In the

United States Court of Appeals

For the Seventh Circuit

No. 09-3637

GRANT M. WALKER, individually and on 

behalf of all others similarly situated, et al.,

Plaintiffs-Appellants,

v.

MONSANTO COMPANY PENSION PLAN, et al.,

Defendants-Appellees.

Appeal from the United States District Court

for the Southern District of Illinois.

No. 3:04 C 00436—J. Phil Gilbert, Judge.

ARGUED APRIL 20, 2010—DECIDED JULY 30, 2010

Before BAUER, FLAUM, and EVANS, Circuit Judges.

FLAUM, Circuit Judge. This is a class action lawsuit

challenging the manner in which certain credits accrue

in the Monsanto Company’s pension plan as inconsistent

with a provision of the Employee Retirement Income

Security Act (“ERISA”), 29 U.S.C. § 1054(b)(1)(H)(i),

which prohibits defined benefit plans from ceasing or

reducing an employee’s benefit accrual because of the
2 No. 09-3637

After the pension plan was restructured, Monsanto split into 1

three separate corporations: Pharmacia Corporation, Solutia Inc.,

and a newly-created Monsanto Company. The district court

certified three separate classes, one for each of the corporate

spin-offs. Because the plans remain identical in all relevant

respects, we do not distinguish among the plans or defendants,

and refer to the defendants collectively as “Monsanto.”

attainment of any age. Finding that the employees’ rate

of benefit accrual does not decrease because of age, we

affirm the district court’s grant of summary judgment

to the defendants.

I. Background

This case has its origins in a 1997 restructuring of

Monsanto Company’s pension plan. Monsanto converted 1

its classic defined benefit plan into a “cash balance

plan.” In a typical defined benefit plan, participants’

benefits are described as an annuity to be paid at regular

retirement age. Under a cash balance plan, each participant has a hypothetical account that represents the

value of his or her pension benefit as a lump sum (some,

but not all, plans give participants the option of taking

this lump sum at retirement rather than receiving

annuity payments). The account is hypothetical because

plan participants do not actually have individual accounts. Instead, all of the plan’s assets are held in trust

for all participants, and the employer is responsible for

ensuring that the assets are sufficient to pay the promised

benefits. ERISA treats cash balance plans as a type of

defined benefit plan.
No. 09-3637 3

As part of the 1997 conversion, Monsanto established two different cash balance accounts for each of its

employees. One account was intended to reflect only

new benefits earned after conversion. The second was

intended to preserve the age-65 benefits that employees

had already earned at the time of conversion. Only the

second account, called the “Prior Plan Account” or “PPA,”

is at issue in this case.

Prior to conversion, the Monsanto retirement plan

was not wholly standardized, meaning that the retirement options of individual employees varied. First, all

employees earned an age-65 retirement benefit, which

was expressed as a monthly annuity beginning at age 65.

For example, an employee who retired at age 55 might

be entitled to receive a $1,000 monthly annuity beginning

at age 65 until she died. Second, some of the prior plans

provided a discounted early retirement option to employees. These employees could begin receiving annuity

payments as early as age 55, although the payments

would be discounted by 3% for each year that the employee’s age was less than 65 to reflect the longer time

of payment. Finally, some of the prior plans provided for

a subsidized early retirement option. Eligible employees

could begin receiving their full age-65 benefit as early

as age 55, without taking a discounted monthly payment.

The new PPA accounts were designed to preserve

each employee’s age-65 accrued balances, while standardizing the early retirement options of Monsanto employees. First, the PPA extended to all employees the

right to begin receiving full age-65 payments as early
4 No. 09-3637

as age 55 (the most generous of the old early retirement

options). Second, the new plan gave all employees

the opportunity to begin receiving benefits even before

age 55. If an employee chose this option, his or her

benefit would be discounted by 8.5% per year for each

year the participant was younger than age 55. It is the

mechanism through which this discount was implemented that is at the center of this lawsuit.

