Call, Linda v. Ameritech Mgmt

In the
United States Court of Appeals
For the Seventh Circuit
____________

No. 05-4592
LINDA CALL, on behalf of herself and
all others similarly situated,
Plaintiff-Appellee,
v.

AMERITECH MANAGEMENT PENSION PLAN,
Defendant-Appellant.
____________
Appeal from the United States District Court
for the Southern District of Illinois.
No. 01-717-GPM—G. Patrick Murphy, Chief Judge.
____________
ARGUED NOVEMBER 30, 2006—DECIDED JANUARY 9, 2007
____________

Before POSNER, KANNE, and EVANS, Circuit Judges.
POSNER, Circuit Judge. We’ll have to sketch some back-
ground to make this ERISA controversy, which resulted
in an award of damages to the plaintiff class of more than
$31 million, minimally intelligible.
When a participant in a defined-benefit pension plan
is given a choice between taking pension benefits as an
annuity or in a lump sum, the lump sum must be so
calculated as to be the actuarial equivalent of the annuity.
ERISA § 204(c), 29 U.S.C. § 1054(c); Stephens v. Retirement
2 No. 05-4592

Income Plan for Pilots of U.S. Air, Inc., 464 F.3d 606, 614 (6th
Cir. 2006); Esden v. Bank of Boston, 229 F.3d 154 (2d Cir.
2000). To achieve this equivalence requires determining
the pensioner’s life expectancy from a mortality table and
then applying a discount rate to the annuity payments
that the participant would receive each year until his
expected year of death (per the mortality table) if he
chose to take his retirement benefits as an annuity rather
than as a lump sum. The discount rate converts the stream
of expected future payments into a present value, which is
the amount of the lump sum. The longer a person’s life
expectancy, the greater the value of an annuity to him
(because it will be received, on average, for more years)
and hence the larger the actuarially equivalent lump sum
will be as well, since it is merely the discounted present
value of the annuity. But the higher the discount rate, the
lower the value of the annuity and hence the smaller the
lump sum. A higher discount rate, as the term “discount”
implies, reduces the value of future receipts (they are
“discounted” more) and hence the present value of those
receipts, which is the lump sum. Thus the discount rate
and the mortality table jointly determine the lump-sum
equivalent of the annuity to which the pension plan en-
titles the plan participant.
Until 1993, the Ameritech Management Pension Plan,
in calculating these lump sums, used (1) a required dis-
count rate fixed by the Pension Benefit Guaranty Corpora-
tion that we shall call the “PBGC” rate, and (2) an optional
mortality table called Unisex Pensions-1984 (UP84). See
“Notice of Intent to Propose Rulemaking: Lump Sum
Payment Assumptions,” 63 Fed. Reg. 57228-29 (Oct. 26,
1998). In that year the Pension Benefit Guaranty Corpora-
tion adopted a new mortality table, the 1983 Group Annu-
No. 05-4592 3

ity Mortality Table (83GAM), which specified longer life
expectancies than UP84 but only for annuities, not for lump
sums. To prevent the change in mortality tables from
increasing the cost of pension plans, the Corporation
coupled the new mortality table with a new, higher dis-
count rate—the 30-year Treasury Bill interest rate, called
“GATT” (because adopted pursuant to the General Agree-
ment on Tarrifs and Trade). The relevance of discount rates
to annuities is that the higher the discount rate, the lower
the cost to the pension plan of funding an annuity.
The Corporation did not want to apply the new dis-
count rate to lump sums because, at the time, ERISA
required pension plans to use whatever discount rate the
Corporation selected. 29 U.S.C. § 1055(g) (1988). So, since
the mortality table was not prescribed, the new GATT rate
would be coupled in many plans with the old UP84 table,
a coupling that would generate windfalls to plans at the
expense of participants because, as we know, the higher
the discount rate, the smaller the lump sum. So the Corpo-
ration decided that pending legislative action that would
either free plans from the Corporation’s mandatory new
discount rate or require them to adopt the new mortality
table as well, it would publish two different combina-
tions of discount rate and mortality table: GATT-83GAM
for annuities and PBGC-UP84 for lump sums (though plans
could use a different mortality table if they wanted to).
“Notice of Intent to Propose Rulemaking: Lump Sum
Payment Assumptions,” supra; “Valuation of Plan Benefits
in Single-Employer Plans; Valuation of Plan Benefits and
Plan Assets Following Mass Withdrawal,” 58 Fed. Reg.
5128-32 (Jan. 19, 1993).
The following year (1994), the Ameritech Management
Pension Plan amended its plan in an effort to make clear
4 No. 05-4592

