Source: https://casetext.com/case/berger-v-xerox-retirement-income-guar-plan
Timestamp: 2018-12-13 18:59:43
Document Index: 538841660

Matched Legal Cases: ['§ 1054', '§ 411', '§ 1054', '§ 1132', '§ 1132', '§ 1002']

Berger v. Xerox Retirement Income Guar. Plan, 338 F.3d 755 | Casetext
Berger v. Xerox Retirement Income Guar. Plan
338 F.3d 755 (7th Cir. 2003)
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Xerox Retirement Income Guar. Plan
United States Court of Appeals, Seventh CircuitAug 1, 2003
…Indus., Inc., 508 U.S. 152, 154 (1993)). This is in contrast, of course, to a "defined contribution plan," in…
…Behind this requirement was Congress&apos;s desire to insure that a lump-sum distribution of pension benefits…
holding that although relief under ERISA involved monetary benefits, "a declaratory judgment is normally a prelude to a request for other relief, whether injunctive or monetary . . .s long as the concrete follow-on relief that is envisaged will . . . be the direct, anticipated consequence of the declaration . . . the suit can be maintained under Rule 23(b)(2)"
Summary of this case from Kemp-Delisser v. Saint Francis Hosp. & Med. Ctr.
holding that pension beneficiaries&apos; suit to recover benefits was maintainable as a class action under 23(b)(2)
Summary of this case from In re Citigroup Pension Plan Erisa Litigation
finding that Xerox&apos;s method of calculating certain lump-sum distributions violated ERISA&apos;s requirement of “actuarial equivalency”
Summary of this case from Frommert v. Becker
Decided August 1, 2003. Rehearing and Rehearing En Banc Denied September 15, 2003.
Lee A. Freeman, Jr. (argued), Freeman, Freeman Salzman, Chicago, IL, for Plaintiff-Appellee.
The plaintiff class, consisting of those employees of Xerox enrolled in the cash balance plan who left Xerox's employ between 1990 and 2000 and elected to take a lump sum when they left in lieu of a pension commencing when they reached 65, contends that the amount of the cash balance at age 65 (more precisely, the estimated amount, since the T-bill rate will vary over the period between the employee's leaving Xerox's employment and his turning 65) is the employee's accrued cash balance benefit and thus the basis for calculating the size of the lump-sum entitlement. Xerox acknowledges that employees who defer taking their pension benefits until they reach the age of 65 are entitled to an annuity, commencing then, or a lump sum then, either one reflecting the future interest credits. However, it is employees who leave Xerox before reaching age 65 but rather than waiting till they reach that age to receive their pension benefits ask for a lump sum now who compose the plaintiff class; and while Xerox gave them all a lump sum, they contend that the amount they received was not the actuarial equivalent of what they would have received either as an annuity or a lump sum had they waited until age 65. ERISA requires that any lump-sum substitute for an accrued pension benefit be the actuarial equivalent of that benefit. 29 U.S.C. § 1054(c)(3); May Dept. Stores Co. v. Federal Ins. Co., 305 F.3d 597, 600 (7th Cir. 2002); Esden v. Bank of Boston, 229 F.3d 154, 164, 173 (2d Cir. 2000).
It might seem that Xerox should not be penalized for its generosity in reckoning future interest credits, even in severely diminished form, into the lump-sum entitlements of employees who choose cash balance plan benefits over their defined contribution benefits. Actually it had no choice. To be tax-qualified, a cash balance plan must be "frontloaded," IRS Notice 96-8, "Cash Balance Pension Plans," 1996-1 C.B. 359 (Feb. 5, 1996), that is, must include interest on the money in the employee's hypothetical account for the period between his leaving the employer and his reaching age 65. Otherwise, because of discounting, the cash balance pension benefit would be worth very little if the employee left the company's employ many years before he reached 65, and the Internal Revenue Code denies tax benefits to, and ERISA outright forbids, pension-plan terms that tend to lock an employee into his current employment by "backloading" his pension entitlement excessively, id.; 26 U.S.C. §§ 411(a), (b)(1); 29 U.S.C. § 1054(c)(3); Jones v. UOP, 16 F.3d 141, 143-44 (7th Cir. 1994); Smith v. Local 819 I.B.T. Pension Plan, 291 F.3d 236, 238 (2d Cir. 2002); Esden v. Bank of Boston, supra, 229 F.3d at 158-59, that is, by configuring it so that it is worth very little unless the employee stays with the company until normal retirement age.
