LIGHTFOOT et al v. ARKEMA, INC.
Filing
56
OPINION. Signed by Chief Judge Jerome B. Simandle on 6/27/2013. (dmr)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
SHIRLEY LIGHTFOOT and
DONALD R. HONE, individually
and on behalf of all others
similarly situated,
Plaintiffs,
HONORABLE JEROME B. SIMANDLE
Civil No. 12-773 (JBS/JS)
OPINION
v.
ARKEMA, INC. RETIREMENT
BENEFITS PLAN,
Defendant.
APPEARANCES:
Lisa J. Rodriguez, Esq.
Nicole M. Acchione, Esq.
TRUJILLO RODRIGUEZ & RICHARDS, LLC
258 Kings Highway East
Haddonfield, NJ 08033
- and Christopher A. Hoffman, Esq.
Douglas R. Sprong, Esq.
KOREIN TILLERY, LLC
One U.S. Bank Plaza
505 N. 7th Street, Ste. 3600
St. Louis, MO 63101
Counsel for Plaintiffs
Matthew V. Delduca, Esq.
William Gibson, Esq.
PEPPER HAMILTON LLP
Suite 400
301 Carnegie Center
Princeton, NJ 08543
Counsel for Defendant
SIMANDLE, Chief Judge:
I.
INTRODUCTION
This class action alleges that Defendant Arkema, Inc.
Retirement Benefits Plan (“Arkema Plan”), which is a defined
benefit pension plan, violates the Employee Retirement Income
Security Act (“ERISA”) because the Plan provides cost-of-living
adjustments (“COLAs”) to pensioners who receive monthly annuity
payments but excludes the equivalent value of the COLAs from lump
sum distributions to pensioners electing a one-time payment.
Before the Court are Plaintiffs’ motion for partial summary
judgment [Docket Item 26] and Defendant’s cross-motion for
summary judgment [Docket Item 32].
Two threshold questions concern the Court: (1) whether this
action is barred by the statute of limitations because the
language contained in the plan and accompanying documents clearly
repudiated Plaintiffs’ claim that the value of COLAs are included
in lump sum payments, and (2) whether it is appropriate to apply
non-mutual offensive collateral estoppel in this case (namely,
whether Defendant Arkema is in privity with the defendant in the
prior case and whether it would be unfair to Defendant to give
preclusive effect to the prior case decision). Because the Court
finds this action is not time-barred and because the requirements
for collateral estoppel have not been met, the Court will address
the merits of these motions.
On the merits, the Court must determine whether COLAs are
part of the “accrued benefit” under the Arkema Plan, within the
meaning of ERISA, at 29 U.S.C. §§ 1002(23)(A) & 1054(c)(3). The
2
Court finds, for the reasons discussed herein, that the plan’s
accrued benefit is the annual benefit commencing at normal
retirement age for annuitants. That benefit includes COLAs under
the terms of the Arkema Plan, and, under ERISA, where a defined
benefit plan chooses to offer a lump sum one-time distribution,
pensioners who opt for lump sums must be given the actuarial
equivalent of that benefit. In this case, that means lump sums
must include the actuarial equivalent of the COLAs that are
promised and provided to annuitants. Therefore, the Court will
grant Plaintiffs’ motion for partial summary judgment and deny
Defendant’s motion for summary judgment.
II. Background
A. Facts
The facts of this case are not in dispute. The Plaintiffs
and class members1 were employees of AtoHaas, a joint venture
between the Rohm & Haas Company (“R&H”) and Elf Atochem S.A. and
participated in the Rohm & Haas Pension Plan (“R&H Plan”), a
defined benefit pension plan. (Statement of Material Facts
(“SMF”) ¶¶ 1-2.)
1
On November 7, 2012, the Court certified, by consent, a
class pursuant to Fed. R. Civ. P. 23(b)(1)(A), (b)(1)(B) and
(b)(2). [Docket Item 25.] The class consists of: “All former
participants in the Rohm and Haas Pension Plan who have received
or are eligible to receive a lump sum distribution of their
pension from the Arkema, Inc. Retirement Benefits Plan.” Id.
According to the Arkema Plan, this class contains 236 members.
Id.
3
The R&H Plan offered pensioners two payment options: monthly
annuities (“the normal form of payment”) or a lump sum payment
that would be “the Actuarial Equivalent value of the
Participant’s Accrued Benefit” under the plan. (SMF ¶¶ 3-4; Pl.
Ex. A at ARKP_418-19).) The plan defines “Actuarial Equivalent”
as “a benefit of equivalent actuarial value to the benefit that
would otherwise have been provided to the Employee, determined on
the basis of appropriate actuarial assumptions and methods set
forth in Appendices A through D attached hereto.” (Pl. Ex. A. at
ARKP_383.) The plan defines “Accrued Benefit” as
the portion of the Participant’s Basic Amount of Normal
Retirement Pension, expressed in terms of a monthly
single life annuity beginning at or after his Normal
Retirement Date, that has accrued as of any
determination date in accordance with Article VII, plus
in the case of a Participant identified thereon, the
additional amount of monthly benefit specified on
Schedule G.
(Id.) Neither Article VII nor Schedule G discusses COLAs.
Instead, the R&H Plan contains a separate article on COLAs.
Article XV, § 15.1 states: “any Participant age 60 or older who
has retired from the Company, or any Contingent Annuitant or
Beneficiary of an eligible Participant (or a Participant who
would have been eligible except for age), who is receiving
monthly payments, shall be entitled to an annual Cost-of-Living
Adjustment as described below[.]” (Id. at ARKP_427) (emphasis
added). The plan adds that the first COLA is “payable to the
otherwise eligible Participant on the March 31st subsequent to
4
the year of retirement . . . .” (Id.) The plan then describes the
method of calculating COLAs. (Id. at ARKP_427-28.)
In 1994, AtoHaas employees received a Summary Plan
Description (“SPD”) explaining pension benefits.2 The SPD
suggests in at least three places that an employee who elects the
lump sum payment does not receive COLAs. On a page titled “HOW
BENEFITS ARE PAID,” in a section called “Lump Sum Payment
(Alternative Option),” the SPD explains: “Under this option, the
entire present value of your lifetime pension benefit is paid to
you in a single lump sum. Neither you, nor anyone else, will
receive any further benefits from the Pension Plan, including
cost-of-living increases.” (Declaration of William Gibson Ex. 1
[Docket Item 31-5] at ARK_370.) On a page entitled “COST-OFLIVING ADJUSTMENTS,” the SPD reiterates that “Cost-of-living
adjustments are a special feature of the Pension Plan” and “[y]ou
forego cost-of-living increases if you take a lump sum pension.”
(Id. at ARK_372.) The page also includes a section, “LUMP-SUM
PENSIONS,” which states that “[c]ost-of-living increases apply
only to monthly pension benefits. They are not available if you
2
Plaintiffs observe that there is no evidence in the
record that the class members received the 1994 SPD. (Pl. Opp’n
[Docket Item 36] at 13.) At oral argument, however, Plaintiffs’
counsel conceded that it would be a fair inference that class
members received the SPD because the employer was required to
issue it. The Court’s analysis does not turn on this fact, as we
assume the Plaintiffs received the 1994 SPD for purposes of these
cross-motions.
5
take your pension in a lump sum.” (Id.) At the same time, the SPD
states that “the equivalent lifetime value of your pension is the
same under all forms. But the monthly amount you receive varies
because some forms provide survivor benefits.” (Id. at ARK_370)
(emphasis added).