that lump sums would still be calculated using the old
mortality table, UP84, and, as required, the old, PBGC
discount rate, since the new, higher rate was applicable
only to annuities. The reason the Plan needed to make
explicit that PGBC-UP84 would be the method of cal-
culating lump sums for plan participants was that the
existing plan required that lump sums be calculated using
the discount rate and life expectancies used by the Pension
Benefit Guaranty Corporation to value annuities. So
when the Corporation adopted a new discount rate and
mortality table for annuities, the adoption would automati-
cally alter the plan’s method of computing lump sums
unless the plan was amended.
Unfortunately for the Ameritech Management Pension
Plan, the 1994 amendment changed only the plan provision
specifying the discount rate, implying, at least on a literal
reading, that the value of lump sums would be deter-
mined by the old discount rate (PBGC) but by the new
annuity mortality table (83GAM). A district court (in fact
the same judge as in this case) held that by failing to delete
the references to annuities in the provision relating to the
mortality table, the plan was stuck with using the Corpora-
tion’s new mortality table for annuities to calculate the
plan’s lump sums. Malloy v. Ameritech Management Pension
Plan, No. 98-488-GPM, 2000 U.S. Dist. LEXIS 20490 (S.D.
Ill. Feb. 7, 2000). The Ameritech Plan did not appeal the
Malloy decision, but instead accepted that the awkward
combination of PBGC (low discount rate) with 83GAM
(long life expectancies) was now the formula for determin-
ing plan participants’ lump-sum entitlements, and that
ERISA’s anti-cutback provision (of which more anon), 29
U.S.C. § 1054(g), clicked in, preventing the Plan from
unilaterally withdrawing the windfall that the botched
No. 05-4592 5

amendment and the Malloy decision had conferred on plan
participants.
The same year as that amendment to the plan, Congress
passed the Retirement Protection Act of 1994, Pub. L. No.
103-465, 108 Stat. 4809, which required that lump-sum
equivalents of defined-benefit annuities equal or exceed
lump sums calculated by combining GATT for the dis-
count rate with 83GAM for the life expectancies. These
changes could produce a bigger or a smaller lump sum
than under the previous life expectancies (UP84) and
discount rate (PBGC), because while the new mortality
table lengthened the life expectancies, the new method of
computing the discount rate increased that rate, and we
know that a longer life expectancy pushes the lump sum
up but a higher discount rate pushes it down. ERISA’s anti-
cutback provision forbids amending a plan to reduce
accrued benefits, but the Retirement Protection Act pro-
vided that amendments that adopted the GATT-83GAM
methodology for calculating lump sums would not vio-
late the provision.
Pension plans were given six years to comply with the
new Act. In 1995, the year after the Act took effect, the
Ameritech Management Pension Plan, seeking to take
advantage of the grace period, reinstated UP84, the mortal-
ity table with the shorter life expectancies. The thinking
was that since pensioners would be favored by the obsolete
low discount rate, PBGC (because the Plan was not yet
adopting GATT—it had until the last day of 1999 to do
so), they should not also be favored by the long life expec-
tancies in 83GAM. But the amendment, like its predecessor,
was a botch. For remember that the Retirement Protec-
tion Act required plans either to adopt GATT-83GAM or
retain the status quo, and the status quo for the Ameritech
6 No. 05-4592

