Thompson v. Ret. Plan For Employees Of S.C. Johnson & Sons Inc., Case Nos. 07-CV-1047, 08-CV-0245.

• Decision Date: 30 June 2010
• Docket Number: Case Nos. 07-CV-1047, 08-CV-0245.
• Citation: 716 F.Supp.2d 752
• Parties: Michael J. THOMPSON, et al., Plaintiffs, v. RETIREMENT PLAN FOR EMPLOYEES OF S.C. JOHNSON & SONS, INC., and Retirement Plan for Employees of JohnsonDiversey, Inc., Defendants. Anthony J. Decubellis, Plaintiff, v. Retirement Plan for Employees of JohnsonDiversey, Inc., Defendant.
• Court: U.S. District Court — Eastern District of Wisconsin

716 F.Supp.2d 752

Michael J. THOMPSON, et al., Plaintiffs,

v.RETIREMENT PLAN FOR EMPLOYEES OF S.C. JOHNSON & SONS, INC., and Retirement Plan for Employees of JohnsonDiversey, Inc., Defendants.

Anthony J. Decubellis, Plaintiff,

v.Retirement Plan for Employees of JohnsonDiversey, Inc., Defendant.

Case Nos. 07-CV-1047, 08-CV-0245.

United States District Court,E.D. Wisconsin.

March 26, 2010.

Opinion Denying Reconsideration June 30, 2010.

COPYRIGHT MATERIAL OMITTED.

Eli Gottesdiener, David N. Sharpe, Gottesdiener Law Firm PLLC, Brooklyn, NY, for Plaintiffs.

Carmen N. Couden, Sara J. Bolden, Susan R. Maisa, Foley & Lardner LLP, Milwaukee, WI, Evan Miller, Sara R. Pikofsky, Jones Day, Washington, DC, Lawrence DiNardo, Jones Day, Chicago, IL, for Defendants.

ORDER

STADTMUELLER, District Judge.

Plaintiffs are former and current participants in the Retirement Plan for Employees of S.C. Johnson & Sons, Inc., (“the SCJ Plan”) and the Retirement Plan for Employees of JohnsonDiversey, Inc. (“the JDI Plan,” collectively, “the Plans”) and bring this suit alleging that the Plans violated the Employee Retirement Income Security Act of 1974 (ERISA). The plaintiffs assert two claims: 1) a “backloading” claim, alleging that the Plans impermissibly backloaded pension benefits; and 2) a “lump sum” claim, alleging that the Plans incorrectly calculated lump sum distributions paid to pre-retirement age plan participants by failing to apply a “whipsaw” ¹ calculation. The court granted the plaintiffs' motion for class certification and certified two general classes related to the “backloading” claim and four subclasses related to the “lump sum” claim. The parties have filed cross-motions for summary judgment on both claims which are fully briefed and ready for decision.

The Plans argue that the “backloading” claim is moot because they admit that they are “frontloaded” interest crediting plans. The plaintiffs disagree and argue that the Plans are both “backloaded” and “frontloaded.” ² The court will grant summary judgment to the Plans on this claim, for the reasons discussed below.

The parties agree that the Plans are liable on the “lump sum” claim, but disagree about whether the plaintiffs' claims are time-barred and about how lump sum distributions should be recalculated. The Plans admit that they did not properly apply a “whipsaw” calculation when determining lump sum payments and acknowledge that, as a result, the plaintiffs who chose to receive a pre-retirement lump sum distribution may not have received the full amounts to which they were otherwise entitled. However, the Plans argue that this fact is irrelevant because the plaintiffs' claims are untimely under the applicable statute of limitations. The court finds that the “lump sum” claims of certain plaintiffs are time-barred and grants summary judgment to the Plans on the claims of the SCJ Lump Sum Subclass B and the JDI Lump Sum Subclass B plaintiffs. However, the court will deny summary judgment to both parties regarding their proposed interest crediting rates and will order the Plans to recalculate the plaintiffs' lump sum distributions in accordance with the law.

BACKGROUND

A. The SCJ and JDI Plans

The defendants in this action are pension plans that provide benefits for the employees of S.C. Johnson & Sons, Inc. (“SC Johnson”) and JohnsonDiversey, Inc. (“JohnsonDiversey”). The SCJ and JDI Plans are “cash balance” plans, a type of defined benefit pension plan. The SCJ Plan has existed for many years as a defined benefit plan, but was amended to include a cash balance formula effective June 1, 1998. The JDI Plan, however, did not previously exist and employees of the spin-off company now named JohnsonDiversey were previously included in the SCJ Plan. Effective December 31, 1998, the employees of JohnsonDiversey's predecessor, S.C. Johnson Commercial Markets, Inc., were subdivided from the SCJ Plan and became participants in a new Retirement Plan for Employees of S.C. Johnson Commercial Markets, Inc., which later became known as the JDI Plan.

