Register v. Pnc Financial Services Group, Inc.

• Court: U.S. Court of Appeals — Third Circuit
• Writing for the Court: Greenberg
• Citation: Register v. Pnc Financial Services Group, Inc., 477 F.3d 56 (3rd Cir. 2007)
• Decision Date: 30 January 2007
• Docket Number: No. 05-5445.,05-5445.
• Parties: Sandra REGISTER, Grace B. Merchant, Susan L. Wilson, Kristina Beckman, John J. Daggett and Richard Rhoades, on behalf of themselves and others similarly situated, Appellants v. PNC FINANCIAL SERVICES GROUP, INC.; PNC Bank, N.A.; Pension Committee of PNC Financial Services Group, Inc. Pension Plan; PNC Financial Services Group, Inc. Pension Plans.

477 F.3d 56

Sandra REGISTER, Grace B. Merchant, Susan L. Wilson, Kristina Beckman, John J. Daggett and Richard Rhoades, on behalf of themselves and others similarly situated, Appellants v. PNC FINANCIAL SERVICES GROUP, INC.; PNC Bank, N.A.; Pension Committee of PNC Financial Services Group, Inc. Pension Plan; PNC Financial Services Group, Inc. Pension Plans.

No. 05-5445.

United States Court of Appeals, Third Circuit.

Argued December 14, 2006.

Filed January 30, 2007.

Bryan L. Clobes, Michael S. Tarringer, Miller, Faucher & Cafferty, David H. Weinstein (argued), Andrea L. Wilson, Weinstein, Kitchenoff & Asher, Philadelphia, PA, Attorneys for Appellants.

Alan J. Davis (argued), William A. Slaughter, Arthur Makadon, Barry L. Klein, Allison V. Kinsey, Jamie B. Lehrer, Ballard, Spahr, Andrews & Ingersoll, Philadelphia, PA, Attorneys for Appellees.

Jay E. Sushelsky, AARP Foundation Litigation, Melvin Radowitz, American Association of Retired Persons, Washington, D.C., Attorneys for Amicus Curiae American Association of Retired Persons.

Stephen A. Bokat, Robin S. Conrad, Ellen Dunham Bryant, National Chamber Litigation Center, Inc., Ann Elizabeth Reesman, McGuiness, Norris & Williams, LLP, Washington, D.C., Attorneys for Amicus Curiae Equal Employment Advisory Council and the Chamber of Commerce of the United States of America.

Jeffrey G. Huvelle, David H. Remes, John M. Vine, Covington & Burling, Washington, D.C., Attorneys for Amicus Curiae The ERISA Industry Committee.

Before FISHER, CHAGARES and GREENBERG, Circuit Judges.

OPINION OF THE COURT

GREENBERG, Circuit Judge.

I. INTRODUCTION

This matter comes on before the court on an appeal by Sandra Register, Grace B. Merchant, Susan L. Wilson, Kristina Beckman, John J. Daggett, and Richard Rhoades, ("appellants"), from the district court's order entered on November 21, 2005, granting PNC Financial Services Group, Inc., PNC Bank, NA, Pension Committee of PNC Financial Services Group, Inc. Pension Plan, and PNC Financial Services Group, Inc. Pension Plans' (collectively "PNC") motion to dismiss appellants' amended complaint. See Register v. PNC Fin. Serv. Group, Inc., Civ. No 04-6097, 2005 WL 3120268 (E.D.Pa. Nov.21, 2005). The dismissed amended complaint alleged that PNC's conversion of its pension plan from a traditional defined benefit plan to a cash balance plan violated certain provisions of the Employee Retirement Income Security Act of 1974 ("ERISA"). The most significant issue on this appeal is whether the district court erred in holding that the PNC cash balance plan does not discriminate against older employees on the basis of their age. For the reasons that follow, we will affirm the district court's November 21, 2005 order in all respects.

II. FACTS AND PROCEDURAL HISTORY

The relevant facts, except in one respect that we discuss later when dealing with the adequacy of a summary plan description that PNC supplied to plan participants, are not in dispute. Before 1999, PNC maintained a traditional defined benefit pension plan for its employees providing that a participant's normal retirement (age 65) benefit was calculated by multiplying a fixed percentage (1.3% for service up to and including 25 years and 1.0% for service in excess of 25 years) with the participant's years of service and final average pay. The plan also provided that if the employee retired after age 50 but before age 65, he could obtain early retirement benefits consisting of a portion of his normal retirement benefits.

As of January 1, 1999, PNC switched to a cash balance plan, which is a particular form of defined benefit plan. Under the cash balance plan, PNC established a bookkeeping account known as a cash balance account for every participant. The new plan took the benefits that accrued under the traditional plan and restated them as opening hypothetical cash balance accounts for each participant. The accounts were "hypothetical" because they did not reflect actual contributions to accounts or actual gains and losses allocable to the accounts, but, instead, reflected a value PNC imputed to the hypothetical accounts in the form of annual "credits."

