FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

DAVID HURLIC; SUSANNA H. 

SELESKY, individually and on

behalf of a class of all other

persons similarly situated, No. 06-55599

Plaintiffs-Appellants, D.C. No.  v. CV-05-05027-R

SOUTHERN CALIFORNIA GAS OPINION

COMPANY; SOUTHERN CALIFORNIA

GAS COMPANY PENSION PLAN,

Defendants-Appellees. 

Appeal from the United States District Court

for the Central District of California

Manuel L. Real, District Judge, Presiding

Argued and Submitted

February 15, 2008—Pasadena, California

Filed August 20, 2008

Before: Betty B. Fletcher, Daniel M. Friedman,* and

N. Randy Smith, Circuit Judges.

Opinion by Judge N. Randy Smith

*The Honorable Daniel M. Friedman, Senior United States Circuit

Judge for the Federal Circuit, sitting by designation. 

11089
COUNSEL

Jeffrey Lewis,Vincent Cheng, Lewis, Fenberg, Renaker &

Jackson, P.C., Oakland, California; James M. Finberg, Steven

M. Tindall, Leiff, Cabraser, Heimann & Bernstein, LLP, San

Francisco, California, for the plaintiffs-appellants. 

11092 HURLIC v. SOUTHERN CALIFORNIA GAS
Jeffrey R. Tone, Anne E. Rea, Chris K. Meyer, Sidley Austin

LLP, Chicago, Illinois; Mark E. Haddad, Michael C. Kelley,

Robert M. Stone, Sidley Austin LLP, Los Angeles, California,

for the defendants-appellees.

OPINION

N. RANDY SMITH, Circuit Judge: 

David Hurlic, Susanna Selesky, and others similarly situated (“Plaintiffs”)1

 appeal the district court’s dismissal of the

entirety of their lawsuit against Southern California Gas Company (“SCGC”) and the SCGC Pension Plan (“the Plan”).

Plaintiffs allege that SCGC’s 1998 amendment of the Plan

violated both the Employee Retirement Income Security Act

of 1974 (ERISA) and the California Fair Employment and

Housing Act (FEHA). We have jurisdiction pursuant to 28

U.S.C. § 1291. We affirm in part, reverse in part, and remand.

This appeal requires our court to consider, for the first time,

whether pension plans utilizing a so-called cash balance formula (“cash balance plans”) violate various provisions of

ERISA and FEHA. We join four of our sister circuits and hold

that cash balance plans do not violate 29 U.S.C.

§ 1054(b)(1)(H), an anti-age discrimination provision of

ERISA. We also hold that cash balance plans do not violate

29 U.S.C. § 1054(b)(1)(B), one of ERISA’s “antibackloading” provisions. We further hold that ERISA preempts Plaintiffs’ state law FEHA claim. Thus, we affirm the

district court’s dismissal of those claims. However, because

Plaintiffs’ complaint adequately alleged that SCGC and the

Plan violated ERISA’s notice requirement, we hold that the

district court erred by dismissing that claim. 

1This case has not been certified as a class action. 

HURLIC v. SOUTHERN CALIFORNIA GAS 11093
FACTUAL BACKGROUND

The Plan, an ERISA-governed pension benefit plan, provides participating SCGC employees with a defined benefit at

retirement according to a benefit accrual formula set forth in

the Plan. Prior to July 1, 1998, the Plan required participants’

retirement benefits to be calculated according to a “preconversion formula.” Under the pre-conversion formula, participants were entitled to a single-life annuity, payable

monthly, beginning at normal retirement age. The amount of

the annuity was based on participants’ average compensation

during the final years of their employment with SCGC, which

was then multiplied by a percentage that increased with years

of service. 

Effective July 1, 1998, SCGC amended the Plan. As a

result of the amendment, non-union employees’ benefits are

now calculated under a “cash balance formula.” The cash balance formula assigns each participant a “retirement account.”

Each retirement account is merely a bookkeeping entry used

to calculate a participant’s accrued benefit. The account exists

on paper but is hypothetical in the sense that no real money

is ever deposited into individual accounts. 

The initial balance of each participant’s retirement account

is the actuarial equivalent of the participant’s accrued benefit

under the Plan prior to the July 1, 1998 amendment. Thereafter, the cash balance formula credits, on a monthly basis, each

participant’s retirement account with “retirement credits.” The

annual total of a participant’s retirement credits equals 7.5

percent of his or her annual earnings. The cash balance formula also credits each participant’s retirement account with

interest credits, which are based on the 30-year U.S. Treasury

Bond rate. A participant’s retirement account continues to

accrue interest credits until normal retirement age regardless

of whether the participant continues to work for SCGC. 

Like the pre-conversion formula, a participant’s benefit

under the cash balance formula is paid in the form of a single11094 HURLIC v. SOUTHERN CALIFORNIA GAS
life annuity beginning at normal retirement age. The amount

of a participant’s annuity is based on the actuarial equivalent

of the participant’s retirement account balance at normal

retirement age. However, unlike the pre-conversion formula,

the cash balance formula allows participants to elect to

receive their accrued benefits in a single lump sum payment.

The Plan, as amended, also contained a five-year “grandfather” provision. The grandfather provision allowed eligible

participants to continue accruing benefits under the preconversion formula until June 30, 2003, at which time the participants’ accrued benefits under the pre-conversion formula

were frozen. During this five-year period, each participant’s

retirement account was also credited as normal under the cash

balance formula. A participant who began to receive benefit

distributions during this period was entitled to receive the

greater of: 1) the actuarial equivalent of the Retirement

Account under the terms of the Cash Balance Plan expressed

in the form of an annuity; or 2) an annuity accrued under the

Pre-Conversion Formula through the individual’s termination

date. 

If a participant did not begin receiving a payout of benefits

on or before June 30, 2003, the amount of his or her accrued

benefit is determined by a “wear-away provision.” The wearaway provision provides that a participant’s accrued benefit is

an age 65 single-life annuity equal to the greater of: 1) the

actuarial equivalent of his or her retirement account under the

cash balance formula; or 2) the actuarial equivalent of his or

her frozen accrued benefit under the pre-conversion formula.

