% of their incentive compensation. Because the Plan is unfunded, deferrals are recorded in notational accounts; no funds are actually segregated or placed in a trust. In other words, an election to defer compensation does not result in CSC's investing money on the participant's behalf. Rather, deferrals are noted for accounting purposes, and participants are paid from CSC's general assets at the appropriate time, which participants can elect to be the time of retirement or as annual installment payments over five, ten, or fifteen years following retirement.4
By deferring compensation, Plan participants in essence make a loan to CSC. In return, participants realize certain benefits. For one, deferring income allows participants to defer income taxes, which gives participants the potential to build up more money for retirement or other long-term goals than if they were to invest the same amount after taxes. Additionally, a participant's deferred income grows; deferrals are credited with earnings according to a crediting rate set forth in the Plan. The Plan crediting rate is at the heart of the instant lawsuit.
There have been three crediting rates over the lifetime of the Plan. First, from the Plan's establishment in 1995 through March 2003, the crediting rate was 120% of the 120-month rolling average yield to maturity on 10-year U.S. Treasury Notes as of December 31 of the preceding plan year ("Treasury rate"). Second, as the result of a Plan amendment, in March 2003 the Plan began using as the crediting rate the 120-month rolling average yield to maturity of the Merrill Lynch U.S. Corporate, A Rated, 15+ Years Index ("Merrill Lynch Index"). The Merrill Lynch Index was applied to all deferrals, even those made before the effective date of the new crediting rate. Third, in May 2012 CSC's Board of Directors ("Board") adopted a Plan amendment to the crediting rate to be effective as of January 1, 2013 ("2012 Amendment"). Specifically, the 2012 Amendment replaced the Merrill Lynch Index with four valuation funds as crediting rate options. These four funds mirror the options available in CSC's 401(k) plan. Under the 2012 Amendment, participants can select any mixture of the four valuation funds, and participants can even change their valuation fund selections on a daily basis. The four valuation fund options have varying levels of risk and return. They are (i) a money market fund, (ii) an S & P 500 index fund, (iii) a core bond fund, and (iv) a target-date retirement fund. If a participant fails to select his or her own valuation funds, the money market fund is selected by default.
Beyond changing the crediting rate, the 2012 Amendment also changed how annual benefit payments are distributed. Before the 2012 Amendment, participants received equal distribution payments until the final installment, which would be adjusted to reflect the actual performance of the Merrill Lynch Index over the entire distribution schedule. Under the 2012 Amendment, however, distribution installments are determined by applying the crediting rate to the remaining account balance and dividing the total by the number of remaining distribution installments. As a result, distribution payments under the 2012 Amendment are no longer approximately equal over time as they were prior to the 2012 Amendment.
Importantly, the Plan's terms at the time of the 2012 Amendment's adoption gave the Board amendment authority. In general, the Plan provided that it could be "wholly or partially amended by the Board from time to time, in its sole and absolute discretion." See D. Mem. Supp., Ex. 4 ("2007 Plan"), §§ 8.6 & 16.6.5 Moreover, the Plan permitted such amendments to apply prospectively to amounts noted in a participant's account as of the date of amendment. Id. The only limitation on CSC's amendment power was that no amendment could decrease the amount of any participant's account "as of the effective date of such amendment." Id. In addition to the general amendment power, the Plan also plainly specified that the crediting rate was "subject to amendment by the Board." Id. §§ 4.3 & 12.3. Nothing in the Plan distinguished retired employees from active employees for purposes of CSC's amendment power. To the contrary, the Plan defined a "Participant" as any "Key Executive who elects to participate in...the Plan...until [the Key Executive] ha[s] received all benefits due under...the Plan." Id. §§ 1.18 & 9.20. In other words, anyone to whom distributions were due under the Plan was a participant for purposes of the Plan, and CSC's amendment authority, by its plain language, permitted amendments to the crediting rate for all participant accounts. See id. §§ 4.3 & 12.3, 1.18 & 9.20.
Plaintiffs consider themselves aggrieved by the 2012 Amendment. Plaintiff Jeffrey Plotnick, a former CSC Vice President of Business Development, began participating in the Plan shortly after its establishment in 1995, usually electing to have his account distributed in fifteen annual installments after retirement. At the time Plotnick retired on September 4, 2012, his account balance was approximately $3.5 million dollars; the value did not decline on the effective date of the 2012 Amendment.
Plaintiff James Kennedy, also a former CSC Vice President, began participating in the Plan in 1999, typically electing to receive his distributions in installments over ten years after retirement. Kennedy's account balance at the time of his retirement—March 2, 2012—was approximately $4 million, and his account balance was also unaffected as of the effective date of the 2012 Amendment. Given their dates of participation in the Plan, each plaintiff has had his account subject to three different crediting rates—the Treasury rate, the Merrill Lynch Index, and the current regime under the 2012 Amendment. When the 2012 Amendment went into effect, Kennedy elected to allocate his account between the bond fund and the S & P 500 Index. In contrast, Plotnick, in protest to the 2012 Amendment, allowed his account to default into the money market fund.
Plaintiffs began their attack on the 2012 Amendment on May 20, 2013, when their attorneys sent CSC two nearly identical letters, one on behalf of each plaintiff, claiming benefits under the Plan. These letters challenged the 2012 Amendment on four grounds, namely (i) that the Plan is a unilateral contract that cannot be changed after a participant retires, (ii) that the crediting rates under the 2012 Amendment are invalid because the valuation funds have the potential to lose money, (iii) that the 2012 Amendment improperly allows calculation of the rate of return for a notational investment option "for any given period" rather than on a 120-month rolling average, and (iv) that the new manner in which distributions are calculated violates the Plan's language that participants may elect to receive distributions in approximately equal annual installments. On behalf of the Plan administrator, CSC Executive Vice President and Chief Human Resources Officer Sunita Holzer denied plaintiffs' claims for benefits by letters dated July 22, 2013. These denial letters explained that the Board had the absolute discretion to amend the Plan under §§ 8.6 and 16.6 and that the Board had exercised that power. The letters further informed plaintiffs that they had exhausted their administrative remedies under the Plan and had the right to bring a civil action under ERISA. At the time plaintiffs claimed benefits under the Plan, they also requested certain Plan documents. CSC's Vice President of Global Compensation Benefits, Eduardo Nunez, responded to these requests and provided plaintiffs copies of Plan documents, account statements, distribution...
To continue reading
Request your trial
- Research & Dev. Ctr. "Teploenergetika, " LLC v. EP Int'l, LLC
-
Branch v. Gov't Emps. Ins. Co.
...and the members of the class stem from a single event or a unitary course of conduct.'" Plotnick v. ComputerScis. Corp. Deferred Comp. Plan for Key Execs., 182 F. Supp. 3d 573, 582 (E.D. Va. 2016) (quoting 7A Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice & Proc. § ......
-
Plotnick v. Computer Scis. Corp. Deferred Comp. Plan for Key Executives
...of the named plaintiffs and certain class members for whom the 2012 Amendment is an economic benefit, not an economic injury." Plotnick , 182 F.Supp.3d at 589. The district court also granted summary judgment to CSC at that time, holding that the 2012 Amendment was valid and thus that Plotn......