A series of corporate mergers and acquisitions resulted in
Arkema, Inc., assuming the obligations of the R&H Plan. On June
4, 1998, Elf Atochem purchased R&H’s interest in AtoHass and, in
exchange for $27.5 million from R&H, assumed all duties that the
R&H Plan owed to AtoHaas employees who transferred to Elf
Atochem. (SMF ¶¶ 5-6; see also Pl. Ex. B at ARKP_488-89 [“Master
Purchase and Sale Agreement” describing Elf Atochem’s assumption
of R&H Plan liabilities and obligations as part of the sale].)
Elf Atochem amended its pension plan (“Elf Atochem North America,
Inc. Retirement Benefits Plan” or “Elf Atochem Plan”) to include
language that mirrored the relevant provisions of the R&H Plan,
including the promise of COLAs for monthly annuities and the
option to take the pension in a lump sum. (SMF ¶¶ 6-8.) The Elf
Atochem Plan promised that the pension payout to employees would
be no less valuable than the pensions they would have received if
they remained in the R&H Plan. (SMF ¶ 9.)
At the same time, the Elf Atochem Plan also added Appendix
6
N, which addressed COLAs further.3 “The portion of an AtoHaas
Employee’s benefit attributable to his RandH Past Service Benefit
shall be increased as of March 31st of each year subsequent to
the later of such person’s retirement or attainment of age 60.”
(Pl. Ex. C at ARKP_293.) Section N.7 continues: “The cost of
living adjustments described above shall not apply, however, if
the AtoHaas Employee (or, if applicable, the AtoHaas Employee’s
surviving spouse), has elected to receive benefits in the form of
a single lump sum payment.” (Id.)
Two more rounds of mergers and corporate restructuring in
2000 and 2003 resulted in Elf Atochem being renamed TotalFinaElf,
and, later, Total, and Elf Atochem North America being renamed
ATOFINA, and, later, Arkema, Inc.4 (SMF ¶¶ 11-14.) The Elf
Atochem Plan was renamed the ATOFINA Plan, and, later, the
Arkema, Inc. Retirement Benefits Plan (“Arkema Plan”). (SMF ¶¶
12, 15.) In other words, the Defendant Arkema Plan at issue in
this case is the same as the Elf Atochem Plan, which originally
added provisions to mirror the R&H Plan as part of the 1998
buyout of R&H’s stake in AtoHaas. (Def. Br. at 8.) The Arkema
Plan assumed the obligations of the R&H Plan to former AtoHaas
3
Plaintiffs again argue that there is no record evidence
that the 1998 Elf Atochem Plan was provided to the Plaintiffs.
(Pl. Opp’n at 13.) Any dispute as to the fact of receipt of the
1998 Plan is not material to these motions.
4
In 2004, Total announced it was “spinning off” ATOFINA
and changed ATOFINA’s name to Arkema, Inc. (SMF ¶ 14.)
7
employees who retired after April 1, 2005,5 adopting the COLA
provisions of the R&H Plan and adding Appendix N. (SMF ¶ 16, 19.)
The lead Plaintiffs were participants in the Arkema Plan.
(SMF ¶ 15.) Shirley Lightfoot and Donald R. Hone were AtoHaas
employees and received their R&H Plan lump sum payments from
Arkema on November 1, 2009, and January 1, 2009, respectively.
(Compl. ¶¶ 1-2.)
B. Williams v. Rohm & Haas Pension Plan
In Williams v. Rohm & Haas Pension Plan, 497 F.3d 710, 711
(7th Cir. 2007), the plaintiffs, who were R&H employees who had
received their lump sum payments, alleged in a class action that
the R&H Plan “violated ERISA by failing to include a cost-ofliving adjustment (COLA) in his lump sum distribution from the
Plan. 29 U.S.C. § 1054(c)(3).” The Southern District of Indiana,
by the Honorable Sarah Evans Barker, deciding a motion for
summary judgment, held “that the terms of the Plan violated ERISA
because the COLA was an accrued benefit as ERISA defines that
term.” Id. Defendant R&H Pension Plan requested and received
permission to file an interlocutory appeal, which the Seventh
Circuit granted. (SMF ¶¶ 25-27.) The parties fully briefed the
issue and the court held oral argument. (Id. ¶ 28.) The Seventh
5
When Total restructured and renamed ATOFINA as Arkema, the
pension obligations of former R&H employees were divided among
the Arkema Plan and the Total pension plan, based on the date of
retirement. (SMF ¶ 16.)
8
Circuit affirmed the district court. Williams, 497 F.3d at 711.
The Seventh Circuit reasoned that “ERISA requires that any
lump-sum substitute for an accrued pension benefit be the
actuarial equivalent of that benefit” and that because COLAs are
“inseparably tied to the monthly retirement benefit” that COLAs
were part of the accrued benefit and not an ancillary or
supplementary benefit. Id. at 712-13 (quoting Hickey v. Chicago
Truck Drivers, 980 F.2d 465, 468 (7th Cir. 1992)). The Court
concluded:
Hickey held that a COLA applied to a defined benefit
pension plan annuity is an accrued benefit under ERISA,
and that holding is determinative in this case. The
Plan, as administered, violates ERISA. 29 U.S.C. §
1054(c)(3). If a defined benefit pension plan entitled
an annuitant to a COLA, it must also provide the COLA’s
actuarial equivalent to a participant who chooses
instead to receive his pension in the form of a onetime lump sum distribution.
Id. at 714.
R&H Plan sought, but the U.S. Supreme Court did not grant,
certiorari. Rohm & Hass Pension Plan v. Williams, 552 U.S. 1276
(2008). The Seventh Circuit remanded the case to the district
court for a determination of the value of the COLAs that were
denied to pensioners. (SMF ¶ 32.) Before the case was decided,
however, the parties settled for $180 million, and the district
court approved the settlement. (SMF ¶¶ 34-35.)
C. Procedural history
Ms. Lightfoot and Mr. Hone filed this action, individually
9
and on behalf of all others similarly situated on February 7,
2012. [Docket Item 1.] The Court entered a Consent Order on Class
Certification, which certified a class defined as follows under
Fed. R. Civ. P. 23(b)(1)(A), (b)(1)(B) and (b)(2): “All former
participants in the Rohm and Haas Pension Plan who have received
or are eligible to receive a lump sum distribution of their
pension from the Arkema Inc. Retirement Benefits Plan.” [Docket
Item 25 at 1.]
Plaintiffs filed this motion for partial summary judgment,
seeking a declaration that COLAs are part of the accrued benefit
as defined by the Arkema Plan and that the failure to include the
actuarial equivalent value of COLAs in lump sum distributions
violates ERISA. (Pl. Br. at 21.) Plaintiffs urge this result on
the merits and, alternatively, argue that such an outcome is
compelled by the doctrine of collateral estoppel, or issue
preclusion, based on the Williams decision involving the similar
provision of the Rohm & Haas Pension Plan in the Southern
District of Indiana, which was affirmed by the Seventh Circuit.
(Id. at 8.) Defendant opposes the motion and seeks summary
judgment, arguing that (1) the claims are time-barred, (2)
collateral estoppel does not apply and (3) COLAs are not “accrued
benefits” under the Arkema Plan. (Def. Br. at 3-4.)
The Court heard oral argument on these motions. At the
argument, the Court permitted Plaintiff to supplement the record
10
with a letter, marked by the Court as Exhibit P-1 [Docket Item
49-1], from a Towers Perrin consultant to ATOFINA, to show that,
as late as 2000, there was uncertainty about whether COLAs must
be added to lump-sum distributions. The Court granted Defendant
leave of seven days to respond to the exhibit, and Defendant
filed a letter response. [Docket Item 49.]
III.
Standard of review
A court shall grant summary judgment “if the movant shows
that there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.” Fed. R. Civ.