Under the cash balance design of the SCJ and JDI Plans, a hypothetical or “notional” cash balance account is established for each employee participant. Participants accrue benefits in their notional accounts based on amounts credited annually to those accounts. The Plans credit participants' accounts in two ways: 1) through Annual Service Credits, which are based on a percentage of annual compensation; and 2) through Annual Earnings Credits, which are based on a predetermined formula. The Plans define the Annual Earnings Credit as 4% interest or 75% of the rate of return generated by the Plan's Trust for that year, whichever is greater.

The SCJ and JDI Plan terms allow a participant who ends his employment before normal retirement age to take his pension benefits in a single lump sum, referred to as a “lump sum distribution.” Alternatively, the participant may leave his benefits in his notional account and continue to earn Annual Earnings Credits until age 65. A number of the plaintiffs in this case are plan participants who elected to receive a lump sum distribution prior to normal retirement age of 65. The plan terms require that participants receive a pre-retirement lump sum distribution that is the actuarial equivalent of the notional account balance at normal retirement age. However, the Plans made distributions to the plaintiffs equal to the amount in their notional accounts at the time of the distribution, prior to normal retirement age. The Plans concluded that lump sum recipients were only entitled to the balance in their notional account by conducting a zero sum calculation. The Plans projected a participant's future interest credits forward to age 65 using the 30-year Treasury rate. The Plans then used the same 30-year Treasury rate to discount the value of the notional account back to the present. Therefore, the interest projection rate and the discount rate cancelled each other out and left participants with accrued benefits equal only to the balance in their notional accounts on the date of distribution. It is this practice that the Plans now acknowledge was an inadequate “whipsaw” calculation that failed to properly account for the value of a participant's account at normal retirement age.

B. The Plaintiff Classes

The plaintiffs are current and former participants in the SCJ and JDI Plans. On February 25, 2010, the court certified two plaintiff classes that pertain to the “backloading claim,” and four subclasses that pertain to the “lump sum” claim. The court first certified two classes made up of plan participants in each plan who maintained a notional account ³ and became vested in their Plan benefit, labeled the “SCJ Class” and the “JDI Class.”

The court also certified four subclasses made up of subsets of the SCJ Class and the JDI Class. These subclasses include plan participants who received a lump sum distribution of their benefits prior to normal retirement age of 65. There are two subclasses associated with each Plan, and the subclasses are distinguished based on whether a participant received his or her lump sum distribution prior to a particular date. SCJ Lump Sum Subclass A includes participants in the SCJ Plan who received a lump sum distribution after November 27, 2001, and before August 17, 2006. ⁴ SCJ Lump Sum Subclass B is made up of participants who received a lump sum distribution prior to November 27, 2001, and after January 1, 1998, the date the plan adopted a cash balance formula. The JDI lump sum subclasses similarly distinguish between lump sum recipients based on the date they received their lump sum payments. The JDI Lump Sum Subclass A contains participants who received a lump sum distribution between March 13, 2002-the date when a plaintiff with standing first brought suit against the JDI Plan-and August 17, 2006. The JDI Lump Sum Subclass B is made up of participants who received their lump sum distribution before March 13, 2002, and after January 1, 1998.

C. Whipsaw Calculation

The plaintiffs allege that the lump sum distributions the subclass members received were not the actuarial equivalent of their normal accrued pension benefits, as required for compliance with ERISA, because the Plans failed to apply a proper “whipsaw” calculation in determining the plaintiffs' lump sum payments. “Whipsaw” refers to the two-step calculation to ensure actuarial equivalence between a plan participant's pre-retirement age lump sum distribution and the present value of his normal retirement age benefits. First, a participant's account balance is projected forward to normal retirement age of 65 using the rate at which future interest credits would have accrued if the participant had left his benefits in the notional account until that age. Second, the projected amount is discounted back to present value of those benefits on the date the lump sum is distributed. If a plan applies future interest credits to a participant's notional account at a rate less than the plan's normal interest crediting rate, the participant's lump sum distribution will be less than the actuarial equivalent of the present value of his age 65 account and the participant will suffer a forfeiture of accrued benefits. See Berger v. Xerox Corp. Retirement Income Guarantee Plan, 338 F.3d 755 (7th Cir.2003) (finding that the defendant plan violated ERISA by failing to apply future interest credits to participants' notional account balances at the plan's future interest credits rate and, instead, applying interest credits at a rate exactly equal to the discount rate). This is exactly what the plaintiffs assert happened in the instant case. The plaintiffs allege that the Plans violated ERISA by projecting participants' future interest at the 30-year Treasury rate, rather than projecting future interest at the plan's rate of 4% or 75% of the rate of return on the Trust's assets.

ANALYSIS

The parties both seek entry of summary...