Opinion ID: 219338
Heading Depth: 2
Heading Rank: 2

Heading: Who Chooses the Method of Calculating Subclass A's Recovery

Text: The Plan defendants argue that they are entitled to select the means of calculating subclass A's recovery. They point to a host of cases supporting the notion that ERISA fiduciaries are entitled to deference in their administration of the plan. In particular, they cite Conkright v. Frommert, ___ U.S. ___, 130 S.Ct. 1640, 176 L.Ed.2d 469 (2010), for the proposition that their interpretations of the Plan are entitled to a deference that survives despite an initial impermissible interpretation. Briefly, in Conkright the Supreme Court reiterated the policy, most prominently articulated in Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989), of deferring to Plan fiduciaries when they are interpreting Plan terms. The Court clarified that ERISA fiduciaries are not stripped of deference because of an initial improper interpretation; they do not labor under a one-strike-and-you're-out regime. Id. at 1646. Accordingly, the Plan defendants argue, the district court should have selected their first proposal (the spread method), and alternatively, should not have modified their second method (the five-year average) before adopting it. We do not credit the defendants' argument that they are owed deference here, because they did not make a discretionary decision entitled to deference, and indeed they could not have. The reliance on Conkright is inapt because the issue here is not interpretation, and  Firestone is limited to questions of plan interpretation. ... Fletcher v. Kroger Co., 942 F.2d 1137, 1139 (7th Cir.1991). The doctrine does not bring design decisions within ERISA. Belade v. ITT Corp., 909 F.2d 736, 738 (2d Cir.1990); see also Rasenack v. AIG Life Ins. Co., 585 F.3d 1311, 1315 (10th Cir.2009) (Under trust principles, a deferential standard of review is appropriate when trustees actually exercise a discretionary power `vested in them by the instrument under which they act.') (citation omitted). Here, the Plan documents made a general grant of discretion to the Plan administrators in § 11.3, but did not give them discretion to amend the Plan terms; the power to amend was reserved by the company in § 14.1. Cf. Brumm v. Bert Bell NFL Retirement Plan, 995 F.2d 1433, 1437 (8th Cir.1993) (describing a plan that gave the administrators discretionary power `to define and amend the terms of the Plan and Trust....'). Moreover, the Plans' generalized grant of interpretive discretion did not authorize the administrators to controvert the clear terms of the Plan. See Marrs v. Motorola, Inc., 577 F.3d 783, 786 (7th Cir.2009) (The administrator is not by virtue of such a grant of authority free to disregard unambiguous language in the plan....); Call v. Ameritech Mgmt. Pension Plan, 475 F.3d 816, 822-23 (7th Cir.2007) ([U]nambiguous terms of a pension plan leave no room for the exercise of interpretive discretion by the plan's administrator....); Cozzie v. Metropolitan Life Ins. Co., 140 F.3d 1104, 1108 (7th Cir.1998) ([E]ven [given a broad grant of discretion], the [administrator] is bound by the terms of the document. Interpretation and modification are different; the power to do the first does not imply the power to do the second.). These Plans did not give the administrators any discretion in how to calculate future interest for lump-sum distributees because the unlawful wash calculation was effectively codified in the Plans. [10] Section 5.2 declared (incorrectly) that the cash balance account value equaled the actuarial equivalent of the value at age 65. And under § 5.5(e), that actuarial equivalent was to be the amount of any lump-sum distribution. To further drive the point home, the Plan deemed the 30-year treasury rate to be  the reasonable rate of return ... for purposes of [the actuarial equivalency] projection. § 5.2 (emphasis added). And the definitions section, § 2.1, also defined the actuarial equivalent by reference to the 30-year treasury, and linked this value to the lump-sum distribution amount. Thus, projecting future interest credits with a different rate would have been an abandonment, not an interpretation, of the Plans' terms. Such a projection would presumably have violated § 11.2 of the Plan, which forbade the plan administrator from adopting rules contrary to the specific provisions of the Plan. [11] Accordingly, Plan defendants applied the wash calculation ministerially. The Plan's prescriptive approach to calculating lump-sum future interest credits, although now likely regretted, was consistent with a controlling IRS regulation. IRS Notice 96-8, the authority of which we have recognized, [12] specifically requires (1) that a cash balance plan dictate a projection method; and (2) that the prescribed method must not allow discretion. The Notice states in relevant part, A frontloaded interest credit plan[ [13] ] that specifies a variable outside index for use in determining the amount of interest credits must prescribe the method for reflecting future interest credits in the calculation of an employee's accrued benefit. In order to comply with [I.R.C.] section 401(a)(25), the method, including actuarial assumptions, if applicable, must preclude employer discretion. IRS Notice 96-8,  Cash Balance Pension Plans,  1996-1 C.B. 359 (Feb. 5, 1996) (emphasis added). These restrictions allow a cash balance plan to comply with the requirement in I.R.C. § 401(a)(25) [14] that plan benefits be definitely determinable. Esden, 229 F.3d at 166. In sum, the Plan defendants did not exercise interpretive discretion over the projection rate for calculating future interest credits. Nor did the Plan terms permit such interpretation. Therefore, this is not case about the fiduciaries' construal of the Plan, and the Supreme Court's Firestone and Conkright decisions have little authoritative to say. Especially given the IRS Notice, we are loath to convert this into a matter of Plan discretion for the first time in connection with calculating damages for participants who have long since left the Plans. [15] In hindsight, it seems that the defendants had no way to escape being accountable for the unlawful wash calculation once it was codified in the Plans (other than perhaps procuring an amendment of the Plan terms from the employer). This was an unfortunate predicament for the Plan defendants, but that does not mean they are now entitled to deference in calculating the plaintiffs' post-hoc recovery. Someone, however, must choose a method for making the inherently uncertain estimate this case requires. As no ERISA-specific exception applies, the district court should assume its accustomed responsibility for calculating the plaintiffs' recovery. That has been the prevailing practice in comparable cases. See Esden, 229 F.3d at 177 (It shall be for the district court in the first instance to determine the proper projection rate for the calculation of damages....); West v. AK Steel Corp. Ret. Accumulation Pension Plan, No. 1:02-cv-0001, 2005 WL 3465637, at , 2005 U.S. Dist. LEXIS 37863, at -6 (S.D.Ohio Dec. 19, 2005) (While the financial impact is evident and not trivial, the Court again rejects Defendants' argument that the 30-year Treasury rate should be used.), aff'd, 484 F.3d 395 (6th Cir.2007); Berger v. Xerox Ret. Income Guar. Plan, 231 F.Supp.2d 804, 820 (S.D.Ill.2002) (As to Defendants' contention that the Court should refer this case to the ... administrator to determine the proper rates for calculating benefits for... participants, the Court rejects this position.), aff'd as modified, 338 F.3d 755 (7th Cir.2003) [16] ; Lyons v. Georgia-Pacific Corp. Salaried Emples. Ret. Plan, 196 F.Supp.2d 1260, 1266 (N.D.Ga.2002) ([B]ased on the Eleventh Circuit's opinion [in the same litigation] ... the court concludes that [a specified rate] is the appropriate interest crediting rate.); but see Durand, 560 F.3d at 442 (stating that the district court on remand could simply award injunctive relief that requires [the Plan defendant], in the first instance, to do what the law requires.). The Plans are undoubtedly correct that determining how to measure future interest presents special challenges, but estimating damages is often a speculative, counterfactual inquiry. The district court is practiced in this discipline and is equal to the task in this case.