Opinion ID: 2787077
Heading Depth: 2
Heading Rank: 3

Heading: The Plans Unambiguously Afforded TVPs

Text: Retirement Benefits Without Actuarial Reduction. The 1980 and 1987 Plans gave the plan administrator discretion in interpreting their terms. Thus, in evaluating the Employees’ benefits-due claim, we review Loughlin’s interpretation under a deferential standard and will uphold it unless it is arbitrary and capricious. Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 111 (1989); Fleisher v. Standard Ins. Co., 679 F.3d 116, 120–21 & n.2 (3d Cir. 2012). However, the parties dispute the standard of review for the Employees’ claim that Loughlin’s interpretation of the Plan adopted in his letters to TVPs (that the Plan provided only actuarially adjusted benefits, contrary to United’s earlier 12 representations) violated the anti-cutback rule. The Employees urge that the District Court correctly deferred to Loughlin’s first interpretation of the Plans—that they provided benefits in the same dollar amount to TVPs who elected to receive them before age 65 as to those who began receiving them at age 65 or later—and correctly did not defer to the second one as the “reinterpretation” was really a sub rosa plan amendment to reduce accrued benefits in violation of the anti-cutback rule. United argues that under Conkright v. Frommert, 559 U.S. 506 (2010), Loughlin’s final interpretation—the one allowing reduction of benefits—is entitled to deference. We need not determine who has the better of this argument. As we shall see, no amount of deference can rescue Loughlin’s second interpretation from its flat contradiction with the terms of the 1980 and 1987 Plans. We therefore assume without deciding that the deferential arbitrary and capricious standard applies, under which a “court may overturn a decision of the Plan administrator only if it is without reason, unsupported by the evidence or erroneous as a matter of law.” Mitchell v. Eastman Kodak Co., 113 F.3d 433, 439 (3d Cir. 1997) (internal quotation marks omitted) (quoting Abnathya v. Hoffmann–LaRoche, Inc., 2 F.3d 40, 45 (3d Cir.1993)), abrogated on other grounds by Metro. Life Ins. Co. v. Glenn, 554 U.S. 105 (2008). Even under that standard, an administrator’s “interpretation may not controvert the plain language of the document.” Dewitt v. Penn-Del Directory Corp., 106 F.3d 514, 520 (3d Cir. 1997). 13
Position. To determine whether Loughlin’s second interpretation contradicts the actual words of the 1980 and 1987 Plans, we quote the relevant provisions. Article VII of the 1980 Plan reads: 7.01 Required Service for Vesting If a Participant’s employment shall terminate prior to his Normal Retirement Date [age 65, § 4.01] or an Early Retirement Date [age 60, § 4.02], for any reason other than death, he shall be entitled to a deferred vested Retirement Income if he is credited with at least ten . . . years of Vesting Service at the time of his employment termination. . . . 7.02 Amount and Commencement of Deferred Vested Retirement Income The amount and time of commencement of a deferred vested Retirement Income to a Participant who satisfies the requirements of Section 7.01 shall be determined in accordance with the provisions of Section 5.03, based on the Participant’s Benefit Service and Average Compensation at the time of employment termination. . . . Section 5.03 provides: A Participant who retires on an Early Retirement Date may elect to receive one of the following: 14 (a) His Accrued Retirement Income computed as of his Early Retirement Date commencing at the end of the month in which his Normal Retirement Date would have occurred. (b) A reduced amount of Retirement Income to begin at the end of the month in which his Early Retirement Date occurs, computed so as to be a percentage of the benefit provided for him under paragraph (a) of this Section 5.03, in accordance with the following table: Number of Years Prior to Normal Retirement Date (Interpolate if not a Percentage Whole Number) 0 100.0% 1 100.0% 2 100.0% 3 100.0% 4 93.3% 5 86.7% On October 27, 1988, United put in place “Amendment 5” to the 1980 Plan, effective July 1, 1987. Amendment 5, which applies to all class members