To calculate the opening balance of each participant’s

PPA, Monsanto applied a conversion formula by which

the account was “credited with an amount equal to the

Actuarial Equivalent lump sum value of the Participant’s

Predecessor Plan Accrued Benefit . . . discounted using

an interest rate of eight and one-half percent per annum

for each month, if any, by which the Participant’s age as

of January 1, 1997 precedes age 55.” (Plan § 6.2(b)). In

other words, each employee’s benefit under the old

plan, which had been expressed as an annuity, would be

converted to a lump sum equivalent to the cost of that

annuity. That lump sum would then be discounted by

8.5% per year for each year younger than 55 the employee was at the time of conversion.

Once established, each individual’s PPA increases by

way of two monthly “credits”: “pay credits” and “interest

credits.” Pay credits, which are intended to reward employees for the length of their service, are equal to the

current PPA balance multiplied by the monthly equivalent of 4% per annum. Employees continue to receive

pay credits as long as they work for Monsanto, regardless

of age. Interest credits are equal to the current PPA
No. 09-3637 5

balance multiplied by the monthly equivalent of 8.5%

per annum. Interest credits cease once “the Participant

attains age 55.” (Plan § 6.2(d)).

In mid-1996, before the effective date of the plan conversion, Monsanto distributed literature to employees

to explain the new plan. These communications explained that the 8.5% discount applied to the initial

balance of employees younger than 55 and the corresponding 8.5% credits then applied until age 55. Each of

these communications described the 8.5% discount as

an early retirement benefit and the 8.5% interest credits

as necessary to restore the full previously accrued benefit

to employees.

On June 23, 2004, plaintiffs filed Walker v. Monsanto

Company Pension Plan, No. 04-436, in the Southern

District of Illinois. On September 1, 2006, the district

court entered an order consolidating the Walker action

with three related actions: Davis v. Solutia, Inc. Employees’

Pension Plan, No. 05-736 (filed October 12, 2005); Donaldson

v. Pharmacia Pension Plan, No. 06-3 (filed January 3, 2006);

and Hammond v. Solutia, Inc. Employees’ Pension Plan,

No. 06-139 (filed February 15, 2006). The consolidated

complaint alleges, among other things, that the substantively identical cash balance defined benefit plans violate ERISA’s prohibition on ceasing or reducing an employee’s benefit accrual because of the attainment of

any age.

On May 22, 2008, the district certified three identical

“Age 55 Cut-off claims.” On June 11, 2009, the district

court granted defendants’ motion for summary judgment
6 No. 09-3637

on the Age-55 Cut-off claims and denied plaintiffs’ crossmotion for summary judgment on those same claims.

After additional proceedings in which the plaintiffs

prevailed on an unrelated claim (not challenged on appeal), the district court entered final judgment disposing

of all claims with respect to all parties on September 29,

2009. Plaintiffs timely appealed.

II. Discussion

Plaintiffs’ argument is that the plan violates ERISA on its

face. First, they argue that the interest credits are part of

a participant’s “benefit accrual” because they are an

input credited by the employer to the participant’s

stated account balance. Second, they argue that the

express terms of the plan terminate this benefit when

a participant reaches age 55.

ERISA prohibits defined benefit plans from reducing

“an employee’s rate of benefit accrual . . . because of the

attainment of any age.” 29 U.S.C. § 1054(b)(1)(H)(i). As

an initial matter, then, we must address whether

interest credits, which are intended to reverse the 8.5%

per annum discount applied to employees’ opening

balances, constitute “benefit accrual.”

ERISA does not define the phrase, “benefit accrual.”

However, we have considered its meaning previously.

See Cooper v. IBM Personal Pension Plan, 457 F.3d 636 (7th

Cir. 2006). In Cooper, the defendant, IBM, ran a cash

balance pension plan that operated in a manner similar

to a defined contribution plan. Each employee received a

5% pay credit (based on the employee’s current salary)
No. 09-3637 7

and an interest credit (equal to 1% above the Treasury

rate multiplied by the account’s balance) each year.

