Richards v. Fleetboston Financial Corp.
| Decision Date | 31 March 2006 |
| Docket Number | No. Civ.A.3:04CV1638(JCH).,Civ.A.3:04CV1638(JCH). |
| Citation | 427 F.Supp.2d 150 |
| Parties | Donna C. RICHARDS, individually, and on behalf of others similarly situated, Plaintiff v. FLEETBOSTON FINANCIAL CORP. et. al., Defendants. |
| Court | U.S. District Court — District of Connecticut |
Thomas G. Moukawsher, Ian O. Smith, Moukawsher & Walsh, Hartford, CT, for Plaintiff.
Anne E. Rea, Brian P. Guarraci, Erin E. Kelly, Julie A. Koca, Scott E. Gross, William F. Conlon, Sidley, Austin, Brown & Wood LLP, Chicago, IL, George J. Kelly, Jr., Siegel, O'Connor, O'Donnell & Beck, Hartford, CT, for Defendants.
RULING ON DEFENDANTS' MOTION TO DISMISS [Doc. No. 30]
The lead plaintiff, an employee of the defendant corporation, complains that this corporation and its pension plan violated her rights under various sections of the Employee Retirement Income Security Act (ERISA). The defendants move to dismiss all six counts of the plaintiff's Complaint as failing to state a claim upon which relief may be granted.
The lead plaintiff, Donna C. Richards ("Richards"), is an employee of defendant FleetBoston Financial Corp. ("Fleet Financial") and a participant in the defendant FleetBoston Pension Plan ("Fleet Amended Plan"). Richards was born on May 15, 1948.
Richards was hired by Hartford National Bank in 1973. Following a series of mergers, she became a participant in the Shawmut Retirement Plan. In 1995, Fleet Financial Group acquired Shawmut, and Richards became a Fleet Employee participating in the Fleet Plan. Prior to January 1, 1997, Richards was a participant in a traditional defined benefits pension plan ("Traditional Plan"), under which retiring employees received a percentage of their final average pay for life. Effective January 1, 1997, Fleet amended the Traditional Plan such that it became a "cash balance" benefit.2 The new plan ("Amended Plan") calculates an employee's retirement benefits as follows. It first adds the employee's age plus years of vesting service to arrive at a number of "points." Pay credits to be added to an employee's hypothetical account each quarter are then calculated by multiplying the employee's compensation for that quarter by certain percentages, as indicated in the following chart, copied from the Amended Plan:
Points Pay Credit Rate
-------------------------------------------------------
Applicable to Applicable to
Compensation Compensation
Below the Social Above the Social
Security Wage Security Wage
Number of Points: Base Base
--------------------------------------------------------
less than 39 3% 6.%
--------------------------------------------------------
40 but less than 50 3.5% 7%
--------------------------------------------------------
50 but less than 60 4.5% 9%
--------------------------------------------------------
60 but less than 70 5.5% 11%
--------------------------------------------------------
70 but less than 80 6.5% 13%
--------------------------------------------------------
80 or more 7.5% 15%
--------------------------------------------------------
Defs.' Mem. Supp. Mot. Dismiss, Ex. A [Doc. No. 32]. The employee also receives quarterly interest credits. The interest rate is uniform for all participants and is based on the average annual yield of one-year U.S. Treasury constant maturities for the month preceding the calendar quarter in which the pay period begins. The size of a participant's interest credit in a given quarter depends upon the interest rate, the participant's account balance, and the participant's pay credit for that quarter.
When it adopted the Amended Plan in 1997, Fleet converted the benefits that Richards and other employees in her situation had earned under the Traditional Plan into an opening hypothetical cash balance.3 It arrived at this opening balance by computing the lump sum, actuarially equivalent value of the benefit payable at age 65 that the employee had accrued under the prior pension plans as of December 31, 1996. Amended Plan Summary Plan Description (SPD), Plf.'s Mem. Ex.1 at 22 [Doc. No. 40]. As the defendants admitted at oral argument on this motion, this opening balance did not include the value of a Traditional Plan participant's right to subsidized early retirement benefits. See Compl. ¶ 31. In calculating the opening balance, the Amended Plan applied a pre-retirement mortality discount, providing for the possibility of death prior to normal retirement, but provided no mechanism for crediting this discount back to participants' accounts as they grow older and the risk of pre-retirement mortality shrinks. Compl. ¶ 35. It employed a 7% interest rate in calculating the value of the frozen benefit derived from the Traditional Plan as an age-65 annuity, for purposes of arriving at an opening balance under the Amended Plan, but it provided no mechanism to adjust this balance when interest rates fall below 7%, as they have over the last five years. Id.