P. 56(a). A dispute is “genuine” if, based on the evidence in the
record, a reasonable jury could return a verdict for the
non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
248 (1986). A fact is “material” if it might affect the outcome
of the suit. Id. The court will view evidence in the light most
favorable to the non-moving party and “all justifiable inferences
are to be drawn in [that party’s] favor.” Hunt v. Cromartie, 526
U.S. 541, 552 (1999).
When ruling on cross-motions for summary judgment, the court
“must consider the motions independently . . . and view the
evidence on each motion in the light most favorable to the party
opposing the motion.” United States v. Kramer, 644 F. Supp. 2d
479, 488 (D.N.J. 2008) (citing Williams v. Philadelphia Housing
Auth., 834 F. Supp. 794, 797 (E.D. Pa. 1993), aff’d, 27 F.3d 560
11
(3d Cir. 1994), and Matsushita Elec. Indus. Co., Ltd. v. Zenith
Radio Corp., 475 U.S. 547, 587 (1986)).
IV.
Statute of limitations
ERISA contains a statute of limitations for claims alleging
a breach of fiduciary duty (either three or six years)6 but not
for non-fiduciary claims. See Miller v. Fortis Benefits Ins. Co.,
475 F.3d 516, 520 n.2 (3d Cir. 2007) (noting this distinction and
stating that, for non-fiduciary claims, courts apply the statute
of limitations that otherwise would apply to the forum-state
claim most analogous to the ERISA claim). In New Jersey, the
“statute of limitations applicable to a ‘recovery upon a
contractual claim or liability’ is six years.” Lavin v. Bd. of
Educ., 90 N.J. 145, 149 (1982) (quoting N.J. Stat. Ann. § 2A:141) (emphasis in original). The parties appear to agree that this
six-year statute of limitations applies in this non-fiduciary
case.
The remaining task is to determine when Plaintiffs’ claims
accrued. Defendant argues that the claims accrued as early as
1994 and no later than 1998, because the plan documents, along
with amendments and the 1994 SPD, clearly repudiated the notion
that COLAs apply to lump-sum payments. (Def. Br. at 27-28.)
Defendant argues that the Plaintiffs’ claims are now time-barred,
6
See 29 U.S.C. § 1113 (setting limitations periods for
fiduciary claims).
12
under Miller, 475 F.3d at 520-21, which held that a formal denial
of benefits was not necessary for claims to accrue.
Thus, the Court must decide whether the language of the plan
itself (possibly in conjunction with the 1994 SPD), without more,
can constitute a clear repudiation of the COLA benefit, for
statute of limitations purposes under ERISA.
Plaintiffs argue that, in this case, the language of the
plan cannot and should not be held to be a clear repudiation.
First, Plaintiffs deny that the plan documents clearly repudiate
that lump-sum payments exclude COLAs. (Pl. Opp’n at 12-13.)
Plaintiffs argue that the plan can be read to permit COLAs in
lump sum distributions because the plan denied only “cost-ofliving increases” to lump sum distributions. (Id. at 15)
(emphasis in original). Plaintiffs also contend that holding the
1994 SPD or the plan documents themselves to be clear
repudiations of COLAs would require plan participants to be
watchdogs over their plans, contravening the Third Circuit’s
holdings on the matter. (Pl. Opp’n at 22-24.) “The average plan
participant would literally know nothing of ERISA and what, if
any, parts of the R&H Plan were illegal.” (Pl. Opp’n at 23.)
Plaintiffs continue: “It is unrealistic and unfair for the Court
to hold that plan participants, often years before they must
decide on how they will take their pension, must hire an attorney
the moment they get an SPD or other document from the plan -- or
13
risk forfeiting the benefits ERISA entitles them to.” (Id.)
The accrual date of a non-fiduciary claim is a matter of
federal common law. Romero v. Allstate Corp., 404 F.3d 212, 222
(3d Cir. 2005). In this Circuit, the claim accrues when benefits
have been denied, but “a formal denial is not required if there
has already been a repudiation of the benefits by the fiduciary
which was clear and made known [to] the beneficiary.” Miller, 475
F.3d at 520-21 (emphasis in original).7 This clear repudiation
rule is a refinement of the federal discovery rule, which
provides that a claim accrues “when the plaintiff discovers, or
with due diligence should have discovered, the injury that forms
the basis for the claim.” Dix v. Total Petrochemicals USA, Inc.,
No. 10-3196, 2012 WL 6005011, at *9 (D.N.J. Nov. 30, 2012),
appeal docketed, No. 12-4585 (3d Cir. Dec. 28, 2012) (quoting
Romero, 404 F.3d at 222).
The Third Circuit has stated that ERISA does not require
“plan participants and beneficiaries likely unfamiliar with the
intricacies of pension plan formulas and the technical
requirements of ERISA, to become watchdogs over potential plan
errors and abuses.” Miller, 475 F.3d at 522 (quoting Romero, 404
F.3d at 224). At the same time, the Third Circuit “requires a
plan beneficiary to be vigilant and failure to investigate an
7
In Miller, the “cause of action to adjust benefits accrued
upon [plaintiff’s] initial receipt of the erroneously calculated
award.” Miller, 475 F.3d at 522.
14
erroneous benefit determination after receiving notice of a
plan’s calculation of benefits will not toll the statute of
limitations.” Dix, 2012 WL 6005011, at *10 (citing Miller, 475
F.3d at 523). The Third Circuit also has stated: “We do not
believe that the accrual date in this case should derive from a
bare assumption that benefit recipients are ill-equipped to
safeguard their rights. Indeed, we require beneficiaries to
safeguard those rights upon a denial of benefits, and this case
provides no compelling reason to require less diligence after an
award.” Miller, 475 F.3d at 523.
In Dix, this Court analyzed the R&H Plan language, the 1994
SPD and the 1998 Appendix N, and noted in dictum that the
language was “clear and is only susceptible to one reasonable
interpretation: If an employee elects to receive the Rohm & Haas
pension in the form of a lump sum, the employee foregoes
receiving COLAs.” Dix, 2012 WL 6005011, at *10. However, the
Court did not hold that receipt of the plan language and the SPD
was sufficiently clear to start the limitations clock. Instead,
the Court held that the claim accrued “at the latest, on November
14, 2003, when Plaintiff can be presumed to have received the
November 10, 2003 letter which notified Plaintiff of the final
calculation of his lump sum benefit.” Id. at *14.
Unlike in Dix, where the plaintiff received notice of the
final calculation of his benefit, here the record contains no
15
evidence that Plaintiffs received similar notifications. Thus,
for summary judgment on the statute of limitations to be entered
in Defendant’s favor, the Court must find that (1) the language
is a clear repudiation made known to the Plaintiffs, and (2)
requiring the Plaintiffs to safeguard their rights prior to any
notification, award or denial of their benefits does not demand
more than “reasonable diligence.” See Miller, 475 F.3d at 522
(“The beneficiary should exercise reasonable diligence to ensure
the accuracy of his award.”); Grasselino v. First Unum Life Ins.
Co., No. 08-635, 2008 WL 5416403, at *4 (D.N.J. Dec. 22, 2008)
(“The key inquiry is whether the plan participant had ‘reasonable
discovery of the actionable harm.’”) (quoting Miller, 475 F.3d at
222).
