Opinion ID: 788351
Heading Depth: 2
Heading Rank: 2

Heading: Retroactive Ratification

Text: 17 The doctrine of ratification provides that an improperly authorized amendment may be ratified ex post by subsequent acts. See Curtiss-Wright, 514 U.S. at 85, 115 S.Ct. 1223. Moreover, a validly accomplished ratification ordinarily must be given retroactive effect, rendering the ratified action valid as of the original decision date. Schoonejongen v. Curtiss-Wright, 66 F.3d 312, 1995 WL 540047 (3d Cir. Aug. 30, 1995). However, ratification is prohibited where the amendment retroactively reduces the intervening rights of third parties, such as plan participants. See Schoonejongen v. Curtiss-Wright Corp., 143 F.3d 120, 124-25 (3d Cir.1998) (on remand) (rejecting ex post ratifications that defeat intervening rights); Confer, 952 F.2d at 43 (holding that an amendment limiting eligibility can operate only prospectively); 2A William Fletcher, Fletcher Cyclopedia of the Law of Private Corporations § 782, at 647-48 (perm. ed. rev. vol. 1992) (Ratification cannot relate back so as to defeat intervening rights of strangers to the transaction.). 18 In the instant case, the District Court concluded that the December 21, 1998, date of formal adoption is not fatal to the adoption of the amendment to the Rehire Rule as of January 1, 1998. According to the District Court, the CEO manifested his intent to amend the Rehire Rule, effective January 1, 1998, by his approval of a summary of the proposed amendment on November 4, 1997. Furthermore, the CEO's actions subsequent to his approval ostensibly constituted a ratification of the amendment both express and implied. The District Court cites as proof the following subsequent conduct: the CEO's failure to voice opposition to the Rehire Rule described in the Signature Benefits Retirement Kit distributed to participants in December, 1997; the CEO's failure to object to the Rehire Rule described in the Summary Plan Description that was generated for the New Plan in October, 1998; and the CEO's express execution of the formal amendment to the plan on December 21, 1998. 19 Unfortunately for CIGNA, the District Court's reliance on the doctrine of ratification is misplaced because ratification would effect a retroactive reduction of Depenbrock's accrued benefits under the Old Plan. Given that the amendment was not formally adopted until December 21, 1998, Depenbrock acquired rights in the interval before affirmance — namely, the right to receive benefits under the Old Plan — and retained his right to accrued benefits, instead of having to settle for the more modest benefits provided under the New Plan. Because ratification of the amendment as of November 4, 1997, would unlawfully deprive Depenbrock of intervening substantial benefits, ratification is ineffective. 20 CIGNA argues nonetheless that the amendment did not reduce Depenbrock's then-accrued benefits under the plan because Depenbrock worked for only a short period in 1998 before the amendment became effective on December 21, 1998. Because Depenbrock worked only a fraction of the year, CIGNA contends he did not amass the 1,000 work hours needed to accrue a year of service credit under the Old Plan. Because Depenbrock allegedly accrued no service credit under the Old Plan, retroactive application of the cash balance formula to his service following his rehire did not reduce any accrued benefit. As such, CIGNA claims there is nothing unlawful in subjecting Depenbrock to the Rehire Rule. 21 Even if we were somehow to conclude that excluding Depenbrock from the Old Plan was not a retroactive reduction of benefits, CIGNA's argument fails because it wrongly assumes that CIGNA could transfer Depenbrock out of the Old Plan and into the New Plan without effectuating another formal plan amendment. CIGNA contends that even if the amended plan were not properly adopted until December 21, 1998, CIGNA could leave Depenbrock in the Old Plan for twenty-two days, and then transfer him to the New Plan on December 21, 1998, the effective date of the amendment. However, CIGNA overlooks that it would have no authority upon which to transfer Depenbrock without effectuating another formal plan amendment, which it did not do. 22 Moreover, CIGNA's assertion that the amendment did not reduce Depenbrock's accrued benefits is premised on an unsubstantiated interpretation of ERISA's Anti-cutback rule, 29 U.S.C. § 1054(g). 