In the
United States Court of Appeals
For the Seventh Circuit
Nos. 10-3917, 10-3918, 10-3988 & 10-3989
M ICHAEL T HOMPSON, et al.,
Plaintiffs-Appellants,
Cross-Appellees,
v.
R ETIREMENT P LAN FOR E MPLOYEES OF
S.C. JOHNSON & S ON, INC., and
R ETIREMENT P LAN FOR E MPLOYEES OF
JOHNSOND IVERSEY, INC.,
Defendants-Appellees,
Cross-Appellants.
Appeals from the United States District Court
for the Eastern District of Wisconsin.
No. 07-cv-1047—J.P. Stadtmueller, Judge.
A RGUED M AY 13, 2011—D ECIDED JUNE 22, 2011
Before C UDAHY, K ANNE and T INDER, Circuit Judges.
C UDAHY, Circuit Judge. The plaintiffs, former mem-
bers of the S.C. Johnson and JohnsonDiversey cash balance
2 Nos. 10-3917, 10-3918, 10-3988 & 10-3989
pension plans, appeal from an order of the district court
dismissing some of their claims as untimely. They
also appeal from the district court’s method for cal-
culating the plaintiffs’ recovery. The Plan defendants
cross-appeal, contending that all the plaintiffs’ claims
are untimely, and also taking issue with the district
court’s damages calculation method. For the reasons
that follow, we affirm the district court in most respects
but reverse in part and remand for it to reconsider the
method of damages calculation.
I. Background
A. Facts
In 1998 S.C. Johnson & Son amended its ERISA plan,
converting it from a traditional defined benefit plan into
a “cash balance” plan. Cash balance plans are formally
classified as defined benefit plans, but they function
more like defined contribution plans, in particular by
providing an account balance for each participant. But
a cash balance plan participant’s balance is only a “no-
tional” tool for estimating pension benefits—not an
actual account containing money.
As amended, the S.C. Johnson Plan provided that
each participant’s notional account balance would be
increased by annual “interest credits.” The Plan cal-
culated interest at the greater of 4%, or 75% of the
Plan’s rate of return on its investments. Further, the
Plan provided that, if a participant left the Plan before
reaching age 65, the participant could take a lump-sum
Nos. 10-3917, 10-3918, 10-3988 & 10-3989 3
distribution of the value of the account. However, the
provisions of the Plan ensured that any lump-sum dis-
tribution would be only the current account balance.
No upward adjustment would be made for the future
interest credits the participant would earn by staying in
the Plan.
The ERISA statute has something to say about early
lump-sum distributions: they must be the “actuarial
equivalent” of the value of the account at age 65. 29
U.S.C. § 1054(c)(3); see Berger v. Xerox Corp. Ret. Income
Guar. Plan, 338 F.3d 755, 759 (7th Cir. 2003). The drafters
of the present Plans were obviously aware of this rule,
because they included § 5.2, which states:
The Cash Balance Account is the Actuarial Equivalent
of the projected annuity at normal retirement
because the Plan deems the return on 30 year Treas-
uries to be the reasonable rate of return to assume
for purposes of that projection . . . .
This section created a wash calculation designed to
add zero interest to lump-sum distributions. This is
because during the relevant period ERISA prescribed
that, when calculating the present value of lump-sum
distributions, plans should use the 30-year Treasury rate
as the discount rate.1 So if a participant was leaving at
1
I.R.C. § 417(e)(3)(A)(ii)(II) (2000). This statutory prescription
was in effect from 1994 to 2006. Prior to 1994, the federal Pension
Benefit Guaranty Corporation set the appropriate discount rate.
See Tax Reform Act of 1986, Pub. L. No. 99-514, § 1139(b), 100
(continued...)
4 Nos. 10-3917, 10-3918, 10-3988 & 10-3989
age 40, the Plan would calculate interest out to age 65
at the 30-year Treasury rate, as prescribed in § 5.2 of the
Plan—then discount it back to age 40 at the exact same
rate, as prescribed by the statute. The participant
would therefore receive as a net amount only his
current account balance (without future interest).