Hurlic, who is 53 years old, has been an SCGC employee

since 1983 and is a Plan participant. Selesky, who is 56 years

old, has been an SCGC employee since 1977 and is also a

Plan participant. Both Hurlic and Selesky were eligible under

the Plan’s grandfather provision and continued accruing benefits under the pre-conversion Formula until June 30, 2003.

Under the wear-away provision, Hurlic’s estimated annuity

HURLIC v. SOUTHERN CALIFORNIA GAS 11095
payments based on his frozen pre-conversion formula benefits

will be greater than his estimated annuity payments based on

the cash balance formula until 2015. Selesky’s estimated

annuity payments based on her frozen pre-conversion formula

benefits will be greater until 2009. Thus, Hurlic and Selesky

will not accrue any additional benefits during these periods.

On July 8, 2005, Hurlic and Selesky filed suit against

SCGC and the Plan on behalf of all similarly situated individuals. Plaintiffs alleged that: 1) the Plan, as amended, discriminates on the basis of age in violation of ERISA

§ 204(b)(1)(H), 29 U.S.C. § 1054(b)(1)(H); 2) the Plan, as

amended, violates ERISA’s “anti-backloading” rules; 3) the

adoption and implementation of the wear-away provision of

the Plan amendment disproportionately affected SCGC

employees age 40 and older in violation of FEHA; and 4) the

Plan violated ERISA’s requirement that a pension plan may

not be amended as to cause a significant reduction in the rate

of benefit accrual unless advance notice of the effective date

is provided (the “notice claim”). 

On October 18, 2005, the district court, without opinion,

dismissed without leave to amend Plaintiffs’ age discrimination, anti-backloading, and FEHA claims for failure to state a

claim. The district court also dismissed Plaintiffs’ notice

claim for failure to state a claim, but granted Plaintiffs ten

days to amend their complaint. On October 25, 2005, Plaintiffs filed their first amended complaint. 

On January 25, 2006, the district court dismissed Plaintiffs’

amended notice claim for failure to state a claim and again

gave Plaintiffs ten days to further amend their complaint.

After Plaintiffs filed a second amended complaint, the district

court dismissed Plaintiffs’ notice claim for a third time, this

time without leave to amend. All three dismissal orders were

adopted as proposed by Defendants and did not include any

explanation of the basis for the decision. 

11096 HURLIC v. SOUTHERN CALIFORNIA GAS
STANDARD OF REVIEW

We review de novo a district court’s dismissal for failure

to state a claim pursuant to Federal Rule of Civil Procedure

12(b)(6). Stoner v. Santa Clara County Office of Educ., 502

F.3d 1116, 1120 (9th Cir. 2007). “All allegations of material

fact in the complaint are taken as true and construed in the

light most favorable to the plaintiff. Dismissal of the complaint is appropriate only if it appears beyond doubt that the

plaintiff can prove no set of facts in support of the claim

which would entitle him to relief.” Id. (quoting McGary v.

City of Portland, 386 F.3d 1259, 1261 (9th Cir. 2004)). 

ANALYSIS

I. Cash balance plans do not violate ERISA

§ 204(b)(1)(H)

We must decide for the first time whether cash balance

pension plans discriminate based on age in violation of

ERISA § 204(b)(1)(H), 29 U.S.C. § 1054(b)(1)(H). We join

the Second, Third, Sixth, and Seventh Circuits and hold that

they do not. See Hirt v. Equitable Ret. Plan for Employees,

Managers and Agents, ___ F.3d ___, 2008 WL 2669346 (2d

Cir. July 9, 2008); Register v. PNC Fin. Servs. Group, Inc.,

477 F.3d 56 (3d Cir. 2007); Drutis v. Rand McNally & Co.,

499 F.3d 608 (6th Cir. 2007); Cooper v. IBM Personal Pension Plan, 457 F.3d 636 (7th Cir. 2006). 

A. Cash balance plans are defined benefit plans

[1] ERISA provides for two types of pension plans —

defined contribution plans and defined benefit plans — each

governed by different rules. A defined contribution plan “provides for an individual account for each participant and for

benefits based solely upon the amount contributed to the participant’s account.” 29 U.S.C. § 1002(34). Typically, in a

defined contribution plan, the employer contributes a percentHURLIC v. SOUTHERN CALIFORNIA GAS 11097
age of payroll or profits to participants’ accounts and, at

retirement, a participant is entitled to whatever assets are dedicated to his or her individual account, subject to investment

gains and losses. See Hughes Aircraft Co. v. Jacobson, 525

U.S. 432, 439 (1999); Comm’r v. Keystone Consol. Indus.,

Inc., 508 U.S. 152, 154 (1993). A defined benefit plan is any

qualified pension plan that is not a defined contribution plan.

29 U.S.C. § 1002(35). A defined benefit plan “promises to

pay employees, upon retirement, a fixed benefit under a formula.” Pension Benefit Guar. Corp. v. LTV Corp., 496 U.S.

633, 637 n.1 (1990). A defined benefit plan “consists of a

general pool of assets rather than individual dedicated

accounts.” Hughes Aircraft, 525 U.S. at 439. The asset pool

may be funded by the employer, employee, or both, but “the

employer typically bears the entire investment risk and . . .

must cover any underfunding” that might occur as a result of

the plan’s investments. Id. 

