Free Trial Memo - District Court of Connecticut - Connecticut

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UNITED STATES DISTRICT COURT DISTRICT OF CONNECTICUT JANICE C. AMARA, GISELA R. BRODERICK, ANNETTE S. GLANZ, individually and on behalf of all others similarly situated, : : : : : : Plaintiffs, : : : : : : : Defendants. :

vs. CIGNA Corp. and CIGNA Pension Plan,

Civil No. 3:01-CV-2361 (MRK)

PLAINTIFFS' POST-TRIAL REPLY BRIEF

Stephen R. Bruce Ct23534 Allison C. Caalim 805 15th St., NW, Suite 210 Washington, DC 20005 (202) 371-8013 Thomas G. Moukawsher Ct08940 Moukawsher & Walsh, LLC 21 Oak St. Hartford, CT 06106 (860) 278-7000 Attorneys for Named Plaintiffs and Plaintiff Class

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Table of Contents

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 I. "WEAR-AWAY" CLAIMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 A. The Periods of "Wear-Away" With No Additional Benefits Violate ERISA's 133a% Benefit Accrual Rule. . . . . . . . . . . . . . . . . . . . . . . 3 Section 7.3 of the Plan Violates ERISA Because It Requires Participants to "Elect" Between Forfeiting the Previously-Earned Annuity (Including Early Retirement Features) or Forfeiting Any Cash Balance Accruals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

B.

II.

"AGE DISCRIMINATION" CLAIMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 A. CIGNA's Argument that the Term "Benefit Accrual" in ERISA §204(b)(1)(H) Does Not Refer to the Change in the "Accrued Benefit" Ignores the Statutory Context and Usage and Ultimately Substitutes a Neologism of "Imputed" "Inputs" for the Statute's Established Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Even if Age Discrimination Could Be Measured by Costs Incurred, the Periods of "Wear-Away" With No Additional Benefits Violate the Age Discrimination Rule. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

B.

III.

"204(h) NOTICE" CLAIMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 A. ERISA §204(h) Required CIGNA to Tell Its Employees that Their Future Benefits Were Being Significantly Reduced. . . . . . . . . . . . 29 Plaintiffs Have Shown "Likely Prejudice" from the §204(h) Violation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

B.

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C.

ERISA Also Required Advance Notice of the Change in the "Rehire Rule" So Former CIGNA Employees Would Know that They Were Returning to Work For No Pension Benefits . . . . . . . . 42

IV.

"SUMMARY PLAN DESCRIPTION (SPD)" CLAIMS . . . . . . . . . . . . . . 47 A. CIGNA's Summary Plan Description and Summary of Material Modifications Omits Any Disclosure of Reductions, Losses or Forfeitures and Falsely Assures Participants that the Cash Balance Benefits Are "Larger" or "Comparable." . . . . . . . . . . . . . . . . . . . . . 47 CIGNA's Efforts to Minimize the Need to Disclose Wear-aways Are Misguided . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 1. Wear-aways Should Have Been Disclosed Even if They Would Not Have Affected as Many People or Lasted as Long With Higher Interest Rates. . . . . . . . . . . . . . . . . . . . . . 54 Wear-Aways Should Have Been Disclosed Even If the Duration of the Wear-away Is Affected by How `Well Off' People Were Before the Conversion . . . . . . . . . . . . . . . . . . . 58

B.

2.

C.

CIGNA's Disclosures Resulted in "Likely Prejudice" to the Participants' Ability to Make Well-Informed Employment and Retirement Decisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 CIGNA Has Not Come Close to Meeting Its Burden of Showing that Its Inadequate and Misleading Disclosures Were "Harmless Error". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 CIGNA Had "Fair Notice" under Rule 8 of the SMM Claim. . . . . . 64

D.

E. V.

"RELATIVE VALUE" CLAIMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 A. CIGNA Did Not Disclose the Relative Value of Optional Forms of Benefit as Required by Treasury Regulations In Effect Since 1988. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
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B.

The Named Plaintiffs Have Standing to Bring the Relative Value Claim; Exhaustion Is Not Required for Statutory Claims; Moreover, Plaintiffs Amara and Broderick Exhausted CIGNA's Claim Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72

VI.

CIGNA Is the "Plan Administrator" For Disclosure Purposes Because CIGNA Controlled the Disclosures and No Other Person Is Designated in the Plan Document. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

VII. The Class' Claims Are Not Barred by Statutes of Limitations . . . . . . . . . 81 VIII. Frommert and Swede Show that the Supreme Court's Great-West Decision Does Not Preclude Relief for ERISA Violations. . . . . . . . . . . . 86 IX. The Releases that CIGNA Solicited from Over 2,000 Class Members Contain an Express Exception for "Any Claims for Benefits Under Any Retirement Programs"; CIGNA Never Communicated Any Intention that Those Words Would Mean Less than What They Say. . . . . . . . . . . . . . . . 89