Even if the language in the plan and the SPD ultimately is
susceptible to only one meaning, that does not mean that the
language clearly repudiates claims for purposes of ERISA to
pensioners who may not be trained to parse such documents and who
may be unaware that close scrutiny is warranted. Here, the
relevant language of the plan is dense and scattered throughout
the document and, as Plaintiffs demonstrate, some sections
contain arguable ambiguity.8 An employee who reads in the SPD
8
Indeed, Exhibit P-1, submitted at oral argument, supports
the claim that, as of November 8, 2000, there was arguable
ambiguity in the COLA provisions of the document, at least as
applied to disabled employees. Cynthia King, FSA, a consultant
hired to examine the ATOFINA plan, reviewed the COLA provisions
16
that “the equivalent lifetime value of your pension is the same
in all forms,” [Docket Item 31-5 at ARK_370], as well as the
Plan’s language that the lump sum distribution shall be the
“actuarial equivalent” of the benefit the participant would have
received if he had not made the lump sum election, (Pl. Ex. C. at
ARKP_251), is hardly on notice that the lump sum choice will not
be as valuable as the monthly annuity choice. The Court is
unwilling to hold that in this case -- absent some other event or
notification that is roughly equivalent to an award or denial of
benefits -- that the statute of limitations started to run solely
because this arguably unclear and indisputably technical and
nuanced plan language existed in paper form and was delivered to
the class members.
The parties have not provided, and research does not reveal,
any decision in this Circuit that has held that ERISA claims
accrue when the plan is issued, based solely on the language
contained in the plan documents or SPDs.9 Such a ruling would
require a plan participant to be a clairvoyant watchdog of the
plan: to pour over the pension plan documents potentially years
and stated “there is no clear guidance for this provision so we
have proposed several options for your consideration . . . .”
(Pl. Ex. P-1.)
9
This is not a case where the plan documents at issue were
provided to employees for the purpose of altering the plan or
removing benefits that were known to employees and which
employees believed they were due.
17
before contemplating retirement in order to identify problems
with the plans that may be relevant to a future circumstance. The
average plan participant exercising reasonable diligence might
not discover the differences between a monthly annuity and a lump
sum until that question became relevant in his or her life,
perhaps decades after a plan document or an SPD was issued. It
would seem manifestly unfair to expect a plan participant, upon
merely receiving a copy of the plan during the course of his or
her employment, to examine the option of the normal annuity
benefit versus a lump sum payment when the participant would not
be called upon to make that election until years in the future at
the time of retirement. ERISA does not place this onus on plan
participants, and neither does the Third Circuit. See Miller, 475
F.3d at 522; Romero, 404 F.3d at 224. Without evidence that
Plaintiffs were put on notice as to their pension award prior to
distribution, the claims here accrued when Plaintiffs received
their awards, and the claims are not barred by the statute of
limitations.10
V.
Non-mutual offensive collateral estoppel
Collateral estoppel, or issue preclusion, “bars ‘successive
10
Defendant has not made the argument that class members
who may have received their lump sum payment after April 1, 2005,
but before February 7, 2006 -- six years prior to the filing of
this action -- are barred by the statute of limitations.
Therefore, such an argument is waived and the Court need not
consider it.
18
litigation of an issue of fact or law actually litigated and
resolved in a valid court determination essential to the prior
judgment . . . .’” Taylor v. Sturgell, 553 U.S. 880, 892 (2008).
The doctrine applies when (1) the issue actually litigated in the
prior adjudication was identical to the one presented in the
later action, (2) there was a final judgment on the merits and
the previous determination was necessary to the judgment, (3) the
party against whom the doctrine is asserted was a party or in
privity with a party to the prior adjudication, and (4) the party
against whom the doctrine is asserted had a full and fair
opportunity to litigate in the prior action. See Jean Alexander
Cosmetics, Inc. v. L’Oreal USA, Inc., 458 F.3d 244, 249 (3d Cir.
2006); Seborowski v. Pittsburgh Press Co., 188 F.3d 163, 169 (3d
Cir. 1999). Collateral estoppel applies even if the prior court
determined a question of federal law erroneously. Del. River Port
Auth. v. Fraternal Order of Police, 290 F.3d 567, 576 (3d Cir.
2002).
Where, as here, the plaintiff seeks to use collateral
estoppel offensively, the U.S. Supreme Court has directed
district courts to use “broad discretion to determine when it
should be applied.” Parklane Hosiery Co., Inc. v. Shore, 439 U.S.
322, 331 (1979)). In the Third Circuit, “the use of offensive
collateral estoppel is ‘subject to an overriding fairness
determination by the trial judge.’” Hall v. AT&T Mobility LLC,
19
608 F. Supp. 2d 592, 600 (D.N.J. 2009) (quoting Burlington N.
R.R. Co. v. Hyundai Merch. Marine Co., Ltd., 63 F.3d 1227, 1232
(3d Cir. 1995)).
Plaintiffs contend that the issue in this case -- whether
ERISA requires that the value of COLAs, which are promised to
annuitants, must be included in lump-sum distributions -- was
already decided Williams. The key inquiries for this Court are
(1) whether the issue is identical to the issue at Williams, (2)
whether Defendant is in privity with R&H, and (3) even if
collateral estoppel requirements are met, whether it would be
unfair to Defendant to apply estoppel.
A. Whether the issues are identical
Williams held that the R&H Plan violated ERISA by failing to
include the actuarial value of COLAs in lump sums, and Plaintiffs
assert that “[t]his case involves precisely the same issue.” (Pl.
Br. at 9.) Plaintiffs argue that because the Arkema Plan,
“pursuant to its contract with Rohm and Haas, incorporates the
benefit formula of the R&H Plan, including the COLAs” (id. at 910), and because the Williams court held that COLAs are part of
the “accrued benefits,” this Court should give preclusive effect
to Williams.
Defendant argues that “the issue here is not identical to
the issue in Williams due to events that were not germane to the
Rohm & Haas plan and its participants but that created and
20
reinforced the current parties’ reasonable expectations.” (Def.
Br. at 29 n.5.) One notable difference between the Elf Atochem
Plan (which became the Arkema Plan) and the R&H Plan is the
addition of Appendix N, which states that the portion of an
AtoHaas employee’s benefit attributable to his R&H benefit
increases on March 31 of each year (a COLA), but that “cost of
living adjustments described above shall not apply, however if
the AtoHaas Employee . . . has elected to receive benefits in the
form of a single sum lump payment.” (Pl. Ex. C. at ARKP_293.)
Appendix N.9 describes how to calculate “Actuarial Equivalence
for Lump Sum Payments.” (Id.) Appendix N.2 redefines “Accrued
Benefit” to be the greatest of three specified calculations. (Pl.
Ex. C. at ARKP_291.)
As explained below in Part VI.B, this case does not turn on
the Plan’s language denying COLAs to lump sum pensioners. The key
question is whether the actuarial equivalent of COLAs must be
added to lump sum distributions if COLAs are promised as part of
the annual benefit commencing at normal retirement age to
annuitants. This is precisely the issue that was decided in
Williams and none of the amendments to the plans disturbed the
promise of COLAs to annuitants. Therefore, the issue to be
decided here is identical to that in Williams.
B. Whether Defendant is in privity with R&H
Plaintiffs further argue that Defendant is in privity with
21
R&H because Defendant is “the successor in interest to the R&H
Plan.” (Pl. Br. at 11.) “Under any understanding of privity, the
Arkema Plan is in privity with the R&H Plan on the issue here
because: (a)the R&H Plan paid the Arkema Plan millions in trust
for the benefit of the Class, (b) the Arkema Plan contractually
assumed the duties of the R&H Plan to the Class, and (c) the
Arkema Plan incorporated the R&H Plan benefit formula into the
Arkema Plan for the benefit of the Class.” (Id. at 12.) In their
reply brief, Plaintiffs restate this point: “Arkema Plan’s duties
to plaintiffs under ERISA are dependent on ‘successive
relationships to the same right of property;’ namely, the trust
assets representing plaintiffs’ R&H pensions.” (Pl. Reply at 14.)
The Arkema Plan “took R&H Plan trust assets, incorporated the R&H
Plan’s terms, and assumed the R&H Plan’s obligations.” (Id. at
14-15.) Thus, Plaintiffs argue that they assert “the same legal
right” against Arkema that the Williams plaintiffs did in that
case. (Id. at 15.)
