Opinion ID: 3173483
Heading Depth: 1
Heading Rank: 2

Heading: The Sign-On Bonus Issue.

Text: A. The Ruling at Issue. When Ingram retired, § 5.1(a) of the Plan provided that retirement benefits were calculated based on “1.5% . . . of the Average Monthly Earnings of the Participant,” defined in § 2.6 as the average monthly earnings in the five consecutive calendar years in which Ingram’s earnings were the highest. Ingram worked at Terminal only fifty-four months, the 2006 part year and full years 20072010. Section 2.14 defined earnings as: The total earnings paid during the applicable period by an Employer subject to income tax withholding as reported on Treasury Department Form W-2, excluding reimbursement of moving expenses, reimbursements or other expense allowances and fringe benefits . . . . The Plan gave retiring Participants benefit payment options. Ingram chose the Single Life Annuity monthly payment option. Plan administrator Paubel determined that Ingram’s Average Monthly Earnings for the fifty-four months were $15,357.60. This produced a Gross Pension of $9,214.56 per month, an Eligible Pension of $7,400.71 per month, and, after the offset discussed in Part III of this opinion, a Single Life Annuity benefit of $3,170.71 per month. Paubel rejected Ingram’s contention that his Average Monthly Earnings should include a July 2006 “Sign On Bonus” of $142,737.20 (“the July 2006 payment”), concluding that the Sign On Bonus was an excludable moving expense allowance. Including that amount in the calculation would apparently have increased Ingram’s Average Monthly Earnings by 17.2% and his Single Life Annuity monthly benefit by nearly 50%. B. Procedural Background. When Ingram advised Paubel in July 2010 that he planned to retire at the end of the year, Paubel said that the July 2006 payment would not be included as earnings under Plan § 2.14 because it fell within the moving -4- expenses exclusion. Ingram submitted a claim for benefits under the Plan, arguing that the Sign On Bonus should be included in calculating his pension annuity: When I signed on to work for [Terminal] in 2006 I was provided with a Sign On bonus for the following reasons: 1. I took a cut in pay to take the job. 2. [Terminal] had no relocation or moving expense policy. There were no conditions attached to the bonus and no requirements to turn in receipts or an expense report showing how the bonus money was spent. Ingram attached as supporting documents (i) a July 2006 pay stub showing a $142,737.20 “bonus,” reduced by various tax deductions to “net pay” of $92,293.00; (ii) a year-end pay stub showing the Sign On Bonus and a year end bonus (which was included in his Average Monthly Earnings) added together; (iii) his Form W-2 for 2006 showing the Sign On bonus included in taxable income; and (iv) a July 13, 2006, note from Paubel attaching “my . . . calculation of your sign on bonus.” The attached spreadsheet, dated July 1, 2006, was titled “Signing Bonus - T. F. Ingram” and recorded Gross Pay of $142,737.20 reduced by various tax deductions to a “Net Bonus Amount” of $85,000. In a letter dated January 21, 2011, Paubel denied Ingram’s claim and enclosed affidavits submitted to the Plan administrator by former Terminal President Billy Broyles and by Director of Human Resources, Corporate Secretary, and Assistant to the President Shannon Nouri. Broyles averred that, in 2006, he offered Ingram a position with Terminal and “negotiated Mr. Ingram’s compensation with him, including his compensation for relocation expenses.” Though Terminal “had no formal relocation policy,” it was company practice “to provide individuals who relocated to accept a senior position with the Company compensation for relocating.” After agreeing with Ingram on a lump sum payment, Broyles instructed Nouri to -5- consult with CFO Paubel and “determine a reasonable amount to be paid . . . to reimburse [Ingram] for the expenses of moving.” Nouri averred that she and Paubel “determined that $85,000 would be an appropriate amount to compensate Mr. Ingram for relocation.” Paubel determined an additional amount Ingram would be paid “as a ‘gross up’ for taxes Mr. Ingram would incur on $85,000.” Nouri also averred that, in 2006, it was Terminal’s practice to reflect “most expense reimbursements (including moving expense reimbursements) . . . as salary or bonus.” Both Broyles and Nouri averred that “[n]o portion of the $142,737.20 was intended as compensation for taking a cut in pay.” Relying on these affidavits, and on Ingram’s acknowledgment “that the amount was paid (at least in part)” because Terminal had no relocation or moving