Interest credits continued to accrue until retirement age,

whether or not the participant ceased working for the

company. At retirement, an employee could either take

the balance as cash or roll it over into an annuity. Id. at

637. The plaintiffs in Cooper alleged that this plan discriminated against older workers. Because a younger worker

would receive more years of interest before retirement,

a year of service at age 35 would increase an employee’s

total accrued benefit more than a year of service (at the

same salary) at age 55. We rejected the Cooper plaintiffs’

arguments, noting that it “treats the time value of money

as age discrimination.” Id. at 638. Instead, we held that

“benefit accrual” addresses “the rate at which value is

added (or imputed) to an account, rather than the annual

pension at retirement age.” Id. at 639. In reaching this

decision, we relied on the fact that IBM’s method of

crediting retirement accounts would certainly have been

permissible for a defined contribution plan. Id. at 638;

see also 29 U.S.C. § 1054(b)(2)(A) (requiring that, for

defined contribution plans, “allocations to the employee’s account are not ceased, and the rate at which

amounts are allocated to the employee’s account is not

reduced, because of the attainment of any age.”). Finally,

we noted that a draft Treasury regulation acknowledged that for cash balance plans that operated in a

manner similar to a defined contribution plan, “benefit

accrual” should be treated as “the additions to the participant’s hypothetical account for the plan year.” Cooper,

457 F.3d at 639; see also 67 Fed. Reg. 76,123, 76,125 (Dec. 11,

2002).
8 No. 09-3637

Plaintiffs argue that in Cooper, we adopted a bright-line

rule that any credit to a participant’s cash balance

account amounts to benefit accrual. Since the interest

credits here increase the stated cash balance, they argue,

they must be benefit accruals. Defendants, on the other

hand, argue that the interest credits cannot be benefit

accruals because they do not increase the total “accrued

benefit”—the amount of the annuity to which the employee is entitled at normal retirement age. See Cooper,

457 F.3d at 638; 29 U.S.C. § 1002(23)(A).

The disagreement stems from the flexible nature of

cash balance plans. The most common type of cash

balance plan operates in a manner similar to a defined

contribution plan, as did the plan at issue in Cooper. See also

Berger v. Xerox Corp. Retirement Income Guarantee Plan,

338 F.3d 755, 757 (7th Cir. 2003) (describing a cash balance

plan that “resembles” a defined contribution plan). For

these cash balance plans, which pay participants a

yearly interest rate on their plan balances, we must look

to “the additions to the participant’s hypothetical

account for the plan year” to avoid treating compound

interest as age discrimination. See Cooper, 457 F.3d at 639

(quoting 67 Fed. Reg. at 76,126). But plaintiffs point to

no requirement that a cash balance plan operate in this

way. The plan at issue in this case instead mimics a

defined benefit plan (likely because it was intended to

preserve the benefits already earned by employees under

Monsanto’s old defined benefit plan). Participants are

promised a certain benefit at retirement, which is described as a lump-sum cash balance. Because this is not

an “eligible cash balance plan,” see 67 Fed. Reg. at
No. 09-3637 9

76,125, the general mechanism for determining benefit

accrual applies—“the increase in the participant’s accrued

normal retirement for the benefit year.” Cooper, 457 F.3d at

639 (quoting 67 Fed. Reg. at 76,125). The draft Treasury

Regulation makes clear that this general method may

be used by all defined benefit plans (including cash

balance plans); it is only the method used in Cooper that

is limited to certain qualifying cash balance plans. 67 Fed.

Reg. at 76,125 (stating that the general rule “may be used

by all defined benefit plans” while the “second approach

may be used only by an eligible cash balance plan”).