[2] We recognize, and the parties agree, that despite superficial resemblance to defined contribution plans, cash balance

plans, including the Plan at issue here, are defined benefit

plans. See, e.g., Berger v. Xerox Corp. Ret. Income Guarantee

Plan, 338 F.3d 755, 757 (7th Cir. 2003); Campbell v. BankBoston, N.A., 327 F.3d 1, 4 (1st Cir. 2003); Esden v. Bank of

Boston, 229 F.3d 154, 158 (2d Cir. 2000); Lyons v. GeorgiaPacific Corp. Salaried Employees Ret. Plan, 221 F.3d 1235,

1237 (11th Cir. 2000) (all holding that cash balance plans are

defined benefit plans). Cash balance plans guarantee participants a defined benefit, determined by a formula, at retirement. The participants bear no risk that their accrued benefits

will decrease due to investment risk. Additionally, unlike

defined contribution plans, the “contributions” made to individual accounts under cash balance plans merely reflect bookkeeping entries that track the growth of the participants’

accrued benefits. Accordingly, cash balance plans must comply with ERISA rules governing defined benefit plans. 

11098 HURLIC v. SOUTHERN CALIFORNIA GAS
B. Cash balance plans do not reduce the rate of an

employee’s benefit accrual because of the

attainment of any age

[3] ERISA § 204(b)(1)(H)(i) prohibits a defined benefit

plan from ceasing an employee’s benefit accrual or reducing

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

attainment of any age.” 29 U.S.C. § 1054(b)(1)(H)(i). Plaintiffs argue that the Plan violates this provision because it guarantees interest credits regardless of continued employment

with SCGC. Thus, a younger participant who performs the

same job and earns the same salary as an older participant will

always have a greater accrued benefit at retirement age.2

Plaintiffs’ argument equates the phrase “rate of an employee’s benefit accrual,” as used in ERISA § 204(b)(1)(H)(i),

with the term “accrued benefit,” which is defined elsewhere

in ERISA. For defined benefit plans, ERISA defines a participant’s “accrued benefit” as “the individual’s accrued benefit

determined under the plan and . . . expressed in the form of

an annual benefit commencing at normal retirement age.” 29

U.S.C. § 1002(23)(A). Thus, Plaintiffs argue that ERISA

§ 204(b)(1)(H)(i) prohibits a plan from reducing a participant’s total accrued benefit because of the “attainment of any

age” rather than prohibiting only a reduction in the rate at

which the participant’s benefit accrues. We reject this argument for several reasons. 

2For example, consider the case of an 18 year-old employee and a 48

year-old employee who both perform the same job duties and earn the

same salary. Both work for SCGC for two years and then leave for other

jobs when they are 20 years old and 50 years old, respectively. Under the

Plan, both would have the same accrued benefit at the end of those two

years. However, assuming neither employee took an early lump-sum distribution, the 20 year-old would continue to compound interest for 45

years (until age 65), while the 50 year-old would compound interest for

only 15 years. 

HURLIC v. SOUTHERN CALIFORNIA GAS 11099
[4] First, it is a basic principle of statutory construction that

“[w]here Congress includes particular language in one section

of a statute but omits it in another section of the same Act, it

is generally presumed that Congress acts intentionally and

purposely in the disparate inclusion or exclusion.” Russello v.

United States, 464 U.S. 16, 23 (1983) (citation omitted). Congress defined the term “accrued benefit” in ERISA and used

it throughout ERISA § 204(b)(1). However, Congress omitted

the term “accrued benefit” in ERISA § 204(b)(1)(H)(i) and

replaced it with the phrase “rate of an employee’s benefit

accrual.” 29 U.S.C. § 1054(b)(1)(H)(i). Thus, we must presume that Congress intended to do so. The phrase “rate of an

employee’s benefit accrual” plainly refers to the rate at which

a participant’s benefits increase rather than the participant’s

total accrued benefit. Interpreting ERISA § 204(b)(1)(H)(i) in

another context, the Supreme Court has held likewise. See

Lockheed Corp. v. Spink, 517 U.S. 882, 897 (1996) (“A

reduction in total benefits due is not the same thing as a

reduction in the rate of benefit accrual; the former is the final

outcome of the calculation, whereas the latter is one of the

factors in the equation.”). 

Plaintiffs’ argument also equates the phrase “rate of an

employee’s benefit accrual” with the defined term “accrued

benefit,” because Congress used the words “benefit accrual”

in ERISA’s anti-age discrimination provision which pertains

to defined benefit plans, but did not use those words in the

anti-age discrimination provision which pertains to defined

contribution plans. Compare 29 U.S.C. § 1054(b)(1)(H)(i)

with 29 U.S.C. § 1054(b)(2)(A). Defined contribution plans

satisfy ERISA’s anti-age discrimination provision as long as

“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.” 29

U.S.C. § 1054(b)(2)(A). Plaintiffs do not, and could not, dispute the fact that the Plan would be non-discriminatory if it

was a defined contribution plan. However, given that defined

benefit plans and defined contribution plans are often gov11100 HURLIC v. SOUTHERN CALIFORNIA GAS
erned by different rules, Plaintiffs argue that something which

is non-discriminatory for a defined contribution plan must be

discriminatory for a defined benefit plan, merely because

Congress chose to word the rule for defined benefit plans to

describe prohibited conduct while wording the rule for

defined contribution plans to describe permissible conduct. 

This argument, however, ignores that defined benefit plans

are not always governed by different rules than are defined

contribution plans. The 1986 conference notes regarding

ERISA’s anti-age discrimination provisions strongly suggest

that Congress did not intend that different age discrimination

rules should apply for defined benefit plans and defined contribution plans. See H.R. Rep. No. 99-1012, at 378 (1986)

(Conf. Rep.), reprinted in 1986 U.S.C.C.A.N. 3868, 4023

(explaining that “benefit accruals or continued allocations to

an employee’s account under either a defined benefit plan or

a defined contribution plan may not be reduced or discontinued on account of the attainment of a specified age”). Additionally, both anti-age discrimination provisions explicitly

reference the “rate” at which employee’s benefits accrue.

Thus, nothing demonstrates that Congress intended a formula

that “is non-discriminatory when used in a definedcontribution plan” to “become unlawful because the account

balances are book entries rather than cash.” Cooper, 457 F.3d

at 638. 

Second, we agree with the Seventh Circuit that nothing

suggests that “Congress set out to legislate against the fact

that younger workers have (statistically) more time left before

retirement, and thus a greater opportunity to earn interest on

each year’s retirement savings.” Cooper, 457 F.3d at 639.