The Amended Plan provided that, upon termination of employment with Fleet, an employee who had participated in both the Traditional Plan and the Amended Plan4 would receive the greater of her Cash Balance Account, under the Amended Plan, or her benefit under the Traditional Plan terms, frozen as of January 1, 1997 ("frozen benefit"). Id. at ¶ 32. This rule, combined with the fact that the Amended Plan converted less than the full value of the benefits that Richards and other former Traditional Plan participants had accrued under the Traditional Plan to opening account balances under the Amended Plan terms, meant that the value of retirement benefits available to such participants did not increase past the frozen benefit that they had already accrued as of December 31, 1996, until the amount in the cash balance account reached and then exceeded that amount. Id. at ¶ 33. This phenomenon, which Richards refers to as the "wear-away" effect, caused Richards and other employees to work for many years following 1997 without actually accruing any new benefits, despite the existence of a hypothetical cash balance account that showed benefits being added each quarter. Id. at ¶ 34. The use of the pre-retirement mortality discount and the 7% interest rate exacerbated this wear-away effect. Id. at 35.
Prior to January 1, 1997, Fleet gave no notice to plan participants that they would be experiencing a significant reduction in benefits as a result of the plan amendment. Moreover, the Amended Plan summary plan description ("SPD"), which was distributed to participants, does not mention the wear-away effect, nor state that that participants' benefit accruals under the Amended Plan would be reduced by advancing age.5 It told participants, Id. at ¶ 40.
Fleet also answered a hypothetical plan participant question, "Can my pension benefit decrease under the new Fleet Pension Plan?," by saying "No." Id. at 1141. It continued, "Whether you participate in the cash balance benefit or the traditional benefit, you will never receive less than the benefit you earned as of December 31, 1996," and did not mention the wear-away effect. Id. Similarly, it did not state that the rate of benefit accruals would decline with age. It stated it was adopting the Amended Plan because it "makes good sense for our employees." Id.
The plaintiff alleges that, in practice, Amended Plan administrators frequently have informed retiring plan participants only of the value of their cash balance accounts, and not of the greater benefits to which they are entitled under the frozen benefit derived from the Traditional Plan terms. Id. at ¶ 36.
Richards asserts a number of different claims against the defendants. In Count I, she alleges that the cash balance terms of the Fleet Amended Plan violate ERISA § 204(b)(1)(H), prohibiting an employer from establishing or maintaining plan rules that reduce "the rate of an employee's benefit accrual . . . because of the attainment of any age." 29 U.S.C. § 1054(b)(1)(H). In Count II, she alleges that, by conditioning Richards' receipt of cash balance benefits on her foregoing early retirement benefits earned prior to the adoption of the cash balance amendment, the cash balance terms violate ERISA § 203(a), 29 U.S.C. § 1053(a), which requires that benefits are not forfeitable. In Count III, she alleges that, by causing participants who had begun to earn retirement benefits under the Traditional Plan prior to its amendment to experience years in which they accrue zero benefits followed by years in which they accrue actual benefits, the Amended Plan violates the "anti-backloading" rule in ERISA § 204(b)(1)(B), 29 U.S.C. § 1054(b)(1)(B). In Count IV, she alleges that the defendants failed to notify her and other participants of a significant reduction in the rate of future benefit accrual 15 days prior to the effective date of the Amended Plan, thereby violating ERISA § 204(h), 29 U.S.C. § 1054(h). In Count V, she alleges that the defendants failed to provide an adequate Summary Plan Description ("SPD"), in violation of ERISA § 102, 29 U.S.C. § 1022. Finally, in Count VI, she alleges that the defendants breached their fiduciary duty by failing to fully inform retiring plan participants of the funds they are owed under the frozen benefit derived from the Fleet Traditional Plan terms. See ERISA § 404, 29 U.S.C. § 1104.
For each of these counts, she seeks relief under ERISA § 502(a)(3), which provides that, ...
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