This provision was concededly unlawful. The 30-year
Treasury rate, despite the Plan’s ipse dixit, did not
produce the “actuarial equivalent” of what the Plan
provided to ongoing participants—interest calculated
at the greater of 4% or 75% of the Plan’s rate of return.
The Plans effectively penalized lump-sum distributees
by voiding their future interest credits, and this violated
ERISA. See Berger, 338 F.3d at 761; Esden v. Bank of
Boston, 229 F.3d 154, 168 (2d Cir. 2000).
B. Procedural History
The plaintiffs, participants in the S.C. Johnson Plan 2
1
(...continued)
Stat. 2085, 2487 (1986). Effective in 2007, this entire calculation
was no longer required because Congress sanctioned lump-sum
distributions at no more than the cash balance account value. See
Pension Protection Act of 2006, Pub. L. No. 109-280, § 701(a)(2),
120 Stat. 780, 920, 984 (2006).
2
There are actually two Plan defendants (and two Plans) here:
The S.C. Johnson Plan, and the JohnsonDiversey Plan. The
JohnsonDiversey Plan split from the S.C. Johnson Plan effec-
tive January 1, 1999—seven months after the transition to a
(continued...)
Nos. 10-3917, 10-3918, 10-3988 & 10-3989 5
who received lump-sum distributions, filed this suit
in the Eastern District of Wisconsin on November 27,
2007. The Plan defendants moved to dismiss on the
ground that the plaintiffs had not exhausted the
internal Plan remedies, but the district court denied the
motion in November of 2008. Sometime thereafter, the
Plans conceded the unlawfulness of the lump-sum provi-
sions.
The parties filed cross-motions for summary judg-
ment. The Plan defendants argued inter alia that the plain-
tiffs’ claims were time-barred. In March of 2010, the
district court partially resolved the summary judgment
motions. At the outset, the court held that the applicable
statute of limitations was Wisconsin’s six-year con-
tract limitations period. Wis. Stat. § 893.43.
Next, the court had to determine when the plaintiffs’
claims accrued, a determination governed by federal
law. See Young v. Verizon’s Bell Atl. Cash Balance Plan,
615 F.3d 808, 816 (7th Cir. 2010). The court was faced
with three possible accrual dates. First, it could hold
that the claims accrued in 1998 or 1999, when the Plans
distributed to participants SPDs and other informa-
2
(...continued)
cash balance plan. The relevant provisions of the two plans
are substantively identical. Dates relevant to the statute of
limitations are different, but insignificantly so. To avoid
repetition, we refer throughout to the dates that apply to the
S.C. Johnson Plan. This opinion applies to all parties and
resolves the entire appeal.
6 Nos. 10-3917, 10-3918, 10-3988 & 10-3989
tional material about the new cash balance Plan. Second,
the court could hold that the claims accrued at the time
the plaintiffs received their deficient lump-sum distribu-
tions. Third, it could hold that even the receipt of the
lump-sum distributions did not start the limitations
period, and so the plaintiffs’ claims accrued at some later,
unspecified time. Wisely, the court had divided the
plaintiffs into two subclasses: subclass A, plaintiffs
who had received their lump-sum distributions after
November 27, 2001 (six years prior to filing suit), and
subclass B, plaintiffs w ho had received their
lump-sum distributions before November 27, 2001. The
court held that the claims accrued when the plaintiffs
received their lump-sum distributions; therefore, the
subclass A plaintiffs were timely and the subclass B
plaintiffs were untimely.
Since the Plan had admitted its wash calculation was
unlawful, the court next had to consider subclass A’s
recovery. The subclass A plaintiffs were entitled to the
value, at the time of their lump-sum distributions, of
future interest payments of 4% or 75% of the Plan’s in-
vestment return rate. Of course, there is no formula to
capture that value conclusively since there is no way
of knowing ex ante what the Plan’s annual invest-
ment returns will be.
