Frommert v. Sally L. Conkright, Xerox Corp.

738 F.3d 522

Paul J. FROMMERT, Donald S. Foote, Thomas I. Barnes, Ronald J. Campbell, Frank D. Commesso, William F. Coons, James D. Gagnier, Brian L. Gaita, William J. Ladue, Gerald A. Leonardo, Jr., Frank Mawdesley, Harold S. Mitchell, Walter J. Petroff, Richard C. Spring, Patricia M. Johnson, F. Patricia M. Tobin, Nancy A. Revella, Anatoli G. Puschkin, William R. Plummer, Michael J. McCoy, Alan H. Clair, Larry J. Gallagher, Napoleon B. Barbosa, Alexandra Spearman Harrick, Janis A. Edelman, Patricia H. Johnston, Kenneth P. Parnett, Joyce D. Cathcart, Floyd Swaim, Julie A. McMillian, Dennis E. Baines, Ruby Jean Murphy, Matthew D. Alfieri, Irshad Qureshi, Richard C. Crater, Gail J. Levy, John A. Williams, Crystal Thorton, Charles R. Drannbauer, William M. Burritt, Janice Ross Heiler, Joseph McNeil, Thomas F. McGee, Vincent G. Johnson, F. Colt Hitchcock, Ronnie Tabak, Martha Lee Taylor, Kathy Fay Thompson, Mary Beth Allen, Craig Spencer, Linda S. Bourque, Thomas Michael Vasta, Frank C. Darling, Clark C. Dingman, Carol E. Gannon, Joseph E. Wright, David M. Rohan, David B. Ruddock, Charles Hobbs, Charles Zabinski, Charles J. Maddalozzo, Joyce M. Pruett, William A. Craven, Maureen A. Loughlin Jones, Kenneth W. Pietrowski, Bonnie Cohen, Lawrence R. Holland, Gail A. Nasman, Steven D. Barley, Donna S. Lipari, Andrew C. Matteliano, Michael Horrocks, Candice J. White, Dennis E. Baines, Kathleen E. Hunter, John L. Crisafulli, Deborah J. Davis, Brenda H. McConnell, Kathleen A. Bowen, Robert P. Caranddo, Terence J. Kurtz, William J. Cheslock, Thomas E. Dalton, Lynn Barnsdale, Bruce D. Craig, Gary P. Hardin, Claudette M. Long, Dale Platteter, Mary Ann Sergeant, Molly White Kehoe, David K. Young, Leslie Ann Wunsch, Richard J. Glikin, Eugene H. Updyke, Michael R. Benson, Alvin M. Adams, Ronnie Kolniak, James J. Farrell, Robert L. Brackhahn, Benjamin C. Roth, Carmen J. Sofia, Kathleen W. Levea, Frederick Scacchitti, Paul Defina, James G. Walls, Plaintiffs–Appellants,

v.Sally L. CONKRIGHT, Xerox Corporation Pension Plan Administrator, Patricia M. Nazementz, Xerox Corporation Pension Plan Administrator, Xerox Corporation, Lawrence M. Becker, Xerox Corporation Plan Administrator, Xerox Corporation Retirement Income Guarantee Plan, Lawrence Becker, Xerox Corporation Plan Administrators, Defendants–Appellees.

Docket No. 12–67–cv.

United States Court of Appeals, Second Circuit.

Argued: Nov. 15, 2012.

Decided: Dec. 23, 2013.

Peter K. Stris, Stris & Maher LLP (Brendan Maher, on the brief), Gardena, CA, for Plaintiffs–Appellants.

Margaret A. Clemens, Esq., Littler Mendelson, P.C., Rochester, NY, for Defendants–Appellees.

Edward D. Sieger, Senior Appellate Attorney (M. Patricia Smith, Solicitor of Labor, Timothy D. Hauser, Associate Solicitor, Elizabeth Hopkins, Counsel for Appellate and Special Litigation, on the brief), U.S. Department of Labor, Washington, D.C., for Amicus Curiae the Secretary of Labor, in support of Plaintiffs–Appellants.

Maria Ghazal, Business Roundtable, Washington, D.C.; Jeffrey A. Lamken, MoloLamken LLP, Washington, D.C.; Robin S. Conrad, Shane B. Kawka, National Chamber Litigation Center, Inc., Washington, D.C.; Janet M. Jacobson, American Benefits Council, Washington, D.C.; Scott J. Macey, Kathryn Ricard, The ERISA Industry Committee, Washington, D.C., for Amici Curiae Business Roundtable, Chamber of Commerce of the United States of America, The ERISA Industry Committee, and American Benefits Council, in support of Defendants–Appellees.

Before: KEARSE, STRAUB, and POOLER, Circuit Judges.