Plaintiffs’ argument ignores the realities of the time value of

money. Under a cash balance plan, younger workers have

more years in which to earn interest, but must wait longer

until their benefit is paid out. However, if a participant elects

to receive a payout before reaching age 65, the Plan must distribute the “actuarial equivalent” of the annuity that would be

HURLIC v. SOUTHERN CALIFORNIA GAS 11101
available at normal retirement age. Id. at 640 (citing 29

U.S.C. § 1054(c)(3)). This value is calculated by adding all

the interest that the participant would accrue through age 65

and discounting the resulting sum to its present value. Id. 

Time value of money can be best illustrated using the

example in footnote 2, above. Assume that in 15 years, when

the older worker has reached retirement age, the younger

worker decides to withdraw his benefits from the Plan. The

amount the younger worker receives will be calculated by

adding up all of the interest he would have earned had he

waited until he was 65 to retire and discounting it to present

value. Depending on the factor used to discount to present

value, he will receive substantially similar (or possibly less)

benefit than the older worker. Thus, although a younger worker’s total accrued benefit at retirement age will be greater

under the cash balance formula than an older worker’s if both

started working at the same time, the difference is due to the

time value of money rather than age discrimination. See id. at

639 (citing Hazen Paper Co. v. Biggins, 507 U.S. 604, 611

(1993) (holding that variables correlated with age must be

kept “analytically distinct” from age when searching for discrimination)). 

Finally, Plaintiffs’ argument would require us to ignore

Congress’s use of the word “attainment” in ERISA

§ 204(b)(1)(H)(i). The phrase “attainment of any age” means

the act of reaching a certain age. See Webster’s Third New

International Dictionary 140 (1993). The Plan’s cash balance

formula does not reduce an older worker’s accrued benefit

when he or she attains a certain age. Rather, the Plan sets a

lower ceiling for an older worker’s accrued benefit because he

or she has less time to earn interest than a similarly situated

younger worker. 

The statute’s legislative history makes clear that the word

“attainment” is important. As originally enacted, ERISA did

not require that a pension plan allow participants who worked

11102 HURLIC v. SOUTHERN CALIFORNIA GAS
beyond normal retirement age to continue earning benefits.

See H.R. Rep. No. 99-1012, at 378 (1986) (Conf. Rep.),

reprinted in 1986 U.S.C.C.A.N. 3868, 4023. In 1986, Congress enacted provisions to remedy that problem, explaining

that “benefit accruals or continued allocations to an employee’s account under either a defined benefit plan or a defined

contribution plan may not be reduced or discontinued on

account of the attainment of a specified age.” Id. (emphasis

added). 

This language clearly describes Congress’s intent to prohibit pension plans from reducing or ceasing benefits when a

participant reached age 65 or any other specified age. For

example, the Plan would clearly be in violation of ERISA

§ 204(b)(1)(H)(i) if it provided that when participants reached

age 50, they stopped receiving benefits or began accruing

benefits at a reduced rate. However, the Plan does no such

thing. It is not within our province “to read out of the statute

the requirement of its words.” Quarty v. United States, 170

F.3d 961, 973 (9th Cir. 1999) (citing Rand v. United States,

249 U.S. 503, 510 (1919)). 

Plaintiffs’ reading of the statute would allow every worker

who does not begin employment with SCGC at the minimum

employment age to bring an age discrimination claim.3 Alternatively, it would force all employers to scale interest rates in

3Under Plaintiffs’ logic, a 19 year-old participant would have a viable

claim for age discrimination because when he or she attained age 19, his

or her total accrued benefits are reduced in comparison with a similarly

situated 18 year-old participant. This argument makes little sense. Neither

the rate of benefit accrual nor the total accrued benefit of the 19 year-old

are actually reduced when he or she attains age 19. At that time, the 19

year-old’s rate of benefit accrual and total accrued benefit are equal to the

18 year-old’s. In fact, assuming that their salaries remain equal, both will

have the same rate of benefit accrual and total accrued benefit until the 19

year-old turns 65 and begins receiving a payout of benefits. The 18 yearold’s total accrued benefit will, over the course of the following year,

become larger because he or she will have to wait one more year to

receive benefits and interest will compound during that year. 

HURLIC v. SOUTHERN CALIFORNIA GAS 11103
a way that made the total benefit accrued equal for all

employees regardless of time remaining until retirement. For

example, Plaintiffs seem to believe that a 64 year-old participant should earn as much interest in one year as an 18 yearold does in 47 years. This reading of the statute completely

ignores the time value of money. Thus, not only does Plaintiffs’ interpretation of ERISA § 204(b)(1)(H)(i) read out

important words, it would also lead to absurd results. See Arizona State Bd. for Charter Sch. v. U.S. Dept. of Educ., 464

F.3d 1003, 1008 (9th Cir. 2006) (noting that “well-accepted

rules of statutory construction caution us that ‘statutory interpretations which would produce absurd results are to be

avoided’ ” (citation omitted)). 

[5] Under the Plan, a younger participant and older participant earning the same salary will both receive the same retirement credit and interest credit to their bookkeeping account

every year. Thus, their benefits will accrue at an equal rate.

The only difference is that, based on the time value of money,

a younger participant’s total accrued benefit at retirement will

be greater because the younger participant has more time

before retirement in which interest will compound. Because

the Plan does not reduce a participant’s rate of benefit accrual

due to the attainment of any age, the Plan does not violate

ERISA § 204(b)(1)(H)(i). Plaintiffs cannot prove any set of

facts on which they would be entitled to relief. Thus, the district court correctly dismissed Plaintiffs’ claim. See Stoner,

502 F.3d at 1120. 

II. Cash balance plans do not violate 29 U.S.C.

§ 1054(b)(1)(B) 

[6] Plaintiffs also argue that the district court erred by dismissing their claim that the Plan violates ERISA’s “antibackloading” provisions. ERISA includes three “antibackloading” provisions: the three percent rule, the 133-1/3

percent rule, and the fractional rule. 29 U.S.C.