Both the plaintiffs and the Plan defendants asked
for summary judgment in favor of their proposed
method of calculating the wrongly deprived future
interest credits. But the district court did not select a
method. Instead, it “order[ed] that [the Plans] recalculate
lump sum distributions pursuant to the requirements
Nos. 10-3917, 10-3918, 10-3988 & 10-3989 7
of the law.” The court further provided that if the
parties “are unable to reach an agreement . . . they
remain free to resubmit the issue to the court . . . .” The
court relied on Durand v. Hanover Ins. Group, Inc., 560
F.3d 436, 442 (6th Cir. 2009), as authority for delegating
the recovery issue to the parties.
Unsurprisingly, the parties could not agree on a
method of calculating future interest credits. The district
court received further briefing on how to calculate the
recovery,3 and issued an order resolving the matter in
August of 2010. In so doing, the court credited the
Plan defendants’ contention that they were entitled to
deference in choosing the appropriate method. The
court stated in relevant part, “[t]he court believes that
Conkright[4] supports referral of the interest crediting
rate question to the Plans and compels a grant of
deference to the Plans’ proposed method for recal-
culating lump sum distributions.” Then, the court selected
a modified version of the Plan defendants’ second pro-
posed method, which provided that future interest
should be calculated by using the Plans’ average return
rate over the five years leading up to each participant’s
lump-sum distribution.
The plaintiffs timely appealed, and the Plans timely
cross-appealed. We perceive the questions presented in
this appeal to be as follows:
3
The parties have supplied detailed briefing on several
methods of calculating future interest credits, but our
holding makes it unnecessary to discuss them in depth.
4
Conkright v. Frommert, 130 S. Ct. 1640 (2010).
8 Nos. 10-3917, 10-3918, 10-3988 & 10-3989
1) Timeliness
a) Did the plaintiffs’ injuries accrue when the
Plan circulated information about the conver-
sion to a cash balance plan in 1998 and 1999?
b) If not, did the plaintiffs’ injuries accrue
when they received lump-sum distributions
affected by the unlawful Plan provision?
2) The Plaintiffs’ Recovery
a) Should the district court determine how future
interest credits should be valued for purposes
of determining subclass A’s recovery, or
should the parties?
b) Is the Plan defendants’ proposed method of
calculating future interest credits entitled to
deference?
c) How should the plaintiffs’ future interest
credits be calculated?
II. Analysis
A. Statute of Limitations
Neither party is completely satisfied with the district
court’s statute of limitations ruling. The Plan defendants
argue that the court was correct to rule that subclass B
was untimely, since their lump-sum distributions
occurred over six years before they filed their complaint.
But the Plans would have us go farther and find
subclass A untimely as well, because they believe all
Nos. 10-3917, 10-3918, 10-3988 & 10-3989 9
participants were informed of the relevant Plan provi-
sions in 1999 (and the lawsuit was filed after 2005). The
plaintiffs argue that the court was correct to rule that
subclass A was timely, and that subclass B should
also have been treated as timely because the lump-sum
distributions did not start the statute of limitations clock.
As the district court appreciated, accrual of ERISA
claims is governed by federal law, although the statute
of limitations itself is borrowed from state law. See
Young, 615 F.3d at 816. We have held that “[t]he
general federal common law rule is that an ERISA claim
accrues when the plaintiff knows or should know of
conduct that interferes with the plaintiff’s ERISA rights.”
Id. at 817. Further, “a claim to recover benefits under
§ 502(a) accrues ‘upon a clear and unequivocal repudia-
tion of rights under the pension plan which has been
made known to the beneficiary.’ ” Id. (quoting Daill v.
Sheet Metal Workers’ Local 73 Pension Fund, 100 F.3d 62,
65 (7th Cir. 1996)).5
5
Our accrual analysis differs from the district court’s because
the district court relied on language that derives from cases
considering violations of ERISA § 510, “Interference with
protected rights.” See Tolle v. Carroll Touch, Inc., 977 F.2d 1129,
1139 (7th Cir. 1992). The reason we formulated an independent
accrual framework for § 510 claims in Tolle was precisely
because we believed that the considerations underlying
accrual in cases brought under § 502(a) (like the present case)
were distinguishable. We do not hold that the Tolle analysis
is inapplicable, but we prefer to decide this case in reliance
on accrual precedents specific to § 502(a).