POOLER, Circuit Judge:

Plaintiffs–Appellants (“Plaintiffs”), who appeal from the December 14, 2011 order of the Western District of New York (David G. Larimer, J.), have brought claims under the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1001 et seq., against the Xerox Corporation (“Xerox”), the Xerox Retirement Income Guarantee Plan (“the Xerox Plan” or “the Plan”), and individually named retirement plan administrators (collectively, the “Plan Administrator”). This is our third decision in this litigation. See Frommert v. Conkright, 535 F.3d 111 (2d Cir.2008)( Frommert II );Frommert v. Conkright, 433 F.3d 254 (2d Cir.2006)( Frommert I ). The Supreme Court reversed our most recent decision, holding that we had “erred in holding that the District Court could refuse to defer to the Plan Administrator's interpretation of the Plan on remand, simply because [we] had found a previous related interpretation by Administrator to be invalid.” Conkright v. Frommert, 559 U.S. 506, 130 S.Ct. 1640, 1651, 176 L.Ed.2d 469 (2010). On remand, the district court applied deferential review and held that the Plan Administrator's proposed offset was a reasonable interpretation of the retirement plan. Frommert v. Conkright, 825 F.Supp.2d 433, 438–43 (W.D.N.Y.2011). It also concluded that the retirement plan gave participants adequate notice of the offset. See id. at 444–47. Plaintiffs argue that this new interpretation (1) violates ERISA's notice provisions and (2) is an unreasonable interpretation of the retirement plan. They further argue (3) that the district court erred in failing to permit plaintiffs to conduct discovery concerning whether the Plan Administrator was operating under a conflict of interest. We agree with the first two arguments, hold that the proposed offset is an unreasonable interpretation of the retirement plan, and hold that it violates ERISA's notice provisions. We therefore VACATE the judgment and REMAND the case to the district court for further proceedings.

BACKGROUND

We presume familiarity with the facts and procedural history of this case as set out in our prior decisions, see Frommert II, 535 F.3d 111;Frommert I, 433 F.3d 254, but state them insofar as they are relevant to the issues presented in this appeal.

This litigation concerns the 1989 restatement of the Xerox Plan, a floor-offset retirement plan. “A floor-offset plan uses a defined-benefit structure (with pension payments linked to years of work and high salary) to buffer the uncertainty of a defined-contribution system (where pension payments depend on the performance of investments in each employee's account).” White v. Sundstrand Corp., 256 F.3d 580, 581 (7th Cir.2001); see also29 U.S.C. § 1002(34) (providing definition of defined contribution plans under ERISA); 29 U.S.C. § 1002(35) (providing definition of defined benefit plans under ERISA). Xerox's floor-offset plan was described in Frommert I, 433 F.3d at 257.See also Miller v. Xerox Corp. Ret. Income Guar. Plan, 464 F.3d 871, 873 (9th Cir.2006); Layaou v. Xerox Corp., 238 F.3d 205, 206 (2d Cir.2001). It has three components: (1) the Retirement Income Guarantee Plan formula (“RIGP”), which is used to calculate a defined benefit annuity; ¹ (2) the Cash Balance Retirement Account (“CBRA”), a defined contribution system consisting of an account with yearly contributionsfrom Xerox, accruing interest at a rate of one percent above the one-year Treasury Bill rate, along with the beneficiary's transferred balance, if any, from Xerox's pre–1990 profit sharing plan; (3) the Transitional Retirement Account (“TRA”), a defined contribution system consisting of an account with the beneficiary's transferred balance from the pre–1990 profit sharing plan, increased based on investment results. The values in the beneficiary's CBRA and TRA are converted into annuities, after which the monthly values of the three accounts are compared, and the beneficiary receives benefits from the account with the greatest monthly value. Because RIGP, unlike CBRA and TRA, provides a set amount independent of market performance, it acts as a “floor”: The highest monthly amount will always be at least the amount provided for by RIGP.

Plaintiffs are Xerox employees who left the company but were subsequently rehired, having received a lump-sum distribution of their then-accrued pension benefits when they left. At issue in this case is how the prior lump-sum distribution affects the determination of benefits outlined above, both in the comparison of the three accounts and in the calculation of actual benefits. Prior to this litigation, the Xerox Plan used the so-called phantom account offset method to take into account the lump-sum distribution. See Frommert I, 433 F.3d at 260. The method involved a three-step calculation:

First, the present value of any of the employee's accounts are calculated as if the lump sum had remained in the account and been invested throughout the period following distribution. Second, the current values of the CBRA and TRA that previously were distributed (i.e., the estimated values) are added to any actual amounts earned since the employee's rehire date. Using these total amounts, a comparison is made among the three account values—RIGP, total CBRA, and total TRA—to determine which method yields the greatest benefits in a monthly value. Third, the account with the greatest monthly value is reduced by the current value of the employee's prior distribution in that same account.

Id. (internal footnotes omitted). Because the RIGP benefit is determined by formula, without reference to an underlying account, no estimated value is added to RIGP in step 2. Id. at 260 n. 5. However, if RIGP yields the greatest benefits in monthly value, it is reduced by the estimated increased value of the lump sum under either TRA or CBRA (whichever is higher), in step 3. Id. at 260 n. 6. The employee received a monthly pension benefit equal to the reduced amount.

Plaintiffs brought suit under Section 502(a)(1)(B) of ERISA, which provides that a “civil action may be brought ... by a participant or beneficiary ... to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan.” 29 U.S.C. § 1132(a)(1)(B). ² Plaintiffsargued that the use of the phantom account offset method to...