One might wonder how these two mechanisms can

coexist. The reason is that while retirement plans are

prohibited from discriminating against older workers,

they are not prohibited from favoring them. Traditional

defined benefit plans and the cash balance plans that

mimic them treat younger workers less favorably than

older workers. These plans do not address the fact that an

employer will have to save more to pay out a particular

accrued retirement benefit for an older worker (who is

close to retirement, giving the employer less compound

interest on the savings) than to pay that same benefit to

a younger worker (who is further from retirement, allowing the employer to earn more compound interest on

the savings). See Cooper, 457 F.3d at 639 (noting that

traditional defined benefit plans favor older workers).

Imagine two workers who, for a given year, both earn an

identical increase in their monthly annuity at retirement. If

one worker is at retirement age, the employer will have

to set aside the full value of that annuity immediately.

But for a young worker, the present value of the annuity
10 No. 09-3637

Assuming that interest is compounded annually, the dis- 2

counted opening balance is arrived at by dividing the lump-sum

accrued benefit by 1.085 (one plus the interest rate) raised to

the fifth power (the number of years of discounting).

is significantly less, because setting aside a smaller

amount of money to earn interest for several years will

suffice to pay the benefit. Because a plan that increases

the accrued benefit at retirement equally for young and

old workers actually favors the older workers, treating

the “rate of benefit accrual” as “the increase in the participant’s accrued normal retirement benefit for the

year” will never mask age discrimination where it exists.

Looking at the rate of increase in the participant’s

accrued normal retirement benefit, it becomes clear that

the interest credits here are not benefit accruals. This is

because they never increase the accrued benefit at retirement. Imagine, for example, a 50-year-old employee

who accrued prior to conversion a retirement benefit

worth $1,000 per month at normal retirement age.

Further assume the value of this benefit as a lump sum

is $125,000. Under the new plan, the employee would be

entitled to collect this benefit at age 55. This $125,000

lump sum is discounted at the rate 8.5% for the five

years left before the worker reaches age 55. In 1997, at age

50, her account balance would be $83,131. But if she 2

retired at age 50 and waited to receive her benefits until

age 55, she would receive five years of interest on that
No. 09-3637 11

The value of the age 50 balance at age 55 is arrived at by 3

multiplying the discounted opening balance by 1.085 (one

plus the interest rate) raised to the fifth power (the number of

years remaining until she reaches age 55 and is eligible for

the full retirement benefit).

This hypothetical is a simplification, because it ignores the 4

4% annual “pay credit,” which continues to accrue as long as

the plan participant works for Monsanto. Plaintiffs argue that

even if the 8.5% interest credits would not otherwise be

benefit accruals, they become benefit accruals because they

also apply to the 4% pay credit. This argument fails as a

matter of mathematics. The 4% pay credit applies to balance

of the PPA account, which for workers under age 55, has

already been discounted at a rate of 8.5% per year. Applying

the 4% pay credit for each new year of service to the discounted cash balance is equivalent to applying the pay credit

for each new year of service to the accrued benefit and then

(continued...)

balance, resulting in a lump sum of $125,000. At age 51, 3

her account balance would increase by 8.5%, or $7,066, to

$90,197. But if she retired at age 51 and waited until

normal retirement age to collect her benefit, she would

receive four more years of interest credits, again

resulting in a balance of $125,000. And if she worked

beyond age 55, her accrued benefit would remain at

$125,000 (in the PPA account—remember that she would

continue to earn new benefits, but these are tracked in

a separate account). Viewed as the increase in her

accrued benefit at normal retirement age, the hypothetical

employee’s rate of benefit accrual is zero, both before

and after reaching age 55. The only time the value of the 4
12 No. 09-3637

(...continued) 4

discounting the accrued benefit to a cash balance. An example

may be helpful. If we include the pay credits, at age 51 our

hypothetical employee’s cash balance account will have increased to $93,805: $83,131 (the initial balance) plus $3,325

(the pay credit) plus $7,349 (the interest credit on the sum of the

initial balance and the pay credit). This results in an age-55

benefit of $130,000 ($93,805 times 1.085 to the fourth power).