10 Nos. 10-3917, 10-3918, 10-3988 & 10-3989
We affirm the district court’s rulings on the statute
of limitations questions. Although it is a very close ques-
tion, we disagree with the Plan defendants that certain
SPDs and informational material distributed to Plan
participants in 1998 and 1999 amounted to an “unequivocal
repudiation” sufficient to trigger the statute of limitations.
The record contains several Plan informational com-
munications circulated around 1999 that touch on
lump-sum distributions. The 1999 SPD stated, “[y]ou can
choose from several payment options including a lump
sum payment and several types of . . . annuities. You can
also choose to leave your money in the plan and continue
to earn investment credits.” The SPD then described
the lump-sum payment option as follows: “[t]he entire
value of your account is paid in one payment. No
further pension benefit will be available from the Com-
pany.” It later stated, “[y]ou can . . . choose to leave
your money in your retirement account after you leave
the Company up until age 65. Each year, your Cash
Balance Account will receive an investment credit.”
We think that these SPD statements were inadequate
to convey the crucial defect in the Plans: that early
lump-sum distributions would not be increased to
reflect the present value of future interest credits con-
tinuing to age 65. True, the 1999 SPD told participants
that they would not earn investment credits if they left
the Plan. But that would have been true even with a
properly-functioning plan, because such a plan would
incorporate the projected value of future interest pay-
ments into the lump sum and then discontinue those
interest payments. And stating that “[t]he entire value
Nos. 10-3917, 10-3918, 10-3988 & 10-3989 11
of your account [will be] paid in one payment” does not
elucidate how that value is decided.
The Plans’ “Investing in You” newsletters also touched
on lump-sum distributions, although like the SPDs they
usually left considerable room for uncertainty. For in-
stance, the statement that participants could think of
their cash balance account as “much like a savings ac-
count” could be read to suggest that lump-sum distribu-
tions would be in the amount of the account balance
only. But this was a generic comparison to illustrate the
difference between the company’s traditional pension
plan and the new cash balance plan. There was no ex-
planation of how far the analogy carried, and a participant
obviously would have been incorrect to assume that the
cash balance plan was like a bank account in every re-
spect. It is true that several “Investing in You” newsletters
stated that a lump-sum distribution would be in
the amount of the cash balance account. We conclude,
although not without some difficulty, that this too
was inadequate to initiate the limitations period, if only
because these newsletters were obviously meant to be
a simplified explanation of a transition from one compli-
cated plan structure to another. In the context in which
it appeared, this incidental statement would not likely
alert a participant that he was being deprived of some-
thing to which he might be entitled. We do not assume
that a participant would have understood it to have
a legal effect or to mean that the terms of the Plan
itself unlawfully omitted the obscure future interest
right. And a participant familiar with the right to
future interest might still assume that the future in-
12 Nos. 10-3917, 10-3918, 10-3988 & 10-3989
terest credits would somehow be incorporated in the
account balance.
In all, we think these SPD and newsletter statements are
a collection of hints. They are assembled in one place
for purposes of this litigation, but from the perspective
of Plan participants they appeared among the pages of
various circulations distributed over the course of
months. Although it is certainly possible that generic
Plan communications can prospectively repudiate un-
equivocally participant rights, see, e.g., Winnett v. Cater-
pillar, Inc., 609 F.3d 404, 410 (6th Cir. 2010),6 we note
that the more traditional case in which recovery is
barred involves some direct communication to a partici-
pant who is actually pressing the issue.7 In the present
case, given the relative obscurity of the right at issue, the
fact that most of the Plans’ references to lump-sum distri-
6
In that case, the plan unequivocally repudiated a guarantee
of no-cost medical benefits by a statement in the SPD that
after a certain trust was depleted, “monthly premium con-
tributions from retirees will be required.” Id.