covered by the 1980 Plan, in relevant part rewrites § 5.03 of the 1980 Plan to read in its entirety: A Participant who retires on an Early Retirement Date will receive his Accrued Retirement Income computed as of his Early Retirement Date commencing at the end 15 of the month in which his Early Retirement Date occurs. “Accrued Retirement Income . . . as of any particular date” is defined under § 5.02 as an amount to be computed in accordance with § 5.01, which lays out the method of calculation for the “annual rate of Retirement Income.” Section 5.01 describes the method of calculation as (roughly speaking) a percentage of average compensation multiplied by time of service with United, with qualifications and complications not at issue in this appeal. To summarize, per § 7.02 a TVP gets retirement income in accordance with § 5.03, which states that a participant who retires is entitled to “Accrued Retirement Income,” which is calculated under § 5.01 with respect to a participant’s average compensation and length of service with the company. The 1987 Plan is quite similar as it concerns this appeal. Article VII provides: 7.01 Required Service for Vesting. If a Participant’s employment shall terminate prior to his Normal Retirement Date for any reason other than death, he shall be entitled to a deferred vested Retirement Income if he is credited with at least five . . . years of Vesting Service at the time of his employment termination. . . . 16 7.02 Amount and Commencement of Deferred Vested Retirement Income. The amount of a deferred vested Retirement Income to a Participant who satisfies the requirements of Section 7.01 shall be determined in accordance with the provisions of Section 5.03, based on the Participant’s Benefit Service and Average Compensation at the time of employment termination. . . . Section 5.03 provides: Early Retirement Annual Accrued Retirement Income. A Participant who retires on an Early Retirement Date will receive his Accrued Retirement Income computed as of his Early Retirement Date commencing at the end of the month in which his Early Retirement Date occurs. “Accrued Retirement Income” is the amount specified in § 5.02, which, as in the 1980 Plan, is the “amount computed in accordance with Section 5.01,” which in turn provides a formula roughly based on a percentage of average compensation multiplied by the employee’s tenure at United. The Early Retirement Date under the 1987 Plan initially occurred the month after an employee turned 60, but it was lowered effective February 1, 1996, to age 59½. A straightforward reading of the 1980 and 1987 Plans, consistent with United’s early interpretations of these Plans, leads to the conclusion that TVPs were entitled to pensions in an amount that did not include an actuarial adjustment for the number of years younger than 65 that they were when they 17 retired. Under both plans, § 7.02 tells us that a TVP gets retirement income in accord with § 5.03, which states that a retiree is entitled to “Accrued Retirement Income,” which is calculated under § 5.01 with respect to a participant’s average compensation and length of service with the company. Not one of these provisions treats TVPs differently from people who retire directly from United, and no provision requires actuarial adjustment (read reduction) for taking retirement benefits early. Loughlin’s second interpretation conflicted with the plain meaning of the terms of the Plans and thus denied the Employees benefits due them in violation of § 1132(a)(1)(B), notwithstanding the Plans’ conferral on him of discretion to interpret Plan provisions. Epright v. Envtl. Res. Mgmt., Inc. Health & Welfare Plan, 81 F.3d 335, 342–43 (3d Cir. 1996) (“By imposing a requirement which is extrinsic to the Plan[s], [Defendants have] acted arbitrarily and capriciously.”). The second interpretation also violated the anticutback rule, which occurs when an “accrued benefit” is eliminated or reduced by a “plan amendment.” 29 U.S.C. § 1054(g)(1). “There is no question but that a standard early retirement benefit, provided exclusively upon the satisfaction of certain age and/or service requirements, is an accrued benefit that is protected by” § 1054(g).1 Bellas v. CBS, Inc., 1 The statute reads: (g) Decrease of accrued benefits through amendment of plan
