Opinion ID: 200372
Heading Depth: 2
Heading Rank: 3

Heading: Retirement Plan

Text: 24 The adoption of cash balance plans, and in particular the transition to such plans from more traditional annuity-based defined benefit plans, has become increasingly controversial. The first cash balance plan was adopted in 1985. Since that time, hundreds of companies have converted to the newer cash balance plans. 25 In traditional defined benefit retirement plans, such as BankBoston's pre-1989 plan, a large share of the pension benefits are reaped by older employees in their final years of service. This is because the benefits are calculated based on years of service to the company and on the average of the highest years of salary, which usually occur in the final years. By contrast, in a cash balance system, much of the pension benefit is gained in the early years of service, because the pension account earns interest. The more time there is until retirement, the more a given amount in the account will grow. Thus, even though early additions to the pension account may be based on a percentage of a much smaller salary, the effects of time mean that these additions will contribute to the final total much more than larger additions to the account entered closer to retirement. 26 There are many reasons why companies may wish to switch to a cash balance plan. Cash balance plans favor younger workers, while traditional defined benefit plans favor experienced employees who plan on staying with one company. Cash balance plans are also more portable than annuity-based plans, because they can be taken as a lump sum upon leaving the company. Thus, a move to a cash balance plan is one way for a company to attract younger and more mobile workers. Furthermore, if a company has an older workforce, a cash balance plan may be a cheaper plan to administer. Under a traditional plan, the largest benefits are earned in the years immediately preceding retirement. Because there is little time for interest to accrue, an annuity purchased to secure those benefits will be more expensive. Cash balance plans award benefits earlier in an employee's career, and so they may be less expensive for employers. 27 If begun from scratch, cash balance plans would not be terribly controversial. The controversy engenders from the transition from traditional defined benefit plans. Older workers, such as Campbell, expected to see their pension benefits rise dramatically as a result of their service just before retirement. Instead, as a result of their companies' adoption of cash balance plans, their pension increases under the old plans ceased. 28 Under some plans, these workers whose traditional benefits have ceased to accrue are at least entitled to cash balance plan benefits. However, some transition schemes, including that employed by BankBoston, include a wear-away provision. This provision specifies that employees' pension entitlement does not grow until their pension benefits, as calculated under the new cash balance system, equal their actual accrued benefits under the old system. Benefits already earned under an old plan may not be taken away, see I.R.C. § 411(d)(6)(A) (2000); 29 U.S.C. § 1054(g), but benefits expected but not yet accrued are not similarly protected. The result is that for many workers, including Campbell, their pension benefits stop accruing completely in their final years of service, when their expectation was that during these years, the benefits would build up the most. See generally E.A. Zelinsky, The Cash Balance Controversy, 19 Va. Tax Rev. 683, 695-99, 702-04 (2000).
29 As a result of BankBoston's conversion to a cash balance plan with a wear-away provision, Campbell's annual pension was $3,084.02 less than it would have been had the old plan been kept in place until his retirement. He argues that this reduction amounts to a forfeiture of an accrued benefit in violation of 29 U.S.C. § 1054(g). There was no forfeiture, because no accrued benefits were reduced; only expected benefits were reduced, which BankBoston could, under the law, modify or eliminate. 30 The ERISA anti-cutback provision protects against the erosion of accrued benefits. Id. That term, in the defined benefit context, means the individual's accrued benefit determined under the plan. Id. § 1002(23)(A). That amount is equal to the employee's accumulated contributions. Id. § 1054(c)(2)(B). 31 The reduction of pension benefits of which Campbell complains was merely the elimination of future expected accruals of benefit. The December 31, 1996 amendment to the plan protected all of the pension benefit based on Campbell's work for the company up to that point; it merely ceased accruals under the old plan based on employment from that point forward. This was an elimination of an expected, not accrued, benefit. There was no ERISA violation. 32
33 Campbell next makes to us a more sophisticated charge against BankBoston's cash balance plan: that BankBoston's cash balance plan violates the anti-discrimination provision of ERISA. This charge is a serious one, and its answer depends on an interpretation of the complex ERISA statutory scheme. Because Campbell did not raise this argument before the district court, he has waived it. This anti-discrimination challenge to cash balance plans will doubtless be raised again before this or another court, and so we briefly describe the controversy. 34 ERISA has its own anti-age discrimination provision, 29 U.S.C. § 1054(b)(1)(H)(i), which states that a defined benefit plan does not meet the requirements of ERISA if an employee's benefit accrual is ceased, or the rate of any employee's benefit accrual is reduced, because of the attainment of any age. See also I.R.C. § 411(b)(1)(H)(i) (containing an identical provision). 7 Campbell's challenge to Bank-Boston's cash balance plan, based on the work of Professor Edward Zelinsky, is that cash balance plans violate this provision because of the manner in which accrued benefits are calculated. 35 For defined benefit plans, the term accrued benefit means the individual's accrued benefit ... expressed in the form of an annual benefit commencing at normal retirement age.  29 U.S.C. § 1002(23)(A) (emphasis added). This measure is quite sensible as applied to traditional defined benefit plans, which provide an annual benefit upon retirement. 