7
See, e.g., Carey v. IBEW Local 363 Pension Plan, 201 F.3d 44, 46
(2d Cir. 1999) (pension plan unequivocally repudiated Carey’s
benefits with letter stating “you lost all your pension services
credits due to the fact that you incurred a break in service
prior to being vested.”); Daill v. Sheet Metal Workers’ Local 73
Pension Fund, 100 F.3d 62, 66 (7th Cir. 1996) (Union unequivo-
cally repudiated Daill’s § 502(a)(1) claim for a pension when,
in “[a] three-page letter, the fund carefully and comprehen-
sively explained the basis for its decision” that Daill was ‘not
entitled to a pension from Local 73.’ ”).
Nos. 10-3917, 10-3918, 10-3988 & 10-3989 13
butions offered only oblique guidance about the crucial
flaw at issue here, and the fact that the most illuminating
statements were found in informal Plan newsletters
as opposed to the more legally weighty SPDs, we think
that there has been no clear and unequivocal repudiation
of the participants’ rights to future interest credits
under ERISA. Accordingly, the district court properly
held that the statute of limitations period did not begin
in 1998 or 1999.
We further agree with the district court that when the
participants received their lump-sum distributions, this
served as an unequivocal repudiation of any entitlement
to benefits beyond the account balance. As noted
above, informational circulars confirmed that after a
lump-sum distribution, no additional benefits would
be forthcoming. Given that the distributions were calcu-
lated consistent with the Plan document and every
Plan communication, the lump-sum distributions served
as the final step of a clear repudiation of the participants’
entitlement to anything different.
We specifically reject the plaintiffs’ argument, in sup-
port of the thesis that the lump-sum distributions did not
start the running of the statute of limitations, that they
could not have understood their injury without seeing
the full Plan document. Contrary to the plaintiffs’ argu-
ment, the Plan defendants did not improperly conceal
the wash calculation in the Plan document; they never
mentioned it to the participants because it was designed
to have no effect. Moreover, the plaintiffs did not need to
see the wash calculation language in the Plan to under-
14 Nos. 10-3917, 10-3918, 10-3988 & 10-3989
stand that they had received their account balance and
nothing more. Beginning in 2003 the denial of future
interest credits was unlawful under squarely applicable
precedent from this court. See Berger, 338 F.3d at 763.8
The plaintiffs point to this court’s 2010 opinion in
Young for the proposition that a lump-sum distribution
does not start the statute of limitations clock. In Young,
we stated,
Verizon argues that Young’s claim accrued . . . when
she received her lump-sum benefit . . . . At that time,
however, the parties’ dispute over the correct inter-
pretation of the Plan had not developed. And
nothing suggests that the $286,095 payment that
Young received should have been a red flag that she
was underpaid. . . . The 1998 payment that Young
received was not so inconsistent with her current
8
Here, we must pause to address an argument by the plain-
tiffs that surfaced for the first time at oral argument. We
discuss it in the interest of getting the law right. The plain-
tiffs referred to Walker v. Monsanto Co. Pension Plan, 614 F.3d
415 (7th Cir. 2010), for the proposition that the right to future
interest credits derives from the ERISA plan, and not from
the ERISA statute. Thus, the plaintiffs argue, they needed to
see the Plan document to know that they had been injured.
We will not recount the complex and entirely distinguishable
facts of Walker, because it does not say what the plaintiffs
contend. The present plaintiffs did not need to reference the
Plan to understand their injury; they needed to reference
the ERISA statute and law interpreting it. Those sources may
be obscure, but that will not be held against the defendants.
Nos. 10-3917, 10-3918, 10-3988 & 10-3989 15
claim for additional benefits as to serve as a clear
repudiation.
Young, 615 F.3d at 816. But Young does not control this
case for two reasons.
