Opinion ID: 174853
Heading Depth: 4
Heading Rank: 1

Heading: Significant Reduction in Benefits

Text: Plaintiffs assert that because the plan conversion drastically lower[ed] ... future benefit accruals, Aplt. Br. at 50, the notice should have set forth enough information for participants to estimate the magnitude of the reduction and to compare readily what the future accruals would be under the two plans. They contend that the notice is inadequate in this respect because (1) it fails to state that there is a large reduction in future accrual rates or to describe that reduction in percentage or dollar terms, as do the regulation's illustrative examples, id. at 51; (2) the examples in the tables only show the total of the previously-earned benefits with the new benefits without identifying the part earned before or after the conversion, id. at 50; and (3) the notice does not disclose that the reduction was more severe for older employees. In our view, however, the notice was adequate in disclosing reductions in benefits. Section 54.4980F-1, A-11(a)(4)(i)(A) requires notices to include sufficient information for each applicable individual to determine the approximate magnitude of the expected reduction for that individual. Plaintiffs concede that the reduction referred to in the regulation is the reduction of benefits. See Aplt. Br. at 50 (The District Court's Order accurately stated that the Treasury regulations require disclosure of `sufficient information for each applicable individual to determine the approximate magnitude of the expected reduction [of benefits] for that individual.' (quoting district court's order, J.App., Vol. I at 46; brackets in district-court order and Plaintiffs' brief)). The regulation explicitly provides that the notice requirement can be satisfied if the notice includes one or more illustrative examples showing the approximate magnitude of the reduction in the examples, 26 C.F.R. § 54.4980F-1, A-11(a)(4)(ii)(A), so long as the examples bound the range of reductions, id. § 54.4980F-1, A-11(a)(4)(ii)(B), and are based on reasonable assumptions, see id. § 54.4980F-1, A-11(a)(4)(ii)(C). In our view, Tables A and B in Solvay's § 204(h) notice satisfy these requirements. They provide illustrative examples comparing the expected monthly benefit under the new plan with the expected monthly benefit that would have been earned if the old plan had continued; the examples concern employees of different ages, compensation, service years, and time of retirement. By finding the example most like himself, an employee can estimate his benefit reduction in dollar terms. Nothing in these tables hides the fact that the new plan significantly reduces employees' monthly benefits. On the contrary, these comparisons show that employees are almost always worse off after the conversion; for instance, a 50-year-old employee with 10 years of service, who makes $45,000 a year, and who plans to retire at 65, would have received $1,500 a month under the old plan; but he will receive less than half that amount$700 a month under the new plan. Plaintiffs have not complained that the examples fail to bound the range of reductions in annuities or that the assumptions are unreasonable. Plaintiffs do complain, however, that Solvay's notice does not describe future accruals under the new formula in percentage terms that can be readily compared to the 1.1% of final pay offered by the old formula. Aplt. Br. at 53. They point to § 54.4980F-1, A-11(b), Example 4. True, the notice in Example 4 complies with what Plaintiffs would require. The example concerns a conversion of a plan like Solvay's old plan to a cash-balance plan. Unlike Solvay's new plan, however, there was no carryover from the old plan to the hypothetical cash-balance account, which thus started with $0. See 26 C.F.R. § 54.4980F-1, A-11(b), Example 4(i)(B). The vested benefit from the old plan was simply added to the cash-balance benefit under the new plan. See id. The notice in Example 4 contains only three illustrations, one of which is described in detail. See id. at Example 4(i)(D). It hypothesizes a 49-year-old employee with 10 years of service who is earning $50,000. See id. The notice projects that from age 49 to 65 the employee will accrue an average annual benefit of .57% of the employee's highest three-year pay, compared to 1.5% under the old plan. See id. But the regulation says nothing to require such a comparison of annual accrual rates. The test in the regulation is whether the notice provides enough information to allow an employee to determine the approximate magnitude of the expected reduction. Id. § 54.4980F-1, A-11(a)(4)(i)(A). Perhaps some employees would prefer the information to be in the form of annual accrual rates. But many (we suspect most) would prefer to know the bottom linewhat will I get under the new plan compared to what I would have gotten had the old plan continued. The tables provided by Solvay are more informative in that regard than the three illustrations in Example 4. And it is worth noting that the final sentence of Example 4 states that § 54.4980F-1, A-11(a)(4)(ii) would have been satisfied if the notice instead directly stated the amount of the monthly pension that would have accrued over the 16-year period from age 49 to age 65 under the old formula. Id. § 54.4980F-1, A-11(b), Example 4(ii); see id. at Example 5(ii) (containing similar statement regarding early-retirement pension). That sentence is inconsistent with a requirement that reductions be stated in terms of annual accrual rates. Although Plaintiffs also challenge Solvay's notice because it does not describe the reductions in future benefits in percentage or dollar terms, Aplt. Br. at 51, the regulation does not require that the notice compute the reduction. It is enough if the notice provides easily compared figures (such as accrual rates or monthly benefits) for the plan before and after conversion. The notice in Example 4, for instance, does not subtract the two accrual rates to obtain the difference (the reduction in rates); and the final sentence of the example endorses a notice that states the amount of the monthly pension accrued under the new cash-balance plan, not the amount by which this pension is less than it would have been under the old plan. The examples in Solvay's tables provide easily compared figuresthe monthly benefits under the old and new plansso the notice is adequate in that regard. We are also not persuaded by Plaintiffs' claim that the notice is defective in that the benefits that are compared are the benefits that the employee would earn as a result of the employee's entire tenure with Solvay. The tables in the notice take, for example, an employee who worked for Solvay for 10 years before the conversion and then state the expected annuity amount assuming the conversion and the expected amount assuming that there had been no conversion. Plaintiffs argue that the comparisons should have been between how much additional annuity the employee would earn after the conversion and how much additional the employee would have earned in that period had there been no conversion. They again cite Example 4, which so distinguishes the benefits. All that the regulation requires, however, is information allowing an easy comparison of the benefits expected after the conversion with those that would have been expected had there been no conversion. Solvay's notice provides that information. Some employees may prefer a comparison in the form demanded by Plaintiffs; but others may not. In any event, an employee who reviews the examples in Solvay's notice will have no doubt that the reduction in the annuity is due totally to the decline in future accruals resulting from the conversion to the new plan. As for Plaintiffs' contention that the notice fails to mention that the reduction in the rate of future accruals was more severe for older employees, that omission violates no provision of the regulation. We also note that if an employee wishes to see whether other employees fare better under the conversion than she does, the tables in Solvay's notice provide ample information with which to do so.