Opinion ID: 174853
Heading Depth: 2
Heading Rank: 2

Heading: ERISA Disclosures

Text: Plaintiffs fault Solvay for inadequately disclosing the effects of the new plan. In particular, they say that Solvay violated the following ERISA provisions: (1) § 204(h) and its implementing regulation, which require notice of significant reductions in benefit-accrual rates; (2) § 102 and its implementing regulation, which require a summary of any material modification to the plan; and (3) § 404(a)(1), which, according to Plaintiffs, imposes a general fiduciary duty that can require plan administrators to disclose information not specifically mandated by ERISA. We consider each argument in turn.
ERISA § 204(h) provides that when an amendment to a pension plan results in a significant reduction in the rate of future benefit accrual, 29 U.S.C. § 1054(h)(1), the plan administrator must provide a notice to plan participants, see id. § 1054(h)(2). Under the original version of § 204(h) enacted in 1986, the only requirement for the content of the notice was that the notice set[ ] forth the plan amendment and its effective date. Consolidated Omnibus Budget Reconciliation Act of 1985, Pub.L. No. 99-272 § 11006(a)(2), 100 Stat. 82 (1986). But because of concern that employees often did not understand the negative impact on benefits, see H.R.Rep. No. 107-51(II), at 142-43 (2001), Congress amended the section in 2001 so that it now requires that the notice be written in a manner calculated to be understood by the average plan participant and ... provide sufficient information (as determined in accordance with regulations prescribed by the Secretary of the treasury) to allow applicable individuals to understand the effect of the plan amendment. 29 U.S.C. § 1054(h)(2); see Economic Growth and Tax Relief Reconciliation Act of 2001, Pub.L. No. 107-16 § 659(b), 115 Stat. 38 (2001); see also 26 U.S.C. § 4980F(e) (stating same requirements as § 204(h)). The Secretary of the Treasury issued its final regulation implementing § 204(h) in 2003. See Notice of Significant Reduction in the Rate of Future Benefit Accrual, 68 Fed.Reg. 17277-02 (Apr. 9, 2003). It is codified at 26 C.F.R. § 54.4980F-1. Plaintiffs do not say that Solvay's § 204(h) notice is inaccurate. But they argue that it fails to comply with various provisions of 26 C.F.R. § 54.4980F-1 that require additional information. They contend that the notice is deficient because (1) it Does Not Describe the Drastic Reductions in Future Retirement Benefit in the Manner Prescribed by the Regulations, Aplt. Br. at 50; (2) it says nothing about how early-retirement benefits are calculated under either the old plan or the new plan; and (3) it does not disclose that employees in their 40s and early 50s may face a lengthy wear-away period.
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.
Plaintiffs argue that the notice did not disclose how early retirement benefits are calculated before and after the cash balance amendment. Aplt. Br. at 42-43. They rely on 26 C.F.R. § 54.4980F-1, A-11(a)(3)(ii), which states that when an amendment reduces an early retirement benefit or retirement-type subsidy ..., the notice must describe how the early retirement benefit or retirement-type subsidy is calculated from the accrued benefit before the amendment, [and] how the early retirement benefit or retirement-type subsidy is calculated from the accrued benefit after the amendment. We first address the early-retirement benefit under the old plan. Under the old plan an employee's early-retirement benefit was derived from the normal-retirement benefitthat is, the monthly pension payable if the employee begins receiving the pension at age 65. Whatever that normal monthly benefit was, it was reduced by 3% for every year before age 65 that the employee began receiving benefits, if the employee was at least 55 before leaving Solvay's employment. The benefit was reduced by 4% each year if the employee left before age 55. There was no reduction from the normal-retirement benefit, however, if the employee left the company after reaching age 55 and the employee's age plus years of service totaled at least 85 on the date of termination. As pointed out above, an employee's early-retirement benefit had a greater actuarial value than the normal-retirement benefit. That is, based on mortality data (the number of years that the employee will probably be receiving benefits) and expected interest rates, the reduction in benefits for early retirement should exceed 3% or 4% per year if the cost to the company for the benefit is to be the same as for normal retirement. In other words, the company subsidized early retirement under the old plan. Because the new plan provides no early-retirement subsidies, the disclosure requirement of § 54.4980F-1, A-11(a)(3)(ii) was triggered by Solvay's conversion. We agree with Plaintiffs that the regulation therefore required Solvay's notice to describe how the early-retirement benefit was calculated under the old plan. And we further agree that the notice contains no such description. All that Solvay can say in its defense on appeal is to emphasize the language in the notice stating: The current plan also allows you to retire as early as age 55 and receive a life annuity commencing on your early retirement date but reduced to reflect the earlier commencement. The current plan formula includes an early retirement subsidy. J.App., Vol. II at 343. We fail to see how an employee could calculate early-retirement benefits with just this information. The notice does not comply with the regulation. On the other hand, the notice adequately describes how to calculate early-retirement benefits under the new plan. It informs employees (1) that their benefit is