plan may not be decreased by an amendment of the plan, other than an amendment described in section 1082(d)(2) or 1441 of this title [neither of which applies in our case]. 18 221 F.3d 517, 524 (3d Cir. 2000). Sections 7.01 and 7.02 of both Plans provide precisely the early retirement benefits described in Bellas and are thus “accrued benefits.” United argues, however, that the early retirement benefits are not “accrued benefits” because § 5.01 of both Plans provide calculations for “[t]he annual rate of Retirement Income payable to a Participant who retires on or after his Normal Retirement Date.” (emphasis added). Thus, according to United, anyone who retires before his normal retirement date has no accrued retirement benefits. What this argument ignores is the combined effect of §§ 7.01, 5.03, 5.02, and 5.01. Section 7.01 vests retirement income in TVPs; § 5.03 directs the administrator to calculate TVPs’ Accrued Retirement Income as of the date of early retirement, while § 5.02 states that the amount of Accrued Retirement Income is computed “in accordance with Section 5.01.” In other words, §§ 5.01, 5.02, and 5.03 provide the method for computing TVPs’ benefits, while § 7.01 actually confers the benefits, making them “accrued” within the meaning of ERISA. Our Court’s “view of what constitutes an ‘amendment’ to a pension plan has been construed broadly to protect
amendment which has the effect of— (A) eliminating or reducing an early retirement benefit or a retirement-type subsidy (as defined in regulations), or (B) eliminating an optional form of benefit, with respect to benefits attributable to service before the amendment shall be treated as reducing accrued benefits. 29 U.S.C. § 1054. 19 pension recipients.” Battoni v. IBEW Local Union No. 102 Employee Pension Plan, 594 F.3d 230, 234 (3d Cir. 2010). “An erroneous interpretation of a plan provision that results in the improper denial of benefits to a plan participant may be construed as an ‘amendment’ for the purposes of” § 1054(g). Hein v. F.D.I.C., 88 F.3d 210, 216 (3d Cir. 1996).2 The critical question in this case, in light of the absence of a formal plan amendment, is whether Loughlin’s “interpretation of the Plan improperly denied accrued benefits to” the Employees. Id. at 216–17. The answer is yes. In 1988, United’s understanding of the Plans accorded with the plain reading of the Plans that we have discussed above. By 2005, United had reinterpreted the Plans and decided that they required actuarial adjustments to the amounts paid to TVPs who took early retirement. This incorrect interpretation resulted in the improper denial of TVPs’ accrued early retirement benefits and thus violated ERISA’s anti-cutback rule. 2 Some Circuits have taken a narrower view of the meaning of “amendment” than Hein—see Richardson v. Pension Plan of Bethlehem Steel Corp., 112 F.3d 982, 987 (9th Cir. 1997); Dooley v. Am. Airlines, Inc., 797 F.2d 1447, 1451–53 (7th Cir. 1986)—but, as the Second Circuit has noted, a Treasury Regulation interpreting the provision of the Internal Revenue Code that implements 29 U.S.C. § 1054(g) supports our Court’s view and is entitled to deference under Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (1984). Kirkendall v. Halliburton, Inc., 707 F.3d 173, 183 (2d Cir. 2013) (discussing Limitations on Availability of Benefits, 53 Fed. Reg. 26,050-01, 26,064 (July 11, 1988) (codified at 26 C.F.R. § 1.411(d)–4)). 20
United makes several arguments to the contrary, none convincing. Its arguments can be grouped into four categories: (1) internal textual arguments (the text of the 1980 and 1987 Plans supports United); (2) external textual arguments (the text of documents other than the Plans supports United); (3) structural (the Plans address Early Retirees and TVPs in separate sections, and thus they treat differently these different kinds of participants); and (4) statutory (because ERISA sets a floor for benefits, we should interpret the Plans to provide only that floor absent a clear and express plan provision to the contrary). We address each in turn.