§ 1054(b)(1)(A)-(C). All three are intended to prevent plans

11104 HURLIC v. SOUTHERN CALIFORNIA GAS
from “providing inordinately low rates of accrual in the

employee’s early years of service when he is most likely to

leave the firm and . . . concentrating the accrual of benefits in

the employee’s later years of service when he is most likely

to remain with the firm until retirement.” H.R. Rep. No. 93-

807 (1974), reprinted in 1974 U.S.C.C.A.N. 4670, 4688. A

plan need only comply with one of the “anti-backloading”

provisions. 29 U.S.C. § 1054(b)(1)(A)-(C). 

Plaintiffs argue that the Plan violates the 133-1/3 percent

rule, which provides that benefits accrued in any one year

may not exceed 133-1/3 percent of the benefit accrued in any

prior year.4 29 U.S.C. § 1054(b)(1)(B). Plaintiffs argue that

they will not accrue any additional benefits until the year in

which their cash balance formula benefits exceed their frozen

pre-conversion formula benefits. Thus, during the wear-away

period, Plaintiffs contend that they will accrue benefits at a

rate of zero percent. According to Plaintiffs’ theory, the benefits they accrue in the year in which their cash balance formula benefits become greater than their frozen pre-conversion

formula benefits will thus, by definition, exceed 133-1/3 percent of the benefits they accrued during the wear-away period.

Plaintiffs’ argument is premised on the idea that Treasury

Regulation section 1.411(b)-1(a) requires that we use two different formulas when applying the 133-1/3 percent rule: the

pre-conversion formula while their frozen benefits are greater

and the cash balance formula once their cash balance account

exceeds their frozen benefits. Treasury Regulation section

1.411(b)-1(a) states: 

4Plaintiffs assert that the Plan violates ERISA if it does not comply with

the 133-1/3 percent rule because the other two anti-backloading provisions

do not apply to cash balance plans. Although SCGC and the Plan challenge this assertion, we need not address either the three percent rule or

the fractional rule because we hold that the Plan satisfies the 133-1/3 percent rule. 

HURLIC v. SOUTHERN CALIFORNIA GAS 11105
A defined benefit plan may provide that accrued

benefits for participants are determined under more

than one plan formula. In such a case, the accrued

benefits under all such formulas must be aggregated

in order to determine whether or not the accrued

benefits under the plan for participants satisfy one of

the alternative methods. 

26 C.F.R. § 1.411(b)-1(a)(1).5

In Register, the Third Circuit addressed this argument and

held that a similar plan did not violate the 133-1/3 percent

rule. 477 F.3d at 70-72. The Register court reasoned that

because of the “plan amendment provision” to the 133-1/3

percent rule, the plan did not, in fact, determine participants’

benefits under more than one formula. Id. at 72. The “plan

amendment provision” to the 133-1/3 percent rule provides

that “any amendment to the plan which is in effect for the current year shall be treated as in effect for all other plan years.”

29 U.S.C. § 1054(b)(1)(B)(i). “Thus, once there is an amendment to the prior plan, only the new plan formula is relevant

when ascertaining if the plan satisfies the [133-1/3 percent

rule].” Register, 477 F.3d at 72. 

As in Register, if the Plan’s cash balance formula had been

in effect for all other Plan years, Plaintiffs “never would have

accrued a benefit under the old plan and would have started

to accrue benefits under the cash balance formula from the

beginning of their employment.” Id. Plaintiffs would always

have had an annual accrual rate equal to 7.5 percent of their

salary plus their interest credit. Thus, the Plan would not violate the 133-1/3 percent rule. 

But the Plan differs from the pension plan at issue in Regis5Although the Treasury Regulation was adopted under the Internal Revenue Code § 411, 26 U.S.C. § 411, it applies equally to the parallel

requirements of 29 U.S.C. § 1054. See 29 U.S.C. § 1202(c). 

11106 HURLIC v. SOUTHERN CALIFORNIA GAS
ter in that, after SCGC amended the Plan, the Plan’s grandfather provision allowed employees pre-conversion benefits to

increase for five years before they were frozen. The pension

plan in Register froze employees’ pre-conversion benefits as

of the date of amendment. Id. at 60. However, this distinction

does not change the result. To the extent that the Internal Revenue Service’s (“IRS”) Revenue Ruling 2008-7 suggests otherwise, we find its reasoning unpersuasive and decline to

defer to the IRS’s interpretation of the 133-1/3 percent rule.

See Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944) (holding that the weight afforded to an administrative agency’s

interpretation of a statute contained in an informal rulemaking depends on “all those factors which give it power to

persuade,” including “the validity of its reasoning”); Omohundro v. United States, 300 F.3d 1065, 1067-68 (9th Cir. 2002)

(applying Skidmore deference to a Revenue Ruling); see generally McDaniel v. Chevron Corp., 203 F.3d 1099, 1112 (9th

Cir. 2000) (“Though revenue rulings do not have the force of

law, they do constitute a body of experience and informed

judgment to which we may look for guidance.”). 

In Revenue Ruling 2008-7, the IRS applied provisions of

the Internal Revenue Code which parallel ERISA’s “antibackloading” provisions to a pension plan which had converted to a cash balance formula. Rev. Rul. 08-7, 2008-7

I.R.B. 419. The IRS recognized that, due to the “plan amendment provision” of the 133-1/3 percent rule, such plans do not

violate the 133-1/3 percent rule if, like in Register, a participant’s pre-conversion benefits are frozen as of the date of the

plan amendment. Id. However, the IRS indicated that a plan

would violate the 133-1/3 percent rule if it allowed participants to continue to accrue benefits under a pre-conversion

formula for a period of time before they became frozen. The

IRS’s discussion of this issue provided little in the way of reasoning. The IRS relied heavily on an example which seems to

suggest that the IRS believes that the aggregation rule of

Treasury Regulation section 1.411(b)-1(a) trumps the “plan

amendment provision” and requires aggregation of the two

HURLIC v. SOUTHERN CALIFORNIA GAS 11107
formulas whenever a plan contains a grandfather provision

like the one at issue here.6

[7] We disagree. The fact that the Plan allowed eligible participants’ pre-conversion formula benefits to accrue until June

30, 2003 before becoming frozen rather than simply freezing

them on July 1, 1998 (when SCGC amended the Plan) does

not implicate Treasury Regulation section 1.411(b)-1(a).