First, the right that the lump-sum distribution needed
to “clearly repudiate” was very different in Young. In
that case, the trustees were ignoring a scrivener’s error
in the Plan document and distributing lump sums that
were smaller than the Plan literally prescribed. Id. at 814.
Thus, the lump-sum distribution did not place Young
on notice that the Plan was ignoring one factor in a com-
plex formula in the plan document. Here, in contrast,
the lump-sum distribution merely needed to show that
participants would receive their account balance and
no more. That simple fact is what made the Plans unlawful.
The second reason Young is not controlling is that
unlike the present plaintiffs, the plaintiff in Young ex-
hausted the plan’s internal remedies. Id. at 814. She
thereby furnished an alternative accrual date: the date
the plan finally denied her claim. Young persuaded us
that that her lump-sum distribution did not alert her to
her injury (for the reasons detailed above), so we gave
her the benefit of the later accrual date. Id. at 816. In view
of those facts, the present plaintiffs are not really asking
to be treated like the Young plaintiff at all. They have
been given a pass on exhausting their internal remedies,
and they now invite us to extend Young by allowing
16 Nos. 10-3917, 10-3918, 10-3988 & 10-3989
them to slip by with no accrual date. 9 We will not
thereby approve nullification of the statute of limita-
tions. Hence, we reject both the plaintiffs’ and the defen-
dants’ objections to the district court’s conclusions on
the limitations issue.
B. Who Chooses the Method of Calculating
Subclass A’s Recovery
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 ad-
ministration of the plan. In particular, they cite Conkright
v. Frommert, 130 S. Ct. 1640 (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 (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. Accord-
ingly, the Plan defendants argue, the district court
9
Or at least, the plaintiffs would like us to apply an accrual
date that presupposes that the injury was somehow concealed
from them. We have rejected the plaintiffs’ theory that any
such concealment has occurred.
Nos. 10-3917, 10-3918, 10-3988 & 10-3989 17
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 . . . .’ ”). More-
over, the Plans’ generalized grant of interpretive discre-
tion 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 unam-
18 Nos. 10-3917, 10-3918, 10-3988 & 10-3989
biguous 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 discre-
tion in how to calculate future interest for lump-sum
distributees because the unlawful “wash” calculation
was effectively codified in the Plans. 1 0 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 defini-
10
In fact, the record contains several Plan documents, because
there are two Plan defendants and because there were revi-
sions over the course of the class period. We have reviewed
the Plan documents thoroughly in connection with this dis-
cussion. The language of the relevant provisions evolved
over the relevant period, but not in a way that injected an
opportunity for interpretation of the appropriate lump-
sum distribution value. Indeed, it seems that the unlawful
policy actually became more explicit over time.
Nos. 10-3917, 10-3918, 10-3988 & 10-3989 19
tions 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, pro-
jecting future interest credits with a different rate
would have been an abandonment, not an interpreta-
tion, of the Plans’ terms. Such a projection would pre-
sumably have violated § 11.2 of the Plan, which forbade
the plan administrator from adopting rules “contrary
to the specific provisions of the Plan.” 1 1 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 regula-
tion. 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 pre-
scribed method must not allow discretion. The Notice
states in relevant part,
A frontloaded interest credit plan [1 3 ] that specifies
a variable outside index for use in determining the
11
See also 29 U.S.C. § 1104(a)(1)(D) (requiring plan fiduciaries
to manage the plan “in accordance with the documents and
instruments governing the plan . . . .”).
12
See Berger, 338 F.3d at 762; see also West v. AK Steel Corp. Ret.
Accumulation Pension Plan, 484 F.3d 395, 410 (6th Cir. 2007);
Esden, 229 F.3d at 168-69.
13
A “frontloaded interest credit plan” is simply a cash balance
plan that pays the participant interest for the period between
leaving the plan and age 65. A cash balance plan must be
frontloaded to be tax-qualified. See Berger, 338 F.3d at 762.