United’s argument from the Plans’ text is that § 5.03 entitles only “[a] Participant who retires on an Early Retirement Date” to benefits (emphasis added). They argue that “retire” means “retire from United,” because “‘Retirement Date’ expressly required ‘actual retirement’ from the Company with an immediate right to draw down a pension benefit.” Opening Br. at 14. (Recall that by definition all TVPs left United before they were old enough to retire from the company at age 59½ or 60.) But no definition in any plan defines “retire” or “Retirement Date” with reference to separation from United. Instead, both the 1980 and 1987 Plans (at § 1.31) define “Retirement Date” as the date of “actual retirement,” but not actual retirement from United. For support, United cites pages 1645 ¶ 18 and 1684 ¶ 27 of the Joint Appendix. Both citations lead to United’s statement of material facts in support of its motion for summary judgment, and that document in turn cites an expert 21 report by Nancy Keppelman (an ERISA lawyer) interpreting the Plans. Setting aside the problem of considering expert testimony on the interpretation of a pension plan, which is a purely legal question and not properly the subject of expert testimony, Nieves-Villanueva v. Soto-Rivera, 133 F.3d 92, 99 (1st Cir. 1997) (collecting circuit cases); Haberern v. Kaupp Vascular Surgeons Ltd. Defined Ben. Plan & Trust Agreement, 812 F. Supp. 1376, 1378 (E.D. Pa. 1992), the expert does not even support United’s interpretation of the meaning of “retire.” Keppelman writes, “The cross-reference [from § 7.02 to § 5.03] did not confer early retirement benefits on [TVP]s.” Keppelman Report 7, Jan. 24, 2012, ECF No. 154-14. It may be that “the cross reference” does not confer early retirement benefits, but § 7.01 explicitly does, and § 7.02 clarifies that the amount of the benefits conferred by § 7.01 “shall be determined in accordance with” § 5.03 (emphases added). By drafting an actuarial adjustment into the Plan, United is requiring the benefits to be calculated not in accordance with § 5.03, the exact opposite of the Plan’s requirements.
The extrinsic documents on which United relies further undermine its position. It posits that § 5.04(c) of the 1995 and 2002 Plans made explicit what had been true all along: TVPs who took their pensions before turning 65 would be entitled only to actuarially adjusted pensions. But even if it were permissible to look to the 1995 and 2002 Plans for guidance in interpreting the 1980 and 1987 Plans, the addition of § 5.04(c) more strongly supports the Employees’ position that, without the new language explicitly imposing an actuarial adjustment, there was no such adjustment before. United also points to certain summary plan descriptions (“SPDs”) to argue they clarify that actuarial 22 adjustments are required under the Plans. The 1987 and 1995 SPDs (which describe the 1980 and 1987 Plans, respectively) state that employees who took vested retirement benefits earlier than their normal retirement date would only be entitled to actuarially reduced benefits. United’s reliance on the SPDs poses two principal problems. First, the SPDs state that “[i]f the terms of the Plan document and the Trust agreement and of this summary are inconsistent, the terms of the Plan document and the Trust agreement will control.” United Refining Company, Pension Plan for Salaried Employees, Summary Plan Description 20 (Jan. 1 1987); United Refining Company, Pension Plan for Salaried Employees, Summary Plan Description 20 (Jan. 1 1995). When the SPD contains this sort of a disclaimer and the Plan is more favorable to beneficiaries than the SPD, the Plan controls. Sturges v. Hy-Vee Employee Ben. Plan & Trust, 991 F.2d 479, 480–81 (8th Cir. 1993) (per curiam); Glocker v. W.R. Grace & Co., 974 F.2d 540, 542–43 (4th Cir. 1992); McGee v. Equicor-Equitable HCA Corp., 953 F.2d 1192, 1201 (10th Cir. 1992). As discussed, the SPDs conflict with the Plans, as the Plans clearly do not contemplate actuarial adjustment. Second, United published employee handbooks in 1985, 1991, 1994, and 1998 that are wildly inconsistent on whether benefits are calculated with actuarial adjustment, and the Employees not implausibly characterize the handbooks as, by their own terms, SPDs. See, e.g., United Refining Company, Salaried Employee Handbook 110 (Apr. 1, 1994) (“The handbook contains Summary Plan Descriptions of the plans . . . .”). The 1985 handbook (published before Amendment 5 to the 1980 Plan removed its actuarial adjustment table) stated that pension benefits both for Early Retirees (people who retired directly from United after age 59½ or 60 and before age 65) and TVPs who took benefits 23 before their Normal Retirement Date would be actuarially reduced. The 1991 handbook contained no mention of actuarial adjustments for early receipt of benefits. The 1994 handbook stated of TVPs, “You can begin receiving benefits as early as age 60 with no reduction.” Id. at 84. The 1998 handbook is less quotable, but it includes a sample calculation for a person who retires (not necessarily a TVP) at age 59½ and does not include an actuarial adjustment for the participant’s age. Indeed, nowhere in the 1998 handbook is there any indication that anyone’s benefits might be actuarially reduced. These handbooks’ differences with each other and with the SPDs strengthen our conviction that the plain meaning of the Plans should control.