Plan was, by virtue of the unappealed decision in Malloy
that had construed the plan as previously amended, PBGC-
83GAM. By reinstating UP84, the table with the short life
expectancies (hence disadvantageous to pensioners), the
1995 amendment reduced the status quo benefits. And
since it was not implementing the Retirement Protection
Act by adopting GATT-83GAM, the amendment failed
to qualify for the exemption from ERISA’s anti-cutback
provision.
Curiously, the Plan had not relied on the 1995 amend-
ment in the Malloy litigation, even though that suit was
filed in 1998. In the present case, the Plan argues that the
1995 amendment carries the day. It does not. Invoked to
reduce benefits, it violates the anti-cutback provision, as
just explained.
The defendant tried again in 1999. An “Eleventh Amend-
ment” to the plan provided that lump-sum distributions
to people in the plaintiff’s position would be valued at
the higher of either the amount produced by using the
PBGC-UP84 actuarial assumptions or the amount produced
by using the GATT-83GAM assumptions. The amounts
are actually quite similar, but the amendment brought
the plan into compliance with the Retirement Protection
Act and so avoided ERISA’s anti-cutback rule. The plaintiff
wants to invalidate the Eleventh Amendment because
she would do even better under PBGC-83GAM—the
“juicy” method, ordained in Malloy, that combines a
lower discount rate with a longer life expectancy. The
district court agreed, and granted summary judgment
in favor of the plaintiff.
The validity of the Eleventh Amendment turns on sec-
tion 12.1 of the plan, which provides that “no amendment
will reduce a Participant’s accrued benefit to less than the
No. 05-4592 7

accrued benefit that he would have been entitled to re-
ceive if he had resigned [from Ameritech] on the day of
the amendment . . . and no amendment will eliminate an
optional form of benefit with respect to a Participant or
Beneficiary except as otherwise permitted by law and
applicable regulations.” Had the plaintiff retired on the
day of the amendment, she would have received a lump
sum calculated according to PBGC-83GAM. But she re-
tired several months later, and the Plan insists that she
is not entitled to a lump sum so calculated because it is not
an “accrued benefit.”
The defendant does not argue that it could simply amend
section 12.1 to delete the “no amendment” provision. That
would be like orally amending a contract providing for
no oral amendments, which the common law allowed on
the “theory” that an oral amendment would first amend
the no-amendment clause and then amend the substance.
Wisconsin Knife Works v. National Metal Crafters, 781 F.2d
1280, 1286 (7th Cir. 1986). The Uniform Commercial Code
abrogated the common law rule for contracts governed
by the Code. Id.; UCC § 2-209(2). That rule is equally ill-
adapted to an ERISA case. Unlike the case of an ordinary
contract, plan administrators generally have the right to
amend pension plans unilaterally, Curtiss-Wright Corp. v.
Schoonejongen, 514 U.S. 73 (1995), subject to procedural
requirements, the statutory anti-cutback rule and other
statutory provisions, and vesting rules. Section 12.1 is
designed to prevent cutbacks by amendment that are not
covered by the statutory anti-cutback rule. If the Plan
could unilaterally eliminate the private anti-cutback
provision by amendment, section 12.1 would be empty.
The section does not define “accrued benefit,” however;
and while there is a definition elsewhere in the plan, it
8 No. 05-4592

does not govern this section. The plan specifies that only
definitions in capital letters apply to sections other than
the one in which the definition appears, and the defini-
tion of “accrued benefit” neither appears in section 12.1
nor is in capital letters. The term appears in ERISA’s anti-
cutback provision, however, and since the Eleventh
Amendment is a private anti-cutback provision, the parties
naturally have referred us to the use of the term in the
statute. The Plan would prefer us to look no further than
29 U.S.C. § 1002(23)(A), which defines “accrued benefit”
as “the individual’s accrued benefit determined under
the plan . . . expressed in the form of an annual benefit
commencing at normal retirement age,” which for Call
would have been 65. But she took early retirement, and
ERISA’s anti-cutback provision forbids both decreasing
“accrued benefits” (presumably as defined in section
1002(23)(A)) and “eliminating or reducing an early re-
tirement benefit . . . attributable to service before the [plan]
amendment.” 29 U.S.C. § 1054(g). Any such elimination
or reduction “shall be treated as reducing accrued bene-
fits.” Id.
An “optional form of benefit” is defined neither in
ERISA nor in the Ameritech plan, and its meaning is
obscure. But it is not an “early-retirement benefit,” a term
that fits the plaintiff’s claim to a T. As Ross v. Pension Plan
for Hourly Employees of SKF Industries, Inc., 847 F.2d 329,
333 (6th Cir. 1988), explains, “Early retirement benefits
are generally benefits that become available upon retire-
ment at or after a specified age which is below the normal
retirement age, and/or upon completion of a specified
period of service. An optional form of benefit is generally
one that involves the power or right of an employee to
choose the way in which payments due to him under a
No. 05-4592 9