20 Nos. 10-3917, 10-3918, 10-3988 & 10-3989
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 require-
ment in I.R.C. § 401(a)(25)1 4 that plan benefits be
“definitely determinable.” Esden, 229 F.3d at 166.
In sum, the Plan defendants did not exercise interpre-
tive 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 cal-
culating damages for participants who have long since
left the Plans.15 In hindsight, it seems that the defendants
14
I.R.C. § 401 sets forth the basic prerequisites to enjoy the
preferential tax treatment the Code provides for retirement
plans. Thus, a plan that fails to “comply with Section 401(a)(25)”
would, for all practical purposes, fail altogether.
15
In this connection, we must reject as too clever by half the
Plan defendants’ argument that they should be allowed the
discretion to adopt a new method that does not permit discre-
(continued...)
Nos. 10-3917, 10-3918, 10-3988 & 10-3989 21
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 unfortu-
nate predicament for the Plan defendants, but that does
not mean they are now entitled to deference in cal-
culating 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 cal-
culating the plaintiffs’ recovery. That has been the pre-
vailing 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 U.S.
15
(...continued)
tion in its application. Formally, the interest crediting method
must be prescribed in the plan, and the only persons who
can amend these Plans are the employers—precisely the
persons forbidden from exercising discretion in Notice 96-8.
Technicalities aside, the defendants’ proposed distinction
between discretion in formula selection and formula applica-
tion is illusory in this scenario, because the recovery calcula-
tion method will only be used one time. The defendants are
asking to control the only calculation that matters. We think
that conferring on the Plan defendants the discretion to
devise the entire formula ex post would miss the point of the
IRS Notice, and I.R.C. § 401(a)(25). See also Treas. Reg. 1.411(d)-4,
Q&A-4, Q&A-5 & Q&A-7.
22 Nos. 10-3917, 10-3918, 10-3988 & 10-3989
Dist. LEXIS 37863, at *5-6 (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 cal-
culating benefits for . . . participants, the Court rejects this
position.”), aff’d as modified, 338 F.3d 755 (7th Cir. 2003)1 6 ;
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 litiga-
tion] . . . 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 re-
quires.”). The Plans are undoubtedly correct that deter-
mining how to measure future interest presents special
challenges, but estimating damages is often a specula-
tive, counterfactual inquiry. The district court is prac-
ticed in this discipline and is equal to the task in this case.
16
The Plan defendants urge that this court’s Berger decision
supports their belief that their calculation method is entitled
to deference. The reality is quite the opposite, since the
district court rejected that argument and was affirmed on
appeal. Since the Berger defendants apparently did not raise
the deference issue on appeal, we did not opine on it. So Berger
either offers the defendants no support or undermines their
position.
Nos. 10-3917, 10-3918, 10-3988 & 10-3989 23
C. Method of Calculating
Future Interest Credits on Remand
In view of the above conclusions, we believe the best
procedure is to reverse the district court to the extent
that it held that some deference was owed to the
Plan defendants’ preferred calculation method. We
cannot be certain that this belief did not inform the
court’s selection of the “five-year average” approach.
After all, this methodology originated with the Plan
defendants.17
For the foregoing reasons, we A FFIRM in part, R EVERSE
in part and R EMAND for proceedings 1 8 consistent with
this opinion.
17
This is not to say that we perceive any problem with the
five-year average methodology the district court adopted. It
seems a great deal more administrable than the plaintiffs’
probabilistic “stochastic” method, and more closely tied to
the Plans’ actual interest crediting method (which is based on
investment returns) than is the defendants’ interest rate-based
“spread” method. Although we do not decide the question,
we note that Treasury “safe harbor” regulations and several
precedents support the use of such an average. See Treas.
Reg. 1.401(a)(4)-8(c)(3)(v)(B); Berger, 338 F.3d at 760; Esden,
229 F.3d at 170.
18
We assume that the proceedings on remand need not be
lengthy or burdensome since the district court has already
received extensive briefing on possible future interest crediting
methods. The district court simply needs to select an interest
crediting method with the understanding that it is in charge
of the decision.
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