Defendant contests that it is in privity with R&H. Defendant
argues that preclusion should apply only “when a non-party
controls or directs the previous litigation” (Def. Br. at 30),
but this is a mischaracterization of the law.11 Defendant denies
11
The Supreme Court in Taylor stated that “a nonparty is
bound by a judgment if she ‘assume[d] control’ over the
litigation in which that judgment was rendered[,]” but that was
merely one of six exceptions to “the rule against nonparty
preclusion” and the list was “meant only to provide a framework
22
that it is a “successor in interest” to the R&H Plan and offers
instead that it is a “successor in obligation,” without
articulating the significance of the distinction. (Def. Br. at
31.) Defendant reiterates that even if it were a successor in
interest, it did not control the litigation and cannot be found
to be in privity with R&H. (Id.)
In Taylor, the Supreme Court identified several established
exceptions to “the rule against nonparty preclusion.” Taylor, 553
U.S. at 894; see also Nationwide Mut. Fire Ins. Co. v. George V.
Hamilton, Inc., 571 F.3d 299 (3d Cir. 2009) (analyzing the Taylor
exceptions). One exception provides that preclusion is justified
when there is a “pre-existing ‘substantive legal relationship[]’
between the person to be bound and a party to the judgment.
Qualifying relationships include, but are not limited to,
preceding and succeeding owners of property, bailee and bailor,
and assignee and assignor.”12 Taylor, 553 U.S. at 894 (citations
for our consideration of virtual representation, not to establish
a definitive taxonomy.” Taylor, 553 U.S. at 893. The Supreme
Court cited with approval 18A Charles A. Wright, et al., Federal
Practice & Procedure § 4448 (2d ed. 2002), which states that
“[i]n some circumstances, persons holding successive interests in
the same property or claim can preclude each other[,]” without
any discussion of control of the litigation. § 4448 (referencing
§ 4462). Control of the prior litigation may be grounds for
finding privity in some circumstances, but control is not a
necessary element of privity.
12
The Taylor court also stated that, in limited
circumstances, “a nonparty may be bound by a judgment because she
was ‘adequately represented by someone with the same interest who
[wa]s a party’ to the suit.” Id. However, the Taylor court
23
omitted).
Although a successor in interest may be bound by a prior
judgment in some circumstances, “[o]rdinarily a judgment is
binding on a nonparty who took by transfer from a party after
judgment or while suit was pending, but is not binding on a
nonparty who was involved in a transfer to or from a party prior
to institution of the action.” 18A Charles Alan Wright, et al.,
Federal Practice and Procedure § 4462 at 658 (2d ed. 2002)
(emphasis added) (citing Oklahoma v. Texas, 256 U.S. 70, 86
(1921), among others); Wright, Federal Practice and Procedure §
4448 at 329 (stating that “[i]n some circumstances, persons
holding successive interests in the same property or claim can
preclude each other” and referencing § 4462); United States v.
Schaeffer, 245 B.R. 407, 414 (D. Colo. 1999) (quoting § 4462 and
holding that a divorcing spouse is not bound by an earlier
holding in an adversary proceeding when the proceeding was filed
after the divorce was complete).
Here, the entity that became Arkema, Inc., and R&H parted
ways in 1998, six years before the Williams litigation commenced.
distinguished “adequately represented” from a more general
concept of “virtual representation,” stating that “representation
is ‘adequate’ for purposes of nonparty preclusion only if (at a
minimum)” special procedures protect the nonparties’ interests in
the prior litigation or there was “an understanding by the
concerned parties that the first suit was brought in a
representative capacity.” Id. at 894-897. Here, there is no
evidence of special procedures or an understanding between the
parties about bringing suit in a representative capacity.
24
Williams v. Rohm & Haas Pension Plan, No. 04-cv-0078, slip op. at
9 (S.D. Ind. Dec. 22, 2005), ECF No. 51 (“Williams filed the
instant lawsuit on April 2, 2004.”). The record contains no
evidence that the specter of the Williams litigation was visible
to Defendant or pending at the time of the 1998 buyout or that,
once litigation commenced, R&H was aware of the effects its
litigation would have on Plaintiffs or Defendant here. The
outcome urged by Plaintiffs would require a finding of privity
between parties based on a transfer of property that occurred six
years before litigation commenced. Although the Arkema Plan
incorporated language to mirror the R&H Plan, the Arkema Plan is
a document that does not necessarily depend on the interpretation
of R&H Plan for its own administration. Plaintiffs provide no
persuasive argument why Defendant should be bound by an
interpretation of the R&H Plan issued so many years after the
buyout, based only on the fact that Defendant made equivalent
promises to its employees. The Court can identify no
justification to abandon the general rule against nonparty
preclusion in this case.
The substantive legal relationship between R&H and the
entity that became Arkema did not contemplate an ongoing
representative relationship between R&H and Arkema. Indeed, R&H
paid millions of dollars to extinguish its obligations to the
employees now seeking relief from Arkema. There is no evidence in
25
the record of a legal relationship between R&H and Arkema that
would permit giving preclusive effect to litigation that
commenced six years after the transfer of assets. Williams
concerned neither the Arkema Plan nor these trust assets; the
litigation involved employees of a separate company seeking
distribution of funds held in separate accounts pursuant to
separate pension plans of unrelated corporations that are
administered separately. The legal agreement governing the
transfer of assets between R&H and the entity that became Arkema
forms no basis for a finding of privity under these
circumstances.
If ever courts are hesitant to apply collateral estoppel,13
caution should be exercised in a case like this, where neither
party was actually involved in the prior action and no
representative relationship was established with parties to
Williams, and where it is unlikely that Defendant could have
intervened in the prior action even if it had been aware of the
litigation and wanted to protect its own interests.14 Applying
13
See Wright, Federal Practice & Procedure § 4448 (stating
the general “rule that ordinarily nonparties are not bound” and
observing “[s]ome substantial justification must be found to
justify preclusion of a nonparty”); see also Jean Alexander
Cosmetics, 458 F.3d at 248 (“the application of non-mutual
offensive collateral estoppel presents a unique potential for
unfairness”).
14
The class certified in Williams included “[a]ll former
participants in the Rohm & Haas Pension Plan (the ‘Plan’) who
received a lump sum distribution from the Plan which did not take
26
estoppel here would seem unfair to Defendant in these
circumstances. The Court declines to apply non-mutual offensive
collateral estoppel where there is no good basis for doing so and
where the parties are not the same nor in privity with the
Williams parties. Thus, Williams, in deciding the same issue, is
precedent but is not preclusive upon Arkema. The Court will turn
to the merits of the case.
VI. Whether COLAs are accrued benefits under the Arkema Plan
On the merits, the primary question is whether COLAs are
incorporated into the definition of “accrued benefit” under the
Arkema Plan, within the meaning of ERISA.
A. Parties’ arguments
Plaintiffs argue the Arkema Plan violates ERISA, 29 U.S.C. §
1002 et seq., because
(1) in exchange for participants’ service, the Arkema
Plan included an automatic COLA as part of their normal
retirement benefit; (2) the COLA is an ‘accrued
benefit’ as defined by ERISA, 29 U.S.C. § 1002(23), and
the Internal Revenue Code, 26 U.S.C. § 411(a)(7); (3)
the Arkema Plan failed to include the actuarial
equivalent present value of the COLA in the class
members’ lump-sum distributions; and as a result, (4)
the class members forfeited a portion of their accrued
benefit and received less than the full present value
of their benefit in violation of ERISA and the
implementing Treasury Regulations.
into account a cost of living adjustment in calculating the lump
sum distribution.” Williams, No. 04-078, at 1 n.2. The class was
certified on October 22, 2004. Id. Participants in the Arkema
Plan, by definition, could not have “received a lump sum
distribution” prior to April 1, 2005.