Quite simply, the Plan, as amended, does not determine a participant’s benefits by aggregating two formulas. The sections

of the Plan entitled “Reservation of Prior Plan Accrued Benefit” and “Grandfather Benefit Amount” both refer to a participant’s accrued benefit under the “Prior Plan.” Because

Congress has directed us to treat the amended plan as if it was

in effect for all other plan years, 29 U.S.C. § 1054(b)(1)(B)(i),

we must assume that, for purposes of applying the 133-1/3

percent rule, there was never a prior plan under which Plaintiffs accrued benefits. 

This analysis does not change merely because SCGC

included a beneficial grandfather provision in the Plan rather

than simply freezing all participants’ pre-conversion benefits

on July 1, 1998, as it clearly could have. The only difference

is that SCGC allowed eligible participants’ pre-conversion

formula benefits to increase before they were frozen. It would

be an odd result indeed to allow a pension plan which converts to a cash balance formula to freeze pre-conversion benefits immediately but forbid a plan from providing for a grace

period in which participants can continue to accrue additional

benefits before they are frozen.7

6The IRS does, however, ultimately conclude that a plan such as the one

at issue here may not violate ERISA’s “anti-backloading” provisions provided that the plan can show that it satisfies the fractional rule for each

participant. Rev. Rul. 08-7, 2008-7 I.R.B. 419. 

7Our conclusion is further supported by the Treasury Department’s proposed amendments to the regulation which would clarify that “a plan that

determines a participant’s accrued benefit as the greatest of the benefits

11108 HURLIC v. SOUTHERN CALIFORNIA GAS
[8] Additionally, we note that neither the Plan’s conversion

to the cash balance formula nor its grandfather provision conflict with the objective of ERISA’s “anti-backloading” provisions, which is “to prevent a plan from being unfairly

weighted against shorter-term employees.” Register, 477 F.3d

at 72 (internal quotation marks omitted). Because the Plan satisfies the 133-1/3 percent rule, Plaintiffs can prove no set of

facts on which they would be entitled to relief on their claim

that the Plan violates ERISA’s “anti-backloading” provisions.

Accordingly, the district court correctly dismissed this claim.

See Stoner, 502 F.3d at 1120. 

III. ERISA preempts Plaintiffs’ FEHA claim

[9] SCGC argues that ERISA preempts Plaintiffs’ state law

FEHA claim for age discrimination. ERISA § 514(a) contains

a broad preemption provision stating that ERISA:

shall supercede any and all State laws insofar as they

may now or hereafter relate to any employee benefit

plan described in section 1003(a) of this title and not

exempt under section 1003(b) of this title 

29 U.S.C. § 1144(a). Plaintiffs concede that their FEHA claim

“relates” to an employee benefit plan and thus falls within

ERISA’s general preemption provision. Nevertheless, Plaintiffs argue that their FEHA claim is saved from preemption by

ERISA § 514(d), which provides that ERISA’s general preemption provision shall not “be construed to alter, amend,

modify, invalidate, impair, or supersede any law of the United

States.” 29 U.S.C. § 1144(d). Specifically, Plaintiffs argue

determined under two or more separate formulas is permitted . . . to demonstrate satisfaction [of the anti-backloading rule] by demonstrating that

each separate formula satisfies” the anti-backloading requirement. 73 Fed.

Reg. 34665, 34669 (June 18, 2008). Thus, under the amended regulations,

aggregation will not be required in cases such as this one. 

HURLIC v. SOUTHERN CALIFORNIA GAS 11109
that the joint state/federal enforcement scheme of the Age

Discrimination in Employment Act (“ADEA”) would be

impaired if we were to hold that ERISA preempts their FEHA

claim. 

In Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 101-06

(1983), the Supreme Court addressed whether ERISA

§ 514(d) saved from preemption a state anti-discrimination

law which “relate[d] to an employee benefit plan” under

ERISA § 514(a). Specifically, the Court considered the appellants’ argument that preemption of the state law would impair

the joint state/federal enforcement scheme of Title VII. Id. 

[10] The Court recognized that Title VII provides for a

comprehensive joint state/federal enforcement scheme

wherein both states and the federal government enact valid

anti-discrimination laws and work together to enforce them.

Id. at 101-02. Given this interplay, the Court held that preemption of a state anti-discrimination law would “impair Title

VII to the extent that the [state law] provides a means of

enforcing Title VII’s commands.” Id. at 102. Thus, the Court

held that, as long as the state anti-discrimination law does not

prohibit something that Title VII allows, preempting the state

law would “frustrate the goal of encouraging joint state/

federal enforcement of Title VII” and thus “impair” federal

law. Id. In so holding, the Court expressed concern that, if

ERISA were interpreted to entirely preempt state antidiscrimination laws as they relate to employee benefit plans,

states would be unable to prohibit or grant relief for discrimination in ERISA plans and thus “an employee’s only remedies for discrimination prohibited by Title VII in ERISA plans

would be federal ones.” Id. 

[11] The Court also noted that Title VII “does not itself

prevent States from extending their nondiscrimination laws to

areas not covered by Title VII.” Id. However, enforcement of

Title VII does not depend on such extensions of state law.

“Title VII would prohibit precisely the same employment

11110 HURLIC v. SOUTHERN CALIFORNIA GAS
practices, and be enforced in precisely the same manner, even

if no State made additional employment practices unlawful.”