United’s structural argument is stronger, but not strong enough. It relies on expert reports from an actuary (Ian Altman) and an ERISA lawyer (Keppelman), who point out that Article 5 of the Plans addresses benefits for Early Retirees—those who retire from United directly before turning 65—while Article 7 addresses benefits for TVPs. If the plans intended to treat the two categories of participants similarly, why devote a separate section to each group? The question, though provocative, does not overcome the indisputable facts that the TVP section explicitly informs readers that TVPs’ benefits are to be calculated “in accordance with” Article 5 and that nothing in either the 1980 Plan or the 1987 Plan refers to actuarial adjustments for people who elect to receive their pensions early. The structure and language of the plan could be read to suggest that without Article 7 TVPs would be entitled to nothing more than ERISA’s statutory floor, but with Article 7 they are entitled to what Article 7 provides, which is benefits calculated in accordance with Article 5. 24
United’s statutory argument fares no better. ERISA § 206(a) does provide that TVPs are entitled to “no less than” an actuarially reduced benefit. 29 U.S.C. § 1056(a). But for the reasons stated above, these Plans expressly provided TVPs with more than the statutory floor. Imposing a requirement that a plan be even clearer than the one in this litigation would be unreasonable. The case United relies on—McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184 (2d Cir. 2007)—only exposes its argument’s weakness. In McCarthy, when a TVP took payment early, the benefit was actuarially reduced from the amount that would have been paid at age 65 in two respects. First, to reflect the time value of money, the Master Retirement Plan reduced the benefit by a 6.75 percent discount rate for each year prior to the age of 65 that payments began. Second, the benefit was reduced by a mortality factor to adjust actuarially for the possibility that a participant might not live to the age of 65. Id. at 189. These explicit provisions are the opposite of what we find in United’s Plans; far from a reference to actuarial adjustment or silence that could arguably be understood only to provide the minimum pension allowed under ERISA, the 1980 and 1987 Plans set out a detailed scheme for calculating TVPs’ benefits, one that expressly omits any actuarial adjustment. IV. United Forfeited Any Objection to the District Court’s Interest Rate. United next argues that, even if we hold that it owes the Employees benefits without actuarial adjustment (as we 25 do), the District Court erred in its final order on remedies when it ordered United to pay interest at 7.5% on the Employees’ damages. The Court ordered this amount of interest based on the 2002 Plan, which set 7.5% as the rate of interest for actuarial calculations and on the basis of United’s IRS submission, which laid out the company’s plan to recoup excess payments to TVPs at 7.5% interest. Cottillion v. United Ref. Co., No. 1:09-cv-140, 2013 WL 5936368, at  (W.D. Pa. Nov. 5, 2013). United asserts that because certain sections of the Plan that entitle participants to lump sum payments state that the interest rate in those contexts is the 30-year Treasury rate, the interest here should be 3.7%. We need not rule on this objection because it is raised for the first time in United’s reply brief and hence is waived. Kirschbaum v. WRGSB Assocs., 243 F.3d 145, 151 & n.1 (3d Cir. 2001). Moreover, although reasonable objections could be made to the District Court’s choice of an interest rate, United’s proposed rate has no better grounding in the Plan documents (the sections that specify the 30-year Treasury rate apply only to lump sum payments in the event the Plan is terminated or in the case of employees with very small pension entitlements). And because there is some evidence that the Plan provided 7.5% as a default rate, the District Court’s order was not clearly erroneous.