27
(Pl. Br. at 14-15.) Plaintiffs argue that the Plan promised COLAs
as part of its benefit to annuitants, and ERISA requires
“alternate forms” of payment to be the “actuarial equivalent” of
that accrued benefit, citing 29 U.S.C. § 1054(c)(3) and 26 U.S.C.
§ 411(c)(3). (Id.) Plaintiffs add that the Arkema Plan itself
provides that lump sums “shall be the Actuarial Equivalent of the
benefit that the Participant would have received had he not made
such an election.” (Id. at 20) (citing Pl. Ex. C. at ARKP_251).
As additional support, Plaintiffs cite an IRS “Gray Book,”
which summarizes questions posed to the staff of the Treasury
Department and the IRS at a meeting on February 10, 1994. (Id. at
18; Pl. Ex. D.) The document itself warns, however, that “this
material does not represent the official position of the Treasury
Department or the Internal Revenue Service or of any other
governmental agency.” (Pl. Ex. D.) In response to a question
about COLAs and lump sums, staff members responded that “an
automatic cost-of-living provision is an integral part of the
participant’s accrued benefit and, therefore, must be taken into
account when determining amounts payable under optional forms of
benefit.” (Id. at 18; Pl. Ex. D.) An IRS Announcement from 1995
states that when a plan provides a COLA that is a function of the
Consumer Price Index (CPI), “a participant receiving a benefit in
the form of a single sum must receive projections of the CPI
increases (based on reasonable actuarial assumptions) as part of
28
a single sum . . . .” (Id.; Pl. Ex. E.)
Plaintiffs contend that “every court to consider the issue
has found that COLAs promised to annuitants are accrued benefits
and their actuarial value must be included in lump sums.” (Id. at
19) (citing Williams; Hickey, 980 F.2d at 470; Kohl v. Ass’n of
Trial Lawyers of Am., 183 F.R.D. 475, 483 (D. Md. 1998);
Laurenzano v. Blue Cross & Blue Shield of Mass., Inc. Ret. Income
Trust, 134 F. Supp. 2d 189, 200-01 (D. Mass. 2001); and Zebrowski
v. Evonik Degussa Corp. Admin. Comm., No. 10-542, 2012 WL 3962670
(E.D. Pa. Sept. 11, 2012)).
Defendant responds that, under ERISA, an “accrued benefit”
is “determined under the plan and, except as provided in section
1054(c)(3) of this title, [is] expressed in the form of an annual
benefit commencing at normal retirement age.” (Def. Br. at 13,
quoting 29 U.S.C. § 1002(23)(A).) In other words, the “statutory
definition of ‘accrued benefit’ incorporates the definition of
‘accrued benefit’ under the individual plan.” (Def. Br. at 1415.) Defendant contends that the definition of “accrued benefit”
in the Arkema Plan does not include COLAs, because the definition
of accrued benefit references calculations set forth in Article
VII and Schedule G, which make no mention of COLAs. (Id. at 17,
citing Pl. Ex. A at ARKP_383.) Defendant asserts that the lump
sum should be the actuarial equivalent of the monthly annuity
calculated under Article VII of the Arkema Plan, and the Plan is
29
clear that COLAs are not available to those who opt for lump
sums. (Id. at 17-18.)
Defendant further argues that Plaintiffs misinterpret ERISA
when they claim that § 1054(c)(3) defines any benefit paid
annually as part of the accrued benefit; to the contrary,
Defendant argues that the language of § 1054(c)(3) refers only to
the “accrued benefit,” which is defined under the plan. (Id. at
21.) COLAs are not an accrued benefit, Defendant argues, but
rather “a retirement-type subsidy,” and that the Plan is within
its rights to reserve that subsidy only for annuitants. (Id. at
22.) Defendant contends that a contrary holding would undermine
ERISA’s core principle that private plans, not the government,
dictate the level of benefits. (Id. at 23.)
Defendant distinguishes the cases Plaintiffs cite.15
Defendant argues that in three of the cases, the plan language at
issue was ambiguous as to COLAs or expressly included COLAs in
the plan’s definition of accrued benefits. In Kohl, the court
found that COLAs applied in the face of ambiguity of the plan
language, and language was construed against the drafter. (Id. at
16.) See Kohl, 183 F.R.D. at 480 (“The language in the Plan is
unclear as to whether a COLA applies to a lump sum payment or
not.”). In both Hickey and Laurenzano, Defendant suggests that
15
Defendant also argues that the IRS documents are
inapposite to “the situation here.” (Def. Br. at 21.)
30
the courts found that the COLAs were part of the accrued benefits
according to the express terms of the plans.16 (Id.) See Hickey,
980 F.2d at 466, 469-70 (“defendants amended the Plan to add a
COLA to all retirement benefits”). Defendant argues that the
Arkema Plan clearly excludes COLAs from lump sum payments, unlike
the plans in the cited cases. (Id. at 17.)
B. Discussion
The Court begins, as it must, by examining the relevant
statutory language. ERISA provides: “The term ‘accrued benefit’
means (A) in the case of a defined benefit plan, the individual’s
accrued benefit determined under the plan and, except as provided
in section 1054(c)(3) of this title, expressed in the form of an
annual benefit commencing at normal retirement age[.]” 29 U.S.C.
§ 1002(23). Section 1054(c)(3), in turn, provides that:
if an employee’s accrued benefit is to be determined as
an amount other than an annual benefit commencing at
normal retirement age, or if the accrued benefit
derived from contributions made by an employee is to be
determined with respect to a benefit other than an
annual benefit in the form of a single life annuity
(without ancillary benefits) commencing at normal
retirement age, the employee’s accrued benefit . . .
shall be the actuarial equivalent of such benefit or
amount determined under paragraph (1) or (2).
16
Defendant misreads Laurenzano. In that case, the Plan
expressly amended the plan to add COLAs to lump sum distributions
only after the plaintiff ceased employment. Laurenzano, 134 F.
Supp. 2d at 192. At all times during Laurenzano’s employment, the
plan provided for COLAs and the option of a lump sum distribution
but “excluded COLA payments from the calculation of the lump sum
distribution.” Id. at 192-93.
31
29 U.S.C. § 1054(c)(3)17; see also 26 U.S.C. § 411(c)(3) (same
language). In general terms, these provisions of ERISA and the
Internal Revenue Code require that the value of a lump sum
benefit must be the actuarial equivalent of the accrued benefit
determined under the plan for the same individual if received in
the form of an annual benefit, with certain exceptions not
relevant to this case. The IRS regulation on this point states
concisely that the “present value of any optional form of benefit
cannot be less than the present value of the normal retirement
benefit . . . .” Treasury Reg. 1.417(c)-1(d).
The U.S. Supreme Court has stated that ERISA was enacted not
to dictate retirement benefits but to ensure that, once promised,
pensions benefits will be distributed according to the
pensioners’ reasonable expectations. Cent. Laborers’ Pension Fund
v. Heinz, 541 U.S. 739, 743 (2004) (stating that the purpose of
ERISA is to “mak[e] sure that if a worker has been promised a
defined pension benefit upon retirement . . . he actually will
receive it,” quoting Lockheed Corp. v. Spink, 517 U.S. 882, 887
17
Section 1054(c)(1), referenced in the provision quoted
above, provides: “an employee’s accrued benefit derived from
employer contributions as of any applicable date is the excess
(if any) of the accrued benefit for such employee as of such
applicable date over the accrued benefit derived from
contributions made by such employee as of such date.” Section
1054(c)(2)(B), discussing defined benefit plans states in
relevant part: “the accrued benefit derived from contributions
made by an employee as of any applicable date is the amount equal
to the employee’s accumulated contributions expressed as an
annual benefit commencing at normal retirement age . . . .”