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94

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TABLE OF AUTHORITIES FEDERAL CASES BFP v. Resolution Trust Corp., 511 U.S. 531 (1994) ................................. 19 Bell Atlantic Corp. v. Twombly, 550 U.S. __, 127 S. Ct. 1955 (2007) ....... 65 Bonovich v. Knights of Columbus, 146 F.3d 57 (2d Cir. 1998), aff'g, 963 F.Supp. 143 (D.Conn. 1997) ............................................................. 12-13 Brody v. Enhance Reinsurance Co. Pension Plan, 2003 WL 1213084 (S.D.N.Y. 2003) ...................................................................................... 36 Broga v. Northeast Utilities, 315 F. Supp. 2d 212 (D.Conn. 2004) ............ 39 Bryerton v. Verizon Communs. Inc., 2007 WL 1120290 (S.D.N.Y. 2007) . 36 Burke v. Kodak Retirement Income Plan, 336 F.3d 103 (2d Cir. 2003), cert. denied, 540 U.S. 1105 (2004) ............................................ 39, 61, 64 Campanella v. Mason Tenders' Dist. Council, 132 Fed.Appx. 855 (2d Cir. 2005) .......................................................................................... 82 Campbell v. BankBoston, 327 F.3d 1 (1st Cir. 2003) ................................. 13 Caputo v. Pfizer, 267 F.3d 181 (2d Cir. 2001) ............................................ 85 Carey v. IBEW Local 363 Pension Plan, 201 F.3d 44 (2d Cir. 1999) ........ 82 Carlson v. Principal Financial Group, 320 F.3d 301 (2d Cir. 2003) ......... 80 Carrabba v. Randalls Food Markets, 145 F. Supp. 2d 763 (N.D. Tex. 2000), aff'd, 252 F.3d 721 (5th Cir. 2001), cert. denied, 534 U.S. 995 (2001) ..................................................................................................... 92 Carter v. AT&T, 870 F. Supp. 1438 (S.D. Ohio 1994) ............................... 92

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Chambless v. Masters, Mates & Pilots Pension Plan, 772 F.2d 1032 (2d Cir. 1985) ............................................................................................... 47 Charles v. PEPCO, 437 F. Supp. 2d 248 (D.Del. 2006) ............................... 5 Chevron U.S.A. v. Natural Resources Defense Council, 467 U.S. 837 (1984) ....................................................................................................... 8 Christensen v. Chesebrough Pond's, Inc., 1993 U.S. Dist. LEXIS 21278 (D. Conn. 1993) ..................................................................................... 83 In re Citigroup Pension Plan ERISA Litigation, 470 F. Supp. 2d 323 (S.D.N.Y. 2006) ............................................................................ 8, 29, 82 In re Citigroup Pension Plan ERISA Litigation, 241 F.R.D. 172 (S.D.N.Y. 2006) ..................................................................................... 59 Cole v. Travelers Insurance Co., 208 F. Supp. 2d 248 (D.Conn. 2002) ..... 82 Cooper v. IBM Personal Pension Plan, 457 F.3d 636 (7 th Cir. 2006) ........ 19 Cooper v. IBM Personal Pension Plan, 2004 WL 322918 (S.D. Ill. 2004) 88 Costantino v. TRW, 13 F.3d 969 (6th Cir. 1994) ........................................ 66 Crocco v. Xerox, 137 F.3d 105 (2d Cir. 1998) ............................................ 79 Crowley v. Corning, Inc., 234 F. Supp. 2d 222 (W.D.N.Y. 2002) ............. 79 In re Currency Conversion Fee Antitrust Litigation, 361 F. Supp. 2d 237 (S.D.N.Y. 2005) ..................................................................................... 93 Curtiss-Wright v. Schoonejongen, 514 U.S. 73 (1993) ............................... 87 Deal v. United States, 508 U.S. 129 (1993) ................................................ 15 Devlin v Empire Blue Cross and Blue Shield, 274 F.3d 76 (2d Cir. 2001) . 67

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EEOC v. Jefferson Co. Sheriffs' Department, 467 F.3d 5761 (6th Cir. 2006) ...................................................................................................... 22 EM Ltd. v. Republic of Argentina, 382 F.3d 291 (2d Cir. 2004) ................... 7 Engers v. AT&T, 428 F. Supp. 2d 213 (D.N.J. 2006) ................................. 67 Engers v. AT&T, 2006 WL 3359722 (D.N.J. 2006) .................................... 67 Esden v. Bank of Boston, 229 F.3d 154 (2d Cir. 2000) ......... 2, 12, 16, 19, 23 Fallick v. Nationwide Mutual Insurance Co., 162 F.3d 410 (6th Cir. 1998) ...................................................................................................... 74 Fernandez-Vargas v. Gonzales, 126 S. Ct. 2422 (2006) ............................ 88 Frommert v. Conkright, 433 F.3d 254 (2d Cir. 2006) .......................... passim Gilley v. Monsanto, __ F.3d __, 2007 WL 1837114 (11th Cir. 2007) ........ 87 Gomes v. Avco Corp., 964 F.2d 1330 (2d Cir. 1992) .................................. 84 Gray v. Great American Recreation Association, 970 F.2d 1081 (2d Cir. 1992) ....................................................................... 27, 33, 45, 89 Harris Trust & Sav. Bank v. Salomon Smith Barney, Inc., 530 U.S. 238 (2000) ..................................................................................................... 80 Harrow v. Prudential Insurance Co., 279 F.3d 244 (3d Cir. 2002) ............ 74 Hirt v. Equitable, 450 F. Supp. 2d 331 (S.D.N.Y. 2006) ............................ 82 Hirt v. Equitable, 2006