described in terms of an account balance, which you will be able to receive either as a lump sum or a life annuity, id.; (2) that the account balance is based on the present value of their benefits under the old plan, plus pay credits and interest credits (including how they are calculated); and (3) that to convert a cash-balance lump sum into a monthly annuity, employees must use the most recent IRS-mandated mortality table, GAR-94, and 5.0% interest, id. at 347. The notice also advises employees that, unlike the old plan, the new plan offers no early-retirement subsidies. There is, however, one lapse in the disclosure of early-retirement benefits under the new plan. Even after conversion to the new plan, an employee is entitled to the early-retirement benefit accrued before the conversion if that benefit exceeds what has accrued under the new cash-balance plan. One could therefore say that the notice does not fully disclose how early-retirement benefits are calculated under the new plan insofar as the new plan incorporates some benefits under the old plan. We therefore conclude that Solvay's notice failed to comply with the requirements for disclosure of early-retirement calculations. Whether Plaintiffs are entitled to relief, however, depends on whether there was an egregious failure in compliance. 29 U.S.C. § 1054(h)(6)(A). We remand to the district court to resolve that issue (although it may also consider any defense not addressed in this opinion that Solvay may have to this claim).
Plaintiffs also fault Solvay's notice for inadequate disclosure of another matter relating to early retirement. They contend that the notice did not include the required information from which individuals can determine whether they will be subject to wear-aways, ... [or] examples to illustrate the `range of reductions' as directed by [26 C.F.R. § 54.4980F-1, A-11(a)(4)(ii)(B)]. Aplt. Br. at 47. Further, they say, the notice did not disclose the duration of the wear-away periods. But these contentions are based on a misreading of the regulation. After declaring that the requirement to disclose the reduction in benefits can be satisfied by providing examples, the regulation states that such examples are required for conversions in two circumstances: any change from a traditional defined benefit formula to a cash balance formula or [2] a change that results in a period of time during which there are no accruals (or minimal accruals) with regard to normal retirement benefits or an early retirement subsidy (a wear-away period). 26 C.F.R. § 54.4980F-1, A-11(a)(4)(ii)(A). [10] Both circumstances are present in the Solvay conversion. It is both a conversion from a traditional defined-benefit formula to a cash-balance formula, and the conversion created wear-away periods. The next provision then describes what should be covered by the examples. It states: Where an amendment results in reductions that vary (either among participants, as would occur for an amendment converting a traditional defined benefit formula to a cash balance formula, or over time as to any individual participant, as would occur for an amendment that results in a wear-away period), the illustrative example(s) provided in accordance with this paragraph (a)(4)(ii) must show the approximate range of the reductions. Id. § 54.4980F-1, A-11(a)(4)(ii)(B). As we understand the quoted language, it says nothing about disclosing the duration of wear-away periods or even about using the term wear-away. It simply requires that the illustrative example(s) ... show the approximate range of the reductions. Id. The concept of a wear-away may provide an interesting, or even useful, lens to examine a conversion from one pension plan to another; but a wear-away is not itself a reduction. A reduction is a decrease in the anticipated pension benefit. Thus, all that the regulation requires with respect to wear-aways in early-retirement benefits is that the illustrations show the approximate range of the reductions in early-retirement benefits. Id. In that regard, the Solvay notice appears to be adequate. The tables in the notice give 14 examples of changes in monthly benefits resulting from the conversion for employees retiring at age 55 (and two examples for retirement at 60). The examples do not conceal the large reductions that may occur, with several examples showing reductions greater than two-thirds of the benefit under the old plan. Plaintiffs say that the examples do not show the range in wear-away periods; but they have made no argument that the range of examples is unrepresentative, misleading, or otherwise inadequate in showing the extent of the reduction in early-retirement benefits. And Solvay's notice does more. It contains a section entitled Early Retirement Benefits that alerts employees to the possibility that there may be years in which those benefits do not grow. The section, which is reproduced earlier in this opinion, see n. 9, supra, does not contain the word wear-away, but the concept is presented. The section states: Some participants may notice that while their lump sum benefit always grows, their monthly benefit may not increase at the same rate or at all in some years. This could be due to ... the fact that the starting account balance used by [Solvay] does not take into account early retirement subsidies. J.App., Vol. II at 344. Further, although the illustration in the section would in itself be inadequate to inform employees of the potential decline in early-retirement benefits, it describes a six-year wear-away period and should assist employees in understanding the wear-away concept. Accordingly, we reject Plaintiffs' argument that Solvay's notice violated § 54.4980F-1 because of an inadequate description of wear-aways.