Alternately, one could apply a 4% pay credit to the age-55

balance of $125,000. This equals an accrued benefit of $130,000;

discounted by the four years remaining until age 55, this

yields a cash balance of $93,805 ($130,000 divided by 1.085 to

the fourth power). Thus, at any time, the only increase in the

value of an employees’ cash balance or accrued benefit is

solely attributable to the 4% pay credits, which do not cease

upon reaching any age.

account at retirement would be different than $125,000

is if the employee began receiving payments before age

55—in other words, if she took advantage of the discounted early retirement option provided by Monsanto.

Plaintiffs’ argument, if adopted, would treat all discounted early retirement programs as violations of

§ 1054(b)(1)(H)(i).

In this respect, plaintiffs’ argument is quite similar to

the argument rejected by the Eighth Circuit in Atkins v.

Northwest Airlines, Inc., 967 F.2d 1197 (8th Cir. 1992). In

Atkins, the defendant airline’s retirement plan offered

a normal retirement benefit to pilots at age 60 and an

early retirement benefit that was discounted for pilots

younger than 60. Because of the discounting, the monthly
No. 09-3637 13

The perceived inequality was exacerbated in Atkins because 5

the airline also had a service cap of 25 years (which is permitted

under ERISA). A pilot who reached 25 years of service before age 60 would see his “benefit” increase each year until

he reached 60 as the early retirement discount phased out, but

a pilot who reached 25 years of service after 60 would see

no increase after the 25th year (because no early retirement

discount would apply to his payment).

benefit of pilots who did not take early retirement

would appear to increase each year that they postponed

receipt of their benefits (as each passing year meant one

less year of discounting for early payment); but at age 60,

the increases ceased, as the pilot was then entitled to the

full retirement benefit. The pilots argued that when the

5

airline ceased giving them increases to reverse the early

retirement discount, it had ceased their benefit accrual

on account of age and thereby violated 29 U.S.C.

§ 1054(b)(1)(H)(i). The Eight Circuit rejected this argument, noting that ERISA permits early retirement discounts and holding that because they do not affect the

pension payment a retiree receives at normal retirement

age, the reversal of early retirement discounts are not

“accrued benefits” under ERISA. 967 F.2d at 1201.

Plaintiffs’ attempts to distinguish Atkins are unavailing.

They argue that unlike Atkins, this case involves neither

a service cap nor an early retirement feature. They do not

explain why the presence of a service cap makes any

difference, and we see none. Their claim that the plan at

issue here does not include an early retirement benefit

is misleading. We have already explained why the mecha-
14 No. 09-3637

nism of discounting the opening cash balance of employees under age 55 and then crediting back that

discount until the employee reaches age 55 functions like

an early retirement discount, never changing the accrued

benefit at normal retirement age but reducing the benefit

if employees choose to receive payment early. Plaintiffs

object to the characterization of the 8.5% interest credits

as a reversal of the earlier 8.5% discounting; they dismiss it as “mathematically convenient” but unfounded because there is no cross-reference between Section 6.2(b)

of the plan, which discounts the opening balance, and

Section 6.2(d), which describes the interest credits. This

argument is spurious. Whether or not there is a crossreference, the concrete result of applying the two

formulas is that a participant’s accrued benefit never

changes. Moreover, it is undisputed that this mechanism

was described to employees as the way the discounted

early retirement feature was being implemented. The

only evidence plaintiffs cite in support of their claim

that the 8.5% interest credits were not part of a discounted early retirement option is an excerpt from a 2002

submission to the IRS in which Monsanto indicated that

there is no early retirement benefit formula in the plan.