The Internal Revenue Service's Notice 96-8, cited earlier, is an authoritative interpretation of the applicable statutes and regulations for reasons explained in Esden v. Bank of Boston, supra, 229 F.3d at 168-69, and it defines frontloaded cash balance plans in words that are an exact description of Xerox's plan (as distinct from Xerox's method of determining actuarial equivalence): "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" (emphasis added). The Notice makes clear that the future interest credits provided by such plans are part of the employee's accrued benefit: "benefits attributable to interest credits are in the nature of accrued benefits . . . and thus, once accrued, must become non-forfeitable." A forfeiture will occur, therefore, "if the value of future interest credits is projected using a rate that understates the value of those credits or if the plan by its terms reduces the interest rate or rate of return used for projecting future interest credits." Which is just what Xerox did.
This issue has become hideously confounded in the briefs of both sides with the unrelated question whether a suit for monetary relief can be equitable. That question is important under ERISA when suit is brought by a fiduciary, because ERISA fiduciaries may sue under ERISA only for equitable relief. 29 U.S.C. § 1132(a)(1)(3); Great-West Life Annuity Ins. Co. v. Knudson, 534 U.S. 204, 209-10, 122 S.Ct. 708, 151 L.Ed.2d 635 (2002). But the suit here is by plan participants suing "to recover benefits." 29 U.S.C. § 1132(a)(1)(B). The plan defines a participant as anyone who has a claim to benefits, and anyway ERISA defines "participants" to include former participants with a colorable claim to benefits. 29 U.S.C. § 1002(7); Firestone Tire Rubber Co. v. Bruch, 489 U.S. 101, 116-18, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989); Southern Illinois Carpenters Welfare Fund v. Carpenters Welfare Fund of Illinois, 326 F.3d 919, 922-23 (7th Cir. 2003). The relief sought is indeed not equitable, but it is declaratory. What is sought is a declaration that Xerox's method of computing the lump sums to which withdrawing employees are entitled is unlawful. That is a ground common to all the members of the class.
True, the declaration sought and obtained was merely a prelude to a request for damages (incorrectly described by the plaintiffs as a request for restitutionary relief equitable in nature — the monetary relief sought is not restitutionary, and if it were it would not be equitable, Great-West Life Annuity Ins. Co. v. Knudson, supra, 534 U.S. at 213-14, 122 S.Ct. 708; Honolulu Joint Apprenticeship Training Committee v. Foster, 332 F.3d 1234, 1237-38 (9th Cir. 2003)). But a declaratory judgment is normally a prelude to a request for other relief, whether injunctive or monetary; so there is nothing suspicious about the characterization of the suit as one for declaratory relief. The hope that motivates casting a request for relief in declaratory terms is that if the declaration is granted, the parties will be able to negotiate the concrete relief necessary to make the plaintiffs whole without further judicial proceedings. No one wants an empty declaration. As long as the concrete follow-on relief that is envisaged will if ordered (that is, if negotiations for relief consistent with the declaration break down) be the direct, anticipated consequence of the declaration, rather than something unrelated to it, the suit can be maintained under Rule 23(b)(2).
The reason for allowing opting out in other types of class action is that even though one class member's claim may overlap another's (common issues), it may be different in respects that makes him want to bring his own suit. There is nothing like that here. The declaration established the right of each of the class members, and the computation of the damages due each followed mechanically, as in Allison v. Citgo Petroleum Corp., 151 F.3d 402, 414-15 (5th Cir. 1998); see also Jefferson v. Ingersoll Int'l Inc., 195 F.3d 894, 898-99 (7th Cir. 1999).