ERISA entitles plan participants to receive [a] summary of any material modification in the terms of the plan and any change in the information required [to be in a summary plan description], and the summary must be written in a manner calculated to be understood by the average plan participant. 29 U.S.C. § 1022(a); see 29 C.F.R. § 2520.104b-3(a) (implementing § 1022(a)). The information required to be in a summary plan description is set forth in 29 U.S.C. § 1022(b). See 29 C.F.R. § 2520.102-3( l ) (implementing § 1022(b)). Solvay's summary, its SMM, consists of the § 204(h) notice and the FutureChoice brochure. Plaintiffs contend that the SMM did not adequately disclose (1) the changes in reduction factors for early retirement, Aplt. Br. at 57; (2) the legally-required protection of early retirement benefits offered under the prior plan or the loss or forfeiture of the value of those features if employees accept lump sum distributions before 55, id. at 57-58; or (3) the general classes of employees subject to wear-away or the approximate range of such wear-aways, id. at 57. We are not convinced that the SMM was defective. With respect to Plaintiffs' first contention, aside from the failure to disclose how early-retirement benefits were calculated under the old plan, the SMM adequately described how the new plan differed from the old. And we need not decide whether that failure constituted an independent violation of § 1022(a), because we have already held that the failure violated 26 C.F.R. § 54.4980F-1, A-11(a)(3)(ii); and Plaintiffs have not suggested that any additional remedy would be available for a violation of § 1022(a). As for any other possible defects in the SMM, we would assume that a notice that complies with the disclosure requirements of § 204(h) would satisfy in that respect the requirements for an SMM. We apparently are not alone in that regard. When the § 204(h) regulation was published in 2003, the introduction to the regulation stated: The Department of Labor has advised the IRS that a plan administrator who provides a section 204(h) notice to applicable individuals in accordance with this final rule will be treated as having furnished those individuals with an SMM regarding the section 204(h) amendment. 68 Fed.Reg. at 17278. In any event, we will briefly address Plaintiffs' other two contentions. They rely on the requirement that a summary plan description must describe the plan's provisions relating to eligibility,  29 C.F.R. § 2520.102-3(j) (emphasis added), and clearly identify[ ] circumstances which may result in ... denial, loss, forfeiture, suspension, offset, reduction, or recovery ... of any benefits that a participant or beneficiary might otherwise reasonably expect the plan to provide on the basis of the description of benefits, id. § 2520.102-3( l ) (emphases added). First, Plaintiffs complain that the SMM did not disclose the loss or forfeiture of the value of [early-retirement benefits] if employees accept lump sum distributions before age 55. Aplt. Br. at 57-58. The contention is obscure. But to the extent that we understand it, we reject it. Even were we to agree that one change in the Solvay plan was the introduction of the possibility that an employee could lose early-retirement benefits by taking a lump-sum distribution before age 55, no employee who chooses a lump-sum benefit reasonably expects to retain any annuity benefit. Solvay's documents clearly state that an employee must make an election between alternative benefits. The loss of the annuity is not an unexpected forfeiture, and therefore need not be disclosed in a summary plan description or an SMM. As for disclosures regarding wear-aways, the authorities cited by Plaintiffs are either not persuasive or readily distinguishable. We disagree with the suggestion in Humphrey v. United Way of Tex. Gulf Coast, 590 F.Supp.2d 837, 847 n. 6 (S.D.Tex.2008), that a wear-away provision is an eligibility requirement in that Participants [must] wear away