6 The Anti-cutback rule prohibits a plan amendment from decreasing a participant's accrued benefits. Id.; see, e.g., Cent. Laborers' Pension Fund v. Heinz, ___ U.S. ___, 124 S.Ct. 2230, 2237, 159 L.Ed.2d 46 (2004); Bellas, 221 F.3d at 522 ([A] plan amendment that retroactively reduced benefits promised to plaintiffs for almost seven years was precisely the sort of inequity Congress designed ERISA to prevent.). ERISA defines accrued benefit as an individual's right to a retirement benefit determined under the plan ... expressed in the form of an annual benefit commencing at normal retirement age. 29 U.S.C. § 1002(23); see Berger, 911 F.2d at 917. CIGNA construes accrued benefit narrowly to mean purely a dollar amount of benefits. According to this interpretation, retroactive amendments to a plan are permissible so long as the dollar amount of accrued benefits is not reduced. CIGNA claims — which Depenbrock disputes — that transferring Depenbrock to the New Plan does not reduce his dollar amount of benefits because the benefits he earned under the Old Plan were converted into an opening account balance in the New Plan. 7 23 Regardless of the merits of Depenbrock's challenge to CIGNA's assertion, CIGNA's argument fails because it is predicated upon a proposed treasury regulation that is not yet the law. See Prop. Treas. Reg. § 1.411(d)-3(a)(4), Example 2, 69 Fed. Reg. 13769 (Mar. 24, 2004) (proposing to reinterpret the Anti-cutback rule so as to limit the protection of accrued benefits to purely a dollar amount). Although the Treasury Department retains interpretive jurisdiction over the Anti-cutback rule, see 43 Fed. Reg. 47713 (Oct. 17, 1978), a proposed regulation does not represent an agency's considered interpretation of its statute.... Commodity Futures Trading Comm'n v. Schor, 478 U.S. 833, 845, 106 S.Ct. 3245, 92 L.Ed.2d 675 (1986); see, e.g., Ca. Rural Legal Assistance, Inc. v. Legal Servs. Corp., 917 F.2d 1171, 1173 n. 5 (9th Cir.1990) (We decline to take cognizance of the proposed regulation however, because `a proposed regulation does not represent an agency's considered interpretation of its statute ....') (quoting Schor, 478 U.S. at 845, 106 S.Ct. 3245). 24 Until the proposed treasury regulation becomes law, the current regulations govern. 8 The current regulations, 26 C.F.R. § 1.411(d)-3(b), 9 prohibit plan amendments that directly or indirectly affect accrued benefits. Plan provisions indirectly affecting accrued benefits include, for example, provisions relating to years of service and breaks in service for determining benefit accrual.... Id. Because CIGNA's amendment adopts the Rehire Rule that directly or indirectly affects the calculation of benefits, the amendment as applied to Depenbrock is prohibited. 25 Even if Depenbrock had been notified of the proposed Rehire Rule by the Signature Retirement Benefits Kit — as CIGNA urges — such notice was insufficient to have implemented the amendment because ERISA provides that amendments to a plan may only occur if made in writing. See supra Part II.A. The written amendment, as previously stated, was not executed until December 21, 1998. Thus, December 21, 1998, is the effective date of the amendment. 26 Depenbrock's participation in the Old Plan should have resumed immediately upon his return to work on November 30, 1998. And his participation should have continued until either his employment ended or the terms of participation in the Old Plan were altered by a prospective amendment executed in accordance with CIGNA's specified procedures. 27 Having determined that the amendment adversely affects Depenbrock, we do not reach the question of CIGNA's compliance with ERISA's notice and disclosure requirements, the validity of Depenbrock's failure-to-produce claim against CIGNA, or the correctness of the District Court's finding of attorney-client privilege.