Id. Thus, the Court held that “[i]nsofar as state laws prohibit

employment practices that are lawful under Title VII, . . . preemption would not impair Title VII within the meaning of

§ 514(d).” Id. at 103. 

[12] The ADEA provides for a joint state/federal enforcement scheme that is nearly identical to that provided in Title

VII. Compare 29 U.S.C. § 633(b) with 42 U.S.C. § 2000e5(c). However, FEHA does not merely parallel the ADEA, as

Plaintiffs allege. It is true that both statutes contain broad prohibitions against age discrimination. Compare 29 U.S.C.

§ 623(a) with Cal. Gov’t Code §§ 12940, 12941. But unlike

FEHA, the ADEA contains specific provisions relating to

pension plans. See 29 U.S.C. § 623(i). One of these, ADEA

§ 4(i)(1)(A), mirrors ERISA § 204(b)(1)(H)(i), the section

which forms the basis for Plaintiffs’ first claim. Those two

provisions were enacted together as part of the 1986 Omnibus

Budget Reconciliation Act, 99 Pub. L. 509, 100 Stat. 1874,

and Congress has made clear that the provisions should be

interpreted to have an identical meaning. H.R. Rep. No. 99-

1012, at 378-79 (1986) (Conf. Rep.), reprinted in 1986

U.S.C.C.A.N. 3868, 4023-24. Because we have held that the

Plan does not violate ERISA § 204(b)(1)(H)(i), it follows that

the Plan does not violate ADEA § 4(i)(1)(A). 

Plaintiffs argue, however, that ADEA § 4(i) does not exclusively govern age discrimination claims relating to pension

plans, and that their FEHA claim tracks ADEA § 4(a), not

ADEA § 4(i)(1)(A). In support of their position, they point

out that their first and fourth claims are not identical. Specifically, the first claim asserts that the cash balance formula as

a whole discriminates on the basis of age, while the fourth

claim challenges only the wear-away provision of the

amended Plan, under which many workers suffer a temporary

cessation of benefit accrual. 

HURLIC v. SOUTHERN CALIFORNIA GAS 11111
Although it is true that the two claims are not identical, the

difference between them does not save the FEHA claim from

preemption. The controlling provision in this case is ADEA

§ 4(i)(4), which provides that “[c]ompliance with the requirements of [subsection (i)] with respect to an employee benefit

pension plan shall constitute compliance with the requirements of [ADEA § 4] relating to benefit accrual under [an

employee pension benefit] plan.”

8

 29 U.S.C. § 623(i)(4).

Thus, we must determine whether the wear-away provision of

the Plan relates to benefit accrual. If it does, the wear-away

provision need satisfy only the requirements of ADEA § 4(i).

See id.

The term “accrue” means “to increase.” Webster’s Third

New International Dictionary 13 (1993). “Benefit accrual”

thus refers to the process by which benefits increase. See id.

In traditional defined benefit plans, such as SCGC’s preconversion plan, benefits increased according to a formula

that took into account the employee’s salary and years of service. Under the cash balance plan, benefits increase as the

employer credits the account with earnings and interest credits. Plaintiffs’ wear-away claim protests the fact that under the

“greater of” provision, actual benefits payable (as compared

to the hypothetical account balance) do not increase until the

amount payable under the cash balance formula exceeds that

payable under the pre-conversion formula. This claim thus

relates to benefit accrual because it challenges the fact that

benefits do not increase for some period of time. 

8Prior to oral argument, Defendants’ submissions to this court only referenced ADEA § 4(i) once, in the “Counterstatement of the Case” in their

response brief. There they noted only that ERISA § 204(b)(1)(H) and

ADEA § 4(i) are “parallel age discrimination provisions” that Congress

indicated should be interpreted to have identical meaning. At no point did

they discuss ADEA § 4(i)(4) or the relationship between subsections (a)

and (i). However, we decline to conclude that this argument is waived

because it presents a pure question of law and the Plaintiffs fully briefed

it in their supplemental brief to the court following oral argument. 

11112 HURLIC v. SOUTHERN CALIFORNIA GAS
As such, it must be brought under ADEA § 4(i), not the

generic anti-discrimination provision of ADEA § 4(a). However, the wear-away claim is not cognizable under ADEA

§ 4(i) because that subsection provides that, with respect to

benefit accrual under a pension plan, a plan only engages in

prohibited discrimination if it violates § 4(i)(1)(A). See 29

U.S.C. § 623(i)(4); see also H.R. Rep. No. 99-1012, at 382

(1986) (Conf. Rep.), reprinted in 1986 U.S.C.C.A.N. 3868,

4027 (“It is the intention of the conferees . . . that the requirements contained in section 4(i) related to an employee’s rights

to benefit accruals with respect to an employee benefit plan

. . . shall constitute the entire extent to which ADEA affects

such benefit accrual.”). It follows that the wear-away provision is not prohibited by ADEA § 4. 

[13] FEHA mirrors ADEA § 4(a), not ADEA § 4(i). Plaintiffs thus seek to invalidate the wear-away provision under a

broad, general anti-age discrimination provision — something

they would not be allowed to do under the ADEA. With

regard to ERISA plans then, FEHA does not provide a means

of enforcing the ADEA’s commands such that preemption

would “impair” the joint state/federal enforcement scheme of

the ADEA. See Shaw, 463, U.S. at 102. Because FEHA prohibits practices which would be lawful under the ADEA,

Plaintiffs’ FEHA claim is preempted. See 29 U.S.C.

§ 1144(a); Shaw, 463 U.S. at 103. Thus, the district court correctly dismissed this claim. 

IV. Plaintiffs adequately stated a claim that SCGC

violated ERISA’s notice requirement

[14] At the time SCGC amended the Plan, ERISA contained a notice requirement regarding pension plan amendments which provided that:

A plan . . . may not be amended so as to provide for

a significant reduction in the rate of future benefit

accrual, unless, after adoption of the plan amendHURLIC v. SOUTHERN CALIFORNIA GAS 11113
ment and not less than 15 days before the effective

date of the plan amendment, the plan administrator

provides a written notice, setting forth the plan

amendment and its effective date, to . . . each participant in the plan[.] 