36 Cash balance plans such as BankBoston's are instead defined by a lump sum account balance, instead of the annual benefit to be paid upon retirement. In this respect they appear very much like defined contribution plans. If BankBoston's plan was in fact a defined contribution plan, benefit accrual would be measured by the balance in the individual's account. See id. § 1002(23)(B). Were that the case, there would be no question that BankBoston's plan does not violate the age discrimination provision of ERISA, because the plan donates a percentage of salary to the account; age is never calculated into the amount contributed by the employer. 37 The problem arises because cash balance plans are defined benefit accounts; thus, the argument goes, benefit accrual must be measured in terms of an annuity providing an annual benefit. In order to translate a cash balance lump sum into an annuity beginning at normal retirement age, 8 the age of the individual is very much relevant, because of the time value of money. An amount of money donated to a younger employee will have a longer time to accrue interest, and result in a larger annuity upon retirement, than the same amount donated to an employee closer to retirement age. Campbell argues that this effect means that under BankBoston's cash balance plan, using a metric which measures an annuity at retirement, older workers accrue less pension benefits solely due to age. See Zelinsky, supra, at 719-22. 38 This conclusion is by no means uncontroverted. First, the ERISA age discrimination provision may not even apply to workers younger than the age of normal retirement. The Internal Revenue Code contains an identical provision, I.R.C. § 411(b)(1)(H); the heading to that provision reads: Continued accrual beyond normal retirement age. The legislative history surrounding the enactment of the provision buttresses this argument. See Eaton v. Onan Corp., 117 F.Supp.2d 812, 827 (S.D.Ind.2000). Second, even if the age discrimination provision applies to employers younger than normal retirement age, such as Campbell, critics of the age discrimination argument have contended that there are various methods for determining benefit accrual rates under ERISA, and it is by no means clear that the annuity method is the only permitted method in this context. See R.C. Shea, M.J. Francese & R.S. Newman, Age Discrimination in Cash Balance Plans: Another View, 19 Va. Tax Rev. 763, 767 (2000). 39 The IRS has also reviewed the challenge to cash balance plans under the age discrimination provision of ERISA. On December 11, 2002, the IRS issued proposed regulations which attempt to address, among other issues, the proper definition of the rate of benefit accrual for cash balance plans for purposes of IRS approval of a plan. See Reductions of Accruals and Allocations because of the Attainment of any Age: Application of Nondiscrimination Cross-Testing Rules to Cash Balance Plans, 67 Fed.Reg. 76,123 (proposed Dec. 11, 2002). 40 We need not resolve this complicated issue, for Campbell did not raise it before the district court. While his amended complaint generally alleges that the retirement plan violates ERISA provisions, it did not allege this theory in fact or in law. His count for Discrimination references ADEA, not ERISA. When defendants moved for summary judgment, his opposition argued only the forfeiture argument to the district court, and not the argument he now wishes to pursue. If the issue had been fairly raised in the district court, other evidence and argument would have been introduced into the record. [I]ssues first asserted on appeal must be deemed waived. Utica Mut. Ins. Co. v. Weathermark Invs., Inc., 292 F.3d 77, 81 (1st Cir.2002); see Sandstrom v. ChemLawn Corp., 904 F.2d 83, 87 (1st Cir.1990). We do not consider Campbell's challenge to BankBoston's cash balance plan based on the ERISA age discrimination provision.
41 Finally, Campbell has alleged a violation of the ADEA. He argues that BankBoston knew that the decrease in pension benefits as a result of the conversion to the cash balance plan would be particularly adverse to older workers. 9 This claim is procedurally foreclosed. 42 Campbell's claim is barred because the charge was filed beyond the limitations period. Campbell did not file a complaint with the EEOC until December 13, 1999. EEOC charges must be filed within 180 days of the alleged unlawful practice; if there is an applicable state age discrimination law and agency, as there is here, see Mass. Gen. Laws ch. 151B (2002), the time period is extended to 300 days. 29 U.S.C. § 626(d). Campbell was aware of the amendment to BankBoston's pension plan and the resulting effect on his benefits no later than October 14, 1998, when he wrote a letter to the Retirement Committee. In that letter, Campbell referred to the description of his benefits earlier provided by BankBoston and challenged the benefits calculation. The filing of the EEOC charge in December 1999 was well beyond the 300-day limitations period. 43 Campbell attempts to circumvent this limitations period by arguing that the statute of limitations requirement is met if at least one act in an ongoing pattern of discrimination falls within the 300-day period. For this proposition, Campbell cites to National Railroad Passenger Corporation v. Morgan, 536 U.S. 101, 122 S.Ct. 2061, 153 L.Ed.2d 106 (2000), which held that for Title VII hostile environment claims, if any act that is part of the hostile work environment falls within the limitations period, the employee may include all other related acts in the charge. Id. at 125, 122 S.Ct. 2061. Campbell's reliance on this case as support for his position is misplaced. The Supreme Court specifically found that hostile work environment claims were fundamentally different, Id. at 123, 122 S.Ct. 2061, and reiterated the rule that for other discrimination claims, discrete discriminatory acts are not actionable if time barred, even when they are related to acts alleged in timely filed charges. Id. at 122, 122 S.Ct. 2061. Moreover, acts must be independently discriminatory. Id. 44 The only act about which Campbell complains which is within the time limitations period is the August 11, 1999 final denial of his request to correct his benefits. This act was not independently discriminatory. The alleged discrimination occurred when the decision concerning Campbell's pension benefits was made and communicated to him in October 1998. The limitations period began then, not when the grievance procedure to correct that decision was terminated. See Del. State Coll. v. Ricks, 449 U.S. 250, 261, 101 S.Ct. 498, 66 L.Ed.2d 431 (1980). By December 1999, that limitations period had run its course. 45 For the reasons stated above, we affirm the district court's grant of summary judgment to defendants.