When PNC converted its traditional plan to a cash balance plan, the early retirement benefits of the old plan were frozen and the participants were given the option of either receiving the accrued (but frozen) early retirement benefits or the benefit they would have accrued under the cash balance plan, whichever was greater. The benefits for those participants that chose to receive the accrued early retirement benefits were frozen from the date of conversion until their account balances under the cash balance plan exceeded the accrued early retirement benefits.

The PNC cash balance plan provides for two types of credits to participants: "earnings or pay credits" and "interest credits." The plan states the earnings credit as a percentage of compensation determined by allocating points for combined age and years of service. The earnings credit ranges from 3% of compensation for participants with less than 40 years of combined age and years of service to 8% of compensation for participants with 70 years or more of combined age and years of service. The second component of the hypothetical account, the interest credit, is determined using an annual interest rate based on the 30-year Treasury rate. The interest credit accrues at the same time that the underlying earnings credit accrues and is projected through age 65 (to offset things such as increased cost of living, inflation, etc.).¹ When a participant's employment with PNC ends, the participant may withdraw his hypothetical account balance as a lump sum, convert the account balance into an immediate life annuity, or defer the receipt of a lump sum payment or life annuity until a later date.

In 2004, a group of plan participants who were current and former PNC employees and pension plan beneficiaries brought suit against PNC claiming that the PNC cash balance plan violated various ERISA provisions. First, they alleged that the plan violated the ERISA anti-backloading provision, 29 U.S.C. § 1054(b)(1)(B), because the participants that chose to retain the accrued (but frozen) early retirement benefits did not receive additional benefit accruals until the cash balance plan benefit caught up to their frozen prior plan benefit (Count I). Second, they contended that an employee's benefit accrual decreases because of age in violation of the ERISA's defined benefit plan anti-discrimination provision, id. at § 1054(b)(1)(H)(i) (Count II). Third, they alleged that PNC violated ERISA's notice, id. at §§ 1054(h), 1022, and fiduciary duty requirements, id. at § 1104 (Counts III-V).²

On May 23, 2005, PNC filed a motion to dismiss the amended complaint. The district court granted PNC's motion to dismiss all counts for failure to state a claim under Fed.R.Civ.P. 12(b)(6). Appellants have appealed from that order to this court.

III. JURISDICTION AND STANDARD OF REVIEW

The district court had subject matter jurisdiction under 28 U.S.C. § 1331 and 29 U.S.C. § 1132(e)(1). We have jurisdiction pursuant to 28 U.S.C. §§ 1291 and 1294(1). "In reviewing a district court's dismissal of a complaint pursuant to Rule 12(b)(6) for failure to state a claim upon which relief may be granted, our review is plenary and we apply the same test as the district court." Maio v. Aetna, Inc., 221 F.3d 472, 481 (3d Cir.2000). "A motion to dismiss pursuant to Rule 12(b)(6) may be granted only if, accepting all well-pleaded allegations in the complaint as true, and viewing them in the light most favorable to plaintiff, plaintiff is not entitled to relief." Id. at 481-82 (quoting In re Burlington Coat Factory Litig., 114 F.3d 1410, 1420 (3d Cir.1997)). "The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims." Id. at 482 (quoting Burlington Coat Factory, 114 F.3d at 1420) (internal quotations omitted).

IV. DISCUSSION

A. The PNC Cash Balance Plan Does Not Violate ERISA's Anti-Discrimination Provision.

1. What is a cash-balance plan?

There are two general types of pension plans: defined contribution plans and defined benefit plans. A defined contribution plan is a pension plan in which an individual account is established for an employee to which his employer (and sometimes the employee too) contributes a specific amount. See 29 U.S.C. § 1002(34); Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, 439, 119 S.Ct. 755, 761, 142 L.Ed.2d 881 (1999). The employee is entitled "to whatever assets are dedicated to his individual account." Id. at 439, 119 S.Ct. at 761. The employee bears the investment risks and the employer does not guarantee a retirement benefit to the employee. See id., 119 S.Ct. at 761.³

A defined benefit plan, on the other hand, is any plan that is not a defined contribution plan. 29 U.S.C. § 1002(35). It is generally a pension plan where the employee is promised a retirement benefit based on a formula the plan sets forth. The plan consists of a "general pool of assets rather than individual dedicated accounts." Hughes Aircraft, 525 U.S. at 439, 119 S.Ct. at 761. Participants in a defined benefit plan have no claim to any particular asset that composes a part of the plan's general asset pool, but, instead, receive "an annuity based on the retiree's earnings history, usually the most recent or highest paid years, and the number of completed years of service to the company." Depenbrock v. Cigna Corp., 389 F.3d 78, 79 n. 1 (3d Cir.2004) (quoting Campbell v. Bank-Boston, N.A., 327 F.3d 1, 4 (1st Cir.2003)). Under a defined benefit plan the entity funding the plan, i.e., the employer, bears the investment risks.

The pension plan at issue in this case is a cash balance plan. A cash balance plan, by law, is a form of defined benefit plan and must comply with the statutory regulations applicable to defined benefit plans. See, e.g., ...