29 U.S.C. § 1054(h)(1)(A) (1998) (current version at 29

U.S.C. § 1054(h)). Plaintiffs’ complaint alleged that SCGC

failed to provide the required notice. SCGC does not contest

Plaintiffs’ allegation that they did not receive notice fifteen

days before the Plan amendment became effective. Rather,

SCGC argues that Plaintiffs failed to adequately allege that

they suffered harm. 

In Frommert v. Conkright, the Second Circuit addressed

how a plaintiff might suffer harm due to lack of notice under

29 U.S.C. § 1054(h)(1)(A). 433 F.3d 254, 266 (2d Cir. 2006).

In Frommert, the court held that by not receiving the required

notice under 29 U.S.C. § 1054(h)(1)(A), the plaintiffs “were

deprived of the opportunity to take timely action in response

to the purported [plan] amendment.” Id. (internal quotation

marks omitted). “Such action might have included seeking

injunctive relief, altering their retirement investment strategies, or perhaps considering other employment.” Id. 

Plaintiffs’ complaint alleges that the lack of notice precluded them from: 1) timely filing for injunctive relief; and 2)

pursuing alternative retirement strategies. SCGC is correct to

the extent that it argues that there was no potential violation

of law which Plaintiffs could have enjoined even if they had

received timely notice. We have held that the amended Plan

does not violate ERISA’s anti-age discrimination or “antibackloading” provisions and that ERISA preempts Plaintiffs’

FEHA claim.9

9Even if Plaintiffs had asserted a timely ADEA claim, they could not

have obtained an injunction. As discussed above, the ADEA mirrors

ERISA as it pertains to age discrimination relating to benefit accrual. 

11114 HURLIC v. SOUTHERN CALIFORNIA GAS
Although they would not have been entitled to injunctive

relief if SCGC had provided notice, Plaintiffs also alleged that

they could have altered their retirement strategies if SCGC

had provided the required notice. SCGC insists that this allegation is insufficient as a matter of law because plaintiffs

were not entitled to receive notice of “the fact or potential

impact” of the wear-away provision and because the participants received a summary plan description in 2000, three

years before Plaintiffs’ pre-conversion benefits were frozen

and the wear-away provision took effect. Both of these arguments disregard the statutory and regulatory notice requirements, however, and as a result, neither of them undermines

Plaintiffs’ claim. 

[15] Prior to 2002, notice under 29 U.S.C. § 1054(h)(1)(A)

did not “need [to] explain how the individual benefit of each

participant . . . [would] be affected by the [plan] amendment.”

26 C.F.R. § 1.411(d)-6T, Q&A(10) (1998). But although no

such individualized explanation was required, the notice was

required to provide a summary of the amendments “written in

a manner calculated to be understood by the average plan participant.” Id. Thus, contrary to SCGC’s contention, Plaintiffs

were entitled to receive notice of the wear-away provision.

Even without an individualized explanation of how the provision would affect their benefits, notice of the provision could

have induced Plaintiffs to increase savings in other retirement

vehicles or to consider other employment.10 See Frommert,

433 F.3d at 266. 

[16] Turning to SCGC’s next argument, the fact that SCGC

distributed a summary plan description in 2000 does not

undermine Plaintiffs’ claim. The statute clearly required that

notice be provided fifteen days prior to the effective date of

10As a defined benefit plan, the Plan has always been funded exclusively by SCGC, without contributions from participants. Thus, even if

Plaintiffs had received proper notice, they could not have increased retirement savings in the Plan itself. 

HURLIC v. SOUTHERN CALIFORNIA GAS 11115
the amendment. 29 U.S.C. § 1054(h)(1)(A) (1998); see also

Prod. & Maint. Employees’ Local 504 v. Roadmaster Corp.,

954 F.2d 1397, 1404 (7th Cir. 1992) (“Section 204(h)’s language is . . . clear and imperative: a plan ‘may not be

amended’ absent proper notice.”). Even if the district court

were to determine that Plaintiffs received proper notice in

2000, this tardy notice would not be sufficient to satisfy the

statutory requirement, which required notice no later than

June 15, 1998. There was still some period between the

amendment and when notice was received during which

Plaintiffs were harmed because they did not know that they

should be increasing their retirement savings to cover for the

decreased benefits that they would earn under the amended

Plan. Allowing the Plan to provide notice of a reduction in the

rate of benefit accrual two years after the fact would “upend”

the purpose of 29 U.S.C. § 1054(h)(1)(A), which is to provide

notice as a prerequisite to amending a plan. See Frommert,

433 F.3d at 266. 

[17] Taking all allegations of material fact as true and construing them in the light most favorable to the plaintiff, we

cannot say beyond doubt that Plaintiffs cannot prove any set

of facts that would entitle them to relief under 29 U.S.C.

§ 1054(h). See Stoner, 502 F.3d at 1120. Thus, the district

court erred by dismissing this claim. 

CONCLUSION

In conclusion, we hold that cash balance plans do not violate: 1) 29 U.S.C. § 1054(b)(1)(H), an anti-age discrimination

provision of ERISA; or 2) 29 U.S.C. § 1054(b)(1)(B), one of

ERISA’s “anti-backloading” provisions. We also hold that

ERISA preempts Plaintiffs’ state law FEHA claim. Thus, we

affirm the district court’s dismissal of those claims. However,

we hold that Plaintiffs’ complaint adequately alleged that

SCGC and the Plan violated ERISA’s notice requirement.

Thus, we reverse the district court’s dismissal of Plaintiffs’

notice claim and remand so that claim may be reinstated. 

11116 HURLIC v. SOUTHERN CALIFORNIA GAS
AFFIRMED IN PART, REVERSED IN PART, AND

REMANDED. 

Each party shall bear its own costs on appeal. 

HURLIC v. SOUTHERN CALIFORNIA GAS 11117