32
(1996)). As the Supreme Court recently reiterated, “ERISA’s
principal function” is “to ‘protect contractually defined
benefits.’” U.S. Airways, Inc. v. McCutchen, 133 S. Ct. 1537,
1548 (2013) (quoting Massachusetts Mut. Life Ins. Co. v. Russell,
473 U.S. 134, 148 (1985)). ERISA focuses on “what a plan
provides,” and the statutory scheme “‘is built around reliance on
the fact of written plan documents.’” Id. (quoting Curtiss-Wright
Corp. v. Schoonejongen, 514 U.S. 73, 83 (1995)). See also Alessi
v. Raybestos-Manhattan, Inc., 451 U.S. 504, 511 (1981) (“That the
private parties, not the Government, control the level of
benefits is clear from the statutory language defining
nonforfeitable rights as well as from other portions of ERISA.”)
However, accepting that ERISA protects plan-defined benefits
and that the accrued benefit is defined by the terms of the plan
leaves unanswered the question of where in the plan the Court
should look to determine the accrued benefit within the meaning
of ERISA and the Internal Revenue Code. Defendant would have the
Court look only to the section expressly labeled as the
definition of “accrued benefit” by the plan’s drafters.
Plaintiffs, by contrast, urge the Court to consider the plan as a
whole to see what an annuitant was promised and is entitled to
receive, as a consequence of the participant’s service, as an
annual benefit upon retirement and to deem that total benefit the
accrued benefit defined by the plan. According to Plaintiffs’
33
analysis, if the Arkema Plan promises COLAs to annuitants, and
COLAs are part of the benefit earned by employees and included in
the annual benefit paid to annuitants commencing at normal
retirement age, then ERISA requires that the actuarial equivalent
of that benefit -- COLAs and all -- be offered to those who
choose the lump sum distribution. Both parties’ definitions of
accrued benefit can be said to be “determined under the plan.” §
1054(c)(3). Thus, this determination turns on whether the plan
may dictate the accrued benefit by so labeling a particular
definition, or whether the accrued benefit is the annual benefit
promised to annuitants, including the promise of automatic COLAs.
Although not bound to enforce the judgment in Williams, the
Court is persuaded by the reasoning of the Seventh Circuit and
other courts which have taken a similar approach. These cases
compel the conclusion COLAs are part of the accrued benefit of
the Arkema Plan and the R&H Plan, because they are part of the
annual benefit commencing at normal retirement age. See Williams,
497 F.3d at 712-714. In Williams, the litigants made the same
arguments the parties do here: R&H urged the court to interpret
“accrued benefit” as expressly defined by the plan, and plaintiff
Williams argued that the “accrued benefit” “is that benefit a
participant would be entitled to if he chose to receive it in the
form of a single-life annuity.” Id. at 712-13. The Seventh
Circuit, following its previous decision in Hickey, 980 F.2d at
34
468, stated that “[t]he term ‘accrued benefit’ has a statutory
meaning, and the parties cannot change that meaning by simply
labeling certain benefits as ‘accrued benefits’ and others, such
as the COLA, as ‘supplementary benefits.’” Williams, 497 F.3d at
713. Both Hickey and Williams concluded that a COLA “applied to a
defined benefit pension plan annuity is an accrued benefit under
ERISA . . . .” Id. at 714 (citing Hickey).
It is no response, as Defendant advances, to argue that in
relying on Hickey, the Williams court “failed to acknowledge a
major and fundamental distinction between the facts and issue
presented in Hickey and Williams” -- and, by extension, this
case: “in Hickey, the COLA qualified as an accrued benefit under
the terms of the plan itself[.]” (Def. Opp’n at 18.) Defendant
maintains that the Williams court “was wrong when it determined
that it had already decided the same issue in Hickey” and that
Hickey is inapposite on its facts to this case. (Id. at 19.) But
in neither Seventh Circuit case did the court’s decision turn on
the language of the plans, except to the extent that in both
cases the plans promised COLAs to annuitants in annual benefits.
Both Hickey and Williams soundly concluded that if COLAs were
included as part of the annual benefit to annuitants, and if the
plan provides an option for a lump sum distribution, ERISA
required the actuarial equivalent value to be added to lump sum
distributions, regardless of whether the plans themselves
35
promised COLAs to lump sum pensioners.
By ruling in Williams that the accrued benefit was not
defined solely by what was so labeled in the R&H Plan, the
Seventh Circuit affirmed the analysis of the Southern District of
Indiana, which offered more support for the same conclusion. The
district court noted legislative history which informed the term
“accrued benefit” and supported a reading that a COLA is an
accrued benefit. Williams, No. 04-078, at 21. That history states
that an
“accrued benefit . . . is not to include such items as
the value of the right to receive benefits commencing
at an age before normal retirement age, or so-called
social security supplements which are commonly paid in
the case of early retirement age but then cease when
the retiree attains the age at which he becomes
entitled to receive social security benefits . . . .”
Williams, No. 04-078, at 21 (quoting H.R. Rep. No. 93-807, at 60
(1974)), reprinted in II Legislative History at 3180); see also
Hickey v. Chicago Truck Drivers, No. 88-8696, 1989 WL 86768, at
*1-*2 (N.D. Ill. June 7, 1989) (quoting this legislative history
and concluding that a “COLA is an accrued benefit: its primary
purpose is to provide retirement income, it commences only at
retirement, and it is not a benefit generally transferable to
succeeding employers”); Hickey, 980 F.2d at 468 (quoting the
district court’s discussion and conclusion with approval). The
Southern District of Indiana also cited a case from the Third
Circuit, Ashenbaugh v. Crucible Inc., 1975 Salaried Ret. Plan,
36
854 F.2d 1516, 1524 (3d Cir. 1988), for the proposition that the
term accrued benefit “refers to those normal retirement benefits
that an employee has earned at any given time during the course
of employment.” Williams, No. 04-078, at 18. See Ashenbaugh, 854
F.2d at 1524 (“an employee’s accrued benefit at any particular
point in time is what a fully vested employee would be entitled
to receive under the terms of the plan if employment ceased at
that particular point in time”). The court reasoned that “any
Plan definition of ‘accrued benefit’ depends on the ‘annual
benefit commencing at normal retirement age.’” Williams, No. 04078, at 26 (citing Laurenzano, 134 F. Supp. 2d at 200). The court
concluded that “if the COLA is part of the annuity (and it is),
then ERISA requires it to be included in the Class’s lump sum
distributions.” Id. at 28.
Other courts have reached similar conclusions. See, e.g.,
Laurenzano, 134 F. Supp. 2d at 191 (“If a defined benefit plan
normally provides retirement benefits in the form of a life
annuity that includes a cost-of-living adjustment (“COLA”), must
a lump sum distribution in lieu of the annuity include the
present value of the projected COLA payments? This Court holds
that it must.”); Shaw v. Int’l Ass’n of Machinists & Aerospace
Workers Pension Plan, 750 F.2d 1458, 1464-65 (9th Cir. 1985)
(holding that “living pension benefits” are accrued benefits).
Most recently, the Northern District of Oklahoma considered
37
whether a pension plan violated ERISA when it offered COLAs to
annuitants but not to those who took a lump sum. Pikas v.
Williams Cos., Inc., 903 F. Supp. 2d 1219, 1221 (N.D. Okla.
2012). The court adopted the reasoning of Hickey, Williams and
Laurenzano, and stated that “any annuitant at normal retirement
age will receive a set payment that will increase according to a
COLA throughout the annuitant’s lifetime. That is the accrued
benefit.” Id. at 1225. The court rejected arguments that the COLA
was an ancillary benefit or a retirement-type subsidy:
The COLA is not a supplemental benefit to some retirees
based on contingent circumstances that may occur before
normal retirement age, but continue after normal
retirement age. The COLA affects all annuitants based
on contingent circumstances and only occurs after
normal retirement age. The contingent nature of the
COLA amount is not enough to transform this accrued
benefit into a retirement-type subsidy. Additionally,
the COLA commences at normal retirement age even though
it does not change the annuity amount until the year
after retirement.