This statement was correct—because the early retirement

discount was built into the opening balance of the PPA

accounts, there is no separate early retirement formula

in the plan. In any event, it is irrelevant to this appeal

whether the discount and subsequent credits are described as an early retirement discount or not. The applicable statute makes no mention of early retirement

discounts but rather asks whether a participant’s rate of
No. 09-3637 15

benefit accrual ceases or is reduced on account of reaching

a certain age. 29 U.S.C. § 1054(b)(1)(H)(i). Like the credits to reverse the early retirement discounts in Atkins,

the interest credits here have no impact on the accrued

benefit at normal retirement age and therefore have

no effect on an employee’s rate of benefit accrual.

Plaintiffs’ final argument is that the Monsanto plan

works an “impermissible forfeiture” by not extending the

interest credits to age 65. Citing IRS Notice 96-8 and

Revenue Ruling 2008-7, they argue that all cash balance

plans must add any “interest” through a plan’s normal

retirement age. See Rev. Rule 2008-7, 2008-7 I.R.B. 419, 2008

WL 274325 (“[I]n determining the accrued benefit of a

participant under a cash balance plan at any time prior

to normal retirement age, the balance in the cash balance

plan must be projected with interest credits to normal

retirement age.”); Notice 96-8, 1996-8 I.R.B. 23, 1996 WL

17901 (“Under a cash balance plan, the retirement

benefits payable at normal retirement age are determined

by reference to the hypothetical account balance as of

normal retirement age, including benefits attributable

to interest credits to that age.”) These regulations do not

help plaintiffs’ cause. The notice and revenue ruling

provide only that when a plan promises interest credits

prior to normal retirement age that are not conditioned

on future employment, then the plan must include the

value of the interest credits when converting an employee’s accrued benefit to an immediately payable lump

sum. See Cooper, 457 F.3d at 640 (Notice 96-8 requires that

“a plan must . . . add all the interest that would accrue

through age 65, then . . . discount the resulting sum to its
16 No. 09-3637

In particular, plaintiffs do not claim that the 8.5% early 6

retirement discount rate from age 55 works an impermissible

forfeiture by understating that present value of the participant’s accrued benefit at normal retirement age. Cf. Berger,

338 F.3d at 759 (“[Plaintiffs] contend that the amount they

received was not the actuarial equivalent of what they would

(continued...)

present value.”); see also Fry v. Exelon Corp. Cash Balance

Pension Plan, 571 F.3d 644, 645 (7th Cir. 2009) (in calculating lump-sum distributions, pension plans were

required to “start with the current balance and add any

contractually promised interest (or any other form of

guaranteed increase in benefits) through the employee’s

‘normal retirement age’ ” before discounting them to a

present value). These regulations follow from the

principle that a lump-sum substitute for an accrued

pension benefit must be the “actuarial equivalent” of that

benefit. See 29 U.S.C. § 1054(c)(3); Berger, 338 F.3d at 759.

Thus, promised future interest credits that increase the

accrued benefit must be included when calculating the

lump sum paid to someone who chooses to take their

benefit before regular retirement age. Id. at 760. We have

already explained that the interest credits here, unlike

those at issue in Berger, do not increase the accrued

benefit at normal retirement age. But plaintiffs’ argument

also fails at a more fundamental level. They are not

arguing that the plan forfeits retirement-age benefits

when a participant elects to take a lump-sum payment

early; rather, they seek to increase the retirement-age

benefit by requiring interest credits through age 65. But 6
No. 09-3637 17

(...continued) 6

have received either as an annuity or a lump sum had they

waited until age 65.”); see also 29 U.S.C. § 1053(f) (no impermissible forfeiture when the present value of the accrued

benefit is, under the terms of the plan, equal to the amount

expressed as the balance in the cash balance account).

7-30-10

the regulations do not prescribe what benefit a plan

must promise a participant at retirement age. They

only require that a participant receive the actuarial equivalent of that benefit if the participant takes a lump-sum

payment early. Notice 96-8 and Revenue Ruling 2008-7

are thus wholly irrelevant to plaintiffs’ claims.

III. Conclusion

We AFFIRM the district court’s grant of summary judgment to the defendants.