Opinion ID: 174853
Heading Depth: 4
Heading Rank: 2

Heading: Calculation of Early-Retirement Benefits

Text: 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).