Opinion ID: 3052687
Heading Depth: 3
Heading Rank: 1

Heading: 411(b)-1(a) states:

Text: 4 Plaintiffs 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. 11106 HURLIC v. SOUTHERN CALIFORNIA GAS 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 Regis- 5 Although 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). HURLIC v. SOUTHERN CALIFORNIA GAS 11107 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 11108 HURLIC v. SOUTHERN CALIFORNIA GAS 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 6 The 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. 7 Our 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 HURLIC v. SOUTHERN CALIFORNIA GAS 11109 [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.