expense policy, Paubel’s lengthy letter denied Ingram’s claim. “I interpret the plan language [in § 2.14] excluding ‘reimbursement of moving expenses, reimbursements or other expense allowances’ as encompassing amounts provided as an allowance in recognition of expenses incurred in moving and relocating, regardless of whether they were conditioned on proof and documentation of actual expenses incurred.” Invoking the Plan’s appeal procedure, Ingram appealed Paubel’s initial claim denial, submitting an affidavit responding to the facts recited in the affidavits of Broyles and Nouri.3 Ingram averred that, because the salary Terminal offered in 2006 was $34,000 less than he was making in California, “I inquired about a moving package.” Broyles advised it was not Terminal’s policy to pay moving expenses. Ingram said he was interested in the position “but I could not afford to absorb the salary cut and my costs in leaving Los Angeles.” Broyles asked how much Ingram would need to come to work for Terminal. “After reviewing the numbers with my wife, I contacted Bill and told him that I would need to clear about $83,000 after 3 Ingram’s appeal also raised for the first time the offset issue considered in Part III of this opinion. Terminal concedes the issue was timely raised. -6- taxes to make the move financially feasible.” Ingram’s appeal further relied on a July 1, 2006, letter agreement, signed by Broyles and accepted by Ingram, confirming that Ingram would be employed based on a “compensation package” that included an annual salary of $115,000, “$85,000 sign on bonus,” and “up to an additional $10,000 in temporary lodging expenses billed directly from the Chase Park Plaza” hotel. On June 15, 2011, Paubel denied Ingram’s appeal in a lengthy letter. Regarding the July 2006 payment issue, Paubel explained in detail why he rejected Ingram’s four reasons for not treating the payment as excludable moving expenses. Noting that Broyles and Nouri averred that the payment “was compensation for the expenses associated with relocation” from California, and that Ingram’s initial claim stated “that the amount was paid at least in part because there was no Company relocation or moving expense policy,” Paubel concluded: “I find that the amount at issue was compensation for the expenses associated with relocation.” This lawsuit followed. C. Proceedings in the District Court. The district court initially denied crossmotions for summary judgment and invited the parties to supplement the administrative record with evidence relating to the discrepancy between the “sign on bonus” term used in the documents and Terminal’s characterization of the payment as moving expenses. “Curiously,” the court stated, “the claimed administrator, Kerry Paubel, has not submitted an affidavit regarding the reason for paying [Ingram] the $85,000.” The court declined to resolve the standard of review issue because of genuine issues of disputed fact regarding “irregularities” alleged by Ingram. In response, Terminal filed an affidavit by Paubel further justifying his decision to classify the 2006 payment as reimbursement of moving expenses. Ingram filed a supplemental affidavit and additional evidence addressing these issues. The district court then granted summary judgment for Terminal. Concluding that abuse of discretion was the standard of review, the court focused “solely on the evidence available to the administrator at the time of the decision.” -7- On appeal, Ingram argues that the district court’s decision to reopen the record and admit Paubel’s affidavit requires that we review the administrator’s decision de novo because, in reviewing claims decisions by administrators with discretionary authority, “a reviewing court must focus on the evidence available to the plan administrators at the time of their decision and may not admit new evidence or consider post hoc rationales.” King v. Hartford Life & Accident Ins. Co., 414 F.3d 994, 999 (8th Cir. 2005) (en banc) (quotation omitted); compare Prezioso v. Prudential Ins. Co. of Am., 748 F.3d 797, 803 (8th Cir. 2014) (a district court may admit evidence in addition to that in the administrative record if “necessary for adequate de novo review of the fiduciary’s decision”). This procedural contention is without merit. Review of a plan administrator’s discretionary decision must be limited to the administrative record, but additional evidence may be admitted “for the limited purpose of determining the proper standard of review.” Waldoch v. Medtronic, Inc., 757 F.3d 822, 830 (8th Cir. 2014). If abuse of discretion is then determined to be the standard of review, review