plan will be made or applied.” An entitlement to take one’s
pension benefits as a lump sum at normal retirement age
is an example of an optional form of benefit.
For purposes of the statutory anti-cutback provision,
then, early-retirement benefits are treated as accrued
benefits that may not be reduced; and the district court,
granting summary judgment for the plaintiff, ruled that
section 12.1 should be interpreted the same way. The
defendant insists, however, that only a pension in the form
of an annuity starting at normal retirement age is an
“accrued benefit” within the meaning of section 12.1, and
that an accrued benefit must be distinguished from the
actuarial assumptions used to determine lump-sum
benefits.
But the separate treatment of “optional form of benefit”
in section 12.1 implies that “early-retirement benefits” are
accrued benefits within the meaning of the first clause and
therefore that only an optional form of benefit can be
withdrawn if the law permits, not an early-retirement
benefit. Had the defendant wanted to subject early-retire-
ment benefits to the same rule, the plan would say some-
thing like “no amendment will eliminate an early-retire-
ment or optional form of benefit with respect to a Partici-
pant or Beneficiary except as otherwise permitted by
law and applicable regulations,” rather than putting
“except as otherwise permitted” in a separate clause
referring to optional forms of benefit.
If this “literal” interpretation affronted the common
sense of, or the economic realities behind, section 12.1,
that would be a powerful reason to reject it. Beanstalk
Group, Inc. v. AM General Corp., 283 F.3d 856, 860 (7th Cir.
2002); Kerin v. U.S. Postal Service, 116 F.3d 988, 991 (2d Cir.
1997); New Castle County v. Hartford Accident & Indemnity
10 No. 05-4592

Co., 970 F.2d 1267, 1270 (3d Cir. 1992). “There is a long
tradition in contract law of reading contracts sensibly.”
Rhode Island Charities Trust v. Engelhard Corp., 267 F.3d 3, 7
(1st Cir. 2001). But it is the defendant’s interpretation that
lacks the appeal of common sense. It denies any force
to section 12.1 as a private anti-cutback rule (which is all
it is), because its interpretation would leave participants
with no more protection than the statutory anti-cutback
rule would give them, making the section superfluous.
Acknowledging this point in effect, the defendant argues
that it was legally obligated to state its statutory obliga-
tions in the plan. But that is nonsense; section 12.1 did not
even appear in earlier versions of the plan; nor does the
section accurately state the defendant’s statutory obliga-
tions. In contrast, the plaintiff’s interpretation preserves
early-retirement benefits by contract in situations in
which ERISA would permit them to be curtailed.
Companies encourage early retirement in order to make
room for “fresh blood.” Had Ameritech told the plaintiff
that by retiring early she would lose a benefit worth al-
most $36,000 (the difference between a PBGC-UP84
pension and the PBGC-83GAM pension to which she
claims to be entitled)—a substantial percentage of her
pension entitlement (14 percent)—she might have decided
to remain with the company until the normal retirement
age. This is a practical reason for invoking the principle
that ambiguities in a contract that remain after extrinsic
evidence has been presented (which neither party
wishes to do in this case) are resolved against the party
who drafted the contract, e.g., Shelby County State Bank v.
Van Diest Supply Co., 303 F.3d 832, 838 (7th Cir. 2002),
unless both parties are commercial enterprises. Beanstalk
Group, Inc. v. AM General Corp., supra, 283 F.3d at 858; and
No. 05-4592 11