their prior pension before they will receive benefits under their current one. Wear-away under Solvay's plan is a consequence of a change in plan terms, not a fact that an administrator must determine to assess eligibility for a benefit. Therefore, wear-away need not be disclosed as a new eligibility requirement after conversion. And the other decisions cited by Plaintiffs as requiring disclosure of wear-aways involved significant failures to disclose that are not present, or even approximated, here. In Richards v. FleetBoston Fin. Corp., No. 3:04-cv-1638 (JCH), 2006 WL 2092086, at  (D.Conn. July 24, 2006), the notice did not properly explain how the opening cash-balance account was calculated. In Amara v. CIGNA Corp., 534 F.Supp.2d 288, 340, 346 (D.Conn.2008), the employer admitted that it had never informed employees that they may not accrue benefits under the new cash-balance plan, and the court found that the employer had made material misrepresentations suggesting benefit increases, id. at 339, and offered statements that misled plan participants into believing that significant reductions in the rate of future benefit accrual were not a component or a possible result of the conversion to the new plan, id. at 340. The employer had provided no before-and-after examples of changes in the plan. See id. at 343. In sum, we hold that Solvay's SMM was not deficient, except for the possibility that § 1022(a) required disclosure of the old plan's method of calculating early-retirement benefits. We need not address that possible violation, however, because we have held that the failure to disclose violates 26 C.F.R. § 54.4980F-1, A-11(a)(3)(ii), so remand is required in any event.
Plaintiffs' remaining criticism of Solvay's disclosure is that it Breached Its Fiduciary Duties By Refusing to Provide Information in Response to Inquiries from Employees. Aplt. Br. at 58. Their complaint alleges that this fiduciary duty to disclose arises under ERISA § 404(a)(1), 29 U.S.C. § 1104(a)(1), although their discussion of the issue in their appellate brief does not cite that provision. It is an interesting question whether the fiduciary duties imposed by § 404(a)(1) include a duty of disclosure. The Supreme Court left the issue open in Varity Corp. v. Howe, 516 U.S. 489, 506, 116 S.Ct. 1065, 134 L.Ed.2d 130 (1996) ([W]e need not reach the question whether ERISA fiduciaries have any fiduciary duty to disclose truthful information on their own initiative, or in response to employee inquiries.). The circuit courts are divided on the matter. Some have held that any duty to disclose is imposed only by ERISA's specific disclosure requirements. See Faircloth v. Lundy Packing Co., 91 F.3d 648, 657 (4th Cir.1996); Ehlmann v. Kaiser Found. Health Plan of Tex., 198 F.3d 552, 555 (5th Cir.2000); Sprague v. Gen. Motors Corp., 133 F.3d 388, 405 (6th Cir.1998) (en banc). Others, however, have held that § 404(a) can impose additional duties of disclosure. See Glaziers & Glassworkers Union Local No. 252 Annuity Fund v. Newbridge Sec. Inc., 93 F.3d 1171, 1181-82 (3d Cir.1996); Shea v. Esensten, 107 F.3d 625, 628-29 (8th Cir.1997); Eddy v. Colonial Life Ins. Co. of Am., 919 F.2d 747, 750-51 (D.C.Cir.1990). We need not enter the debate, however, because Plaintiffs have not adequately presented the issue in their appellate brief. They have not specified a single employee question to which Solvay did not respond. Without more, we cannot determine what, if any, fiduciary duties were violated. Appellate courts will not address abstract legal issues that are not tied to specific events. See United States v. Allen, 603 F.3d 1202, 1209 (10th Cir.2010) (A court will not analyze the record for [the appellant] to determine whether a violation occurred. That task was for [appellant's] counsel and it has not been performed.). We therefore decline to consider this argument. See Cisneros v. Aragon, 485 F.3d 1226, 1233 (10th Cir.2007) (arguments not adequately addressed on appeal are waived).