of the merits of the administrator’s decision is limited to the administrative record. Id. at 833; see King, 414 F.3d at 999-1000. Here, the district court properly proceeded in that manner, inviting the parties to submit additional evidence addressing standard-of-review issues and then disregarding that evidence in reviewing the Plan administrator’s decision for abuse of discretion. Likewise, on appeal, we consider the merits of the Plan administrator’s decision on the administrative record, giving no effect to factual evidence initially submitted to the district court, including Paubel’s affidavit and Ingram’s supplemental affidavit. D. The Merits. Under the abuse of discretion standard of review, “we must uphold [a plan administrator’s] decision so long as it is based on a reasonable interpretation of the Plan and is supported by substantial evidence.” Hampton v. Reliance Standard Life Ins. Co., 769 F.3d 597, 600 (8th Cir. 2014). A decision is reasonable “if a reasonable person could have reached a similar decision, given the -8- evidence before him, not that a reasonable person would have reached that decision.” Midgett v. Wash. Grp. Int’l Long Term Disability Plan, 561 F.3d 887, 897 (8th Cir. 2009) (quotation omitted). We review administrator Paubel’s final claims decision, not the initial denial letter, to ensure development of a complete record. See Khoury v. Grp. Health Plan, Inc., 615 F.3d 946, 952 (8th Cir. 2010). Where a plan fiduciary offered a reasonable interpretation of a disputed plan provision, “courts may not replace it with an interpretation of their own -- and therefore cannot disturb as an ‘abuse of discretion’ the challenged benefits determination.” King, 414 F.3d at 999 (quotation and alteration omitted). The July 2006 payment by employer Terminal to employee Ingram was reported to the IRS on Form W-2 as taxable income. The issue is whether the payment was excluded from the Average Monthly Earnings on which Ingram’s retirement benefit was calculated many years later by the broad exclusion in § 2.14 of the Plan for taxable “reimbursements or other expense allowances and fringe benefits.” Obviously, this exclusion does not turn on the federal tax laws -- § 2.14 excludes taxable fringe benefits reported as taxable income. Nor does the question turn on how the payment was classified in the employer’s books and records at the time, absent evidence that the classification was intended to control future pension benefit decisions. Thus, while the term “sign on bonus” or “bonus” often denotes a payment that is part of an employee’s salary or wages, that contemporaneous classification may be outweighed by extrinsic evidence that a particular bonus should be viewed under § 2.14 as an excluded expense allowance or fringe benefit, not as a qualifying portion of the employee’s taxable earnings. For these reasons, we reject Ingram’s contention that this issue may be resolved by the “plain meaning” of the words “moving expenses” and “reimbursement” in § 2.14, or by repeated use of the term “sign on bonus” in the contemporaneous 2006 documents. The administrative record included statements and affidavits by the persons who negotiated the July 2006 payment, Ingram and Terminal President Billy Broyles. -9- This testimonial evidence presented Plan administrator Paubel with more consistency than disagreement. Ingram stated that he initially objected to Terminal’s offer on two grounds, a substantial “cut in pay” and the absence of relocation or moving expenses. Broyles refused to offer more salary, said Terminal had no relocation expense policy, and asked what was needed to accept the job offer. Ingram replied that he needed $83,000 after taxes “to make the move financially feasible.” Broyles then instructed Nouri to consult with Paubel and determine a reasonable amount “to compensate [Ingram] for the costs of moving.” The resulting payment of $142,737.20 ($85,000 after taxes) was no doubt intended to address both issues raised by Ingram, the cut in pay and the costs of relocating from California. The parties could have agreed to classify the payment, for retirement benefit purposes, as taxable salary, a taxable relocation expense allowance, or some combination of the two. Absent such an agreement, Plan administrator Paubel had to make the discretionary decision, some years later, whether to classify the payment as taxable salary or a taxable expense allowance under § 2.14. Like the district court, we conclude that either interpretation was reasonable. Therefore, substantial evidence supports the Plan administrator’s decision and there was no abuse of discretion.