Id. at 1226 (citing 26 C.F.R. § 1.411(d)-3(g)(6).) The court held
that “[b]ecause the COLA is part of the statutorily-defined
accrued benefit -- and not a retirement-type subsidy -- ERISA
requires the COLA be accounted for in the lump sum payment.”
Id. at 1227.
No other interpretation would comply with § 1054(c)(3), §
1002(23) and Treasury Regulation 1.417(e)-1(d), which states that
the “present value of any optional form of benefit cannot be less
than the present value of the normal retirement benefit . . . .”
38
Adopting Defendant’s definition of accrued benefit would result
in lump sum distributions that are less than the actuarial
equivalent of the “annual benefit commencing at normal retirement
age” for annuitants, § 1002(23)(A), because the annual benefit
commencing at normal retirement age automatically includes COLAs.
Defendant’s definition also would permit drafters of pension
plans to thwart the dictates of Congress. See Laurenzano, 134 F.
Supp. 2d at 199 (“The problem with Blue Cross’s argument is that
it would permit the terminology found in a retirement plan to
defeat the intent of Congress.”) Therefore, the actuarial
equivalent of the COLAs must be added to lump sum distributions.
A contrary result would violate ERISA.
If the Arkema Plan, which adopted portions of the R&H Plan,
promises COLAs to annuitants, then the Arkema Plan violates ERISA
when it denies the actuarial equivalent of the COLAs to lump sum
pensioners. There is no dispute that these plans promise COLAs to
annuitants. Article XV of the R&H Plan promises that “any
participant age 60 or older who has retired from the Company, . .
. who is receiving monthly payments, shall be entitled to an
annual Cost-of-Living Adjustment . . . .” (Pl. Ex. A at ARKP_427)
(emphasis added). Appendix N of the Arkema Plan mandates that the
“portion of an AtoHaas Employee’s benefit attributable to his
RandH Past Service Benefit shall be increased as of March 31st of
each year subsequent to the later of such person’s retirement or
39
attainment of age 60.” (Pl. Ex. C. at ARKP_293) (emphasis added).
Defendant admits that the “R&H Plan promised the Class that when
they retired the monthly annuities to which they were entitled
would be adjusted every year to reflect changes in the cost-ofliving.” (SMF ¶ 3; Def. Resp. to Pl.’s Statement of Undisputed
Facts [Docket Item 31-6] ¶ 3.) There is no qualifying language in
the plans to suggest that COLAs may be denied to annuitants. The
plans also give pensioners the option to choose to receive the
benefit distributed in a lump sum, rather than as an annuity.
(Pl. Ex. A at ARKP_419; Pl. Ex. C at ARKP_293.) ERISA dictates
that the lump sum be “the actuarial equivalent” of the accrued
benefit. The Arkema Plan does, too: “Any alternate form of
benefit elected by the Participant shall be the Actuarial
Equivalent of the benefit that the Participant would have
received had he not made such an election.” (Pl. Ex. C. at
ARKP_251.) Therefore, Defendant violated ERISA when it did not
include the actuarial equivalent of COLAs in the lump sum
payments.
Defendant’s argument that COLAs are ancillary benefits or
retirement-type subsidies is unavailing. See Bellas v. CBS, Inc.,
221 F.3d 517, 532 (3d Cir. 2000) (“unpredictable contingent event
benefits that provide greater than the actuarially reduced normal
retirement benefit are retirement-type subsidies, and therefore
are accrued benefits under section 204(g), if the benefit
40
continues beyond normal retirement age”). The COLAs here are not
discretionary but are earned as a result of service. See
Williams, No. 04-978, at 23-24 n.9 (distinguishing
discretionarily granted benefits from accrued benefits). COLAs
under the Arkema Plan vest at retirement and are compounded
annually based on the cost of living but are not to exceed 3
percent. The plan as a whole guarantees this benefit to an
annuitant. That makes the COLAs part of the accrued benefit.
See Ashenbaugh, 854 F.2d at 1524 (stating that the accrued
benefit is what a fully vested employee would be entitled to
receive).18 To hold that COLAs are merely a subsidy would be to
say that pension benefits are “a mere gift promise, revocable at
the employer’s whim.” Laurenzano, 134 F. Supp. 2d at 201. Rather,
COLAs are “integral to the ‘annual benefit commencing at normal
retirement age -- the ‘accrued benefit.’” Id.; see also Williams,
497 F.3d at 713 (citing Hickey and legislative history to
distinguish accrued benefits from ancillary benefits and
concluding that COLAs are “inseparably tied to the monthly
18
Defendant argues that Ashenbaugh supports its argument
because the Third Circuit concluded that an early retirement
befit was a subsidy, not an accrued benefit, by looking at the
terms of the plan. (Def. Opp’n at 22.) However, the COLAs in this
case are different from the early retirement benefit in
Ashenbaugh because “a participant does not become entitled to any
benefit under the Thirty-Year Retirement provisions [the early
retirement benefit] until the specified conditions of those
provisions are met . . . .” Ashenbaugh, 854 F.2d at 1518. Here,
COLAs are automatic to annuitants.
41
retirement benefit as a means for maintaining the real value of
the benefit”); Pikas, 903 F. Supp. 2d at 1226 (“The COLA is not a
supplemental benefit”).
This Court’s previous decision in Dix is not inconsistent
with this result. Defendant suggests that the Court’s analysis of
the R&H Plan language in Dix compels the conclusion that COLAs
are not part of the accrued benefit. (Def. Opp’n at 9, 24,
quoting Dix, 2012 WL 6005011, at *10, *13.) The argument is
misplaced. First, the Court made no such holding in Dix. That
case turned on a statute of limitations defense, and the Court
held that the plaintiff’s claim accrued no later than the date on
which he was actually informed of the final determination of his
lump sum payment. Dix, 2012 WL 6005011, at *14. Second, the
Court’s analysis of the language of the plan was for the purpose
of determining when the plaintiff’s claim accrued, not whether
the language violated ERISA. In other words, in analyzing the
clarity of the plan’s rejection of COLAs to lump sum pensioners,
the Court considered whether the language itself should have put
the plaintiff on notice that he had a possible claim against the
plan. The Court did not so hold, and the Court certainly did not
hold that COLAs were not part of the accrued benefit within the
meaning of the ERISA statute. In fact, the Court’s analysis of
the plan’s rejection of COLAs to lump sum pensioners underscores
the disparate treatment of annuitants and other pensioners, which
42
is what ERISA expressly prohibits, as discussed above.
Therefore, partial summary judgment will be granted in favor
of Plaintiffs and Defendant’s motion for summary judgment will be
denied.
VII. Conclusion
This action is not barred by the statute of limitations and
collateral estoppel does not apply in this case. On the merits,
the Court holds that COLAs are part of the accrued benefit, as
defined by the Arkema Plan and within the meaning of ERISA, and,
when the plan offers the option of a lump sum distribution, the
actuarial equivalent value of COLAs must be included in lump sum
distributions. The Plan therefore violates ERISA because it fails
to provide to lump sum participants the actuarial equivalent of
the accrued benefit including COLAs to which monthly annuitants
are entitled under the Plan upon their retirement. Accordingly,
the Court will enter partial summary judgment for Plaintiffs and
deny summary judgment for Defendant. An accompanying Order will
be entered.
June 27, 2013
Date
s/ Jerome B. Simandle
JEROME B. SIMANDLE
Chief U.S. District Judge
43
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