cases cited there; Dawn Equipment Co. v. Micro-Trak Systems,
Inc., 186 F.3d 981, 989 n. 3 (7th Cir. 1999).
Now just because the statutory anti-cutback provision
makes no distinction between normal retirement benefits
and early-retirement benefits is no reason for the
Ameritech plan to do the same thing. But as we have just
seen, the defendant offers no reason for thinking that
the distinction makes any more sense in section 12.1 than
it does in ERISA’s anti-cutback provision. If the Plan
sought to deprive the plaintiff and similarly situated
employees of the windfall created by the Malloy decision,
which it could have done without violating the statutory
anti-cutback rule because that rule is inapplicable to
plans adopting the GATT-83GAM assumptions, why
didn’t it include language in section 12.1 to that effect?
It is true that the plan administrator, who is given
discretion to interpret the plan, adopted the interpreta-
tion that the defendant is urging upon us; to reject his
interpretation we must find an abuse of that discretion. But
“we have said many times that the term ‘abuse of discre-
tion’ covers a range of degrees of deference rather than
denoting a point within that range, and where a particular
case falls in the range depends on the precise character
of the ruling being reviewed.” Schering Corp. v. Illinois
Antibiotics Co., 62 F.3d 903, 908 (7th Cir. 1995) (citations
omitted); cf. Manny v. Central States, Southeast & Southwest
Areas Pension & Health & Welfare Funds, 388 F.3d 241, 242-43
(7th Cir. 2004). The deference that we would normally give
to an interpretation by the administrator of a pension plan,
Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 110-11
(1989); Herman v. Central States, Southeast & Southwest Areas
Pension Fund, 423 F.3d 684, 692-93 (7th Cir. 2005), is over-
ridden in this case by the lack of any reasoned basis for that
12 No. 05-4592

interpretation. Mers v. Marriott International Group Acciden-
tal Death & Dismemberment Plan, 144 F.3d 1014, 1021 (7th
Cir. 1998); Swaback v. American Information Technologies
Corp. 103 F.3d 535 (7th Cir. 1996).
Deference is relative to the nature of the issues, including
their complexity. Carr v. Gates Health Care Plan, 195 F.3d
292, 295 (7th Cir. 1999); Cozzie v. Metropolitan Life Ins. Co.,
140 F.3d 1104, 1108-09 (7th Cir. 1998). The more com-
plex, the greater the range of reasonable resolutions. In
addition, “Deference depends on ambiguity.” Contract
Courier Services, Inc. v. Research & Special Programs Adminis-
tration, 924 F.2d 112, 115 (7th Cir. 1991). The points are
related. The more numerous and imponderable the
factors bearing on a decision, the harder it will be for a
reviewing court to pronounce the decision unreasonable
and hence an abuse of discretion. But the interpretation of
written contracts in cases in which no extrinsic evidence
(that is, no evidence—besides the contract itself) is pre-
sented is usually pretty straightforward. There are the
contract’s wording, some commonsensical principles of
interpretation, and the commercial or other background of
the contract insofar as that can be gleaned without taking
evidence. When guides to meaning line up on one side of
the case, as they do here, an adjudicator who decides the
case the other way is likely to be acting unreasonably. Just
as unambiguous terms of a statute leave no room for the
agency that administers the statute to exercise interpretive
discretion, National Cable & Telecommunications Ass’n v.
Brand X Internet Services, 125 S. Ct. 2688, 2700 (2005), so
unambiguous terms of a pension plan leave no room for
the exercise of interpretive discretion by the plan’s admin-
istrator, or at least not enough to carry the day for the
administrator in this case. And while a contract or other
No. 05-4592 13

instrument that looks unambiguous to the uninformed
reader may be shown to be ambiguous when the context
of the instrument is explained, Confold Pacific, Inc. v. Polaris
Industries, Inc., 433 F.3d 952, 955-56 (7th Cir. 2006), the
Ameritech Management Pension Plan has presented no
such evidence of a latent ambiguity.
The Plan’s remaining arguments are makeweights,
perfunctorily argued. The judgment of the district court is
AFFIRMED.

A true Copy:
Teste:

_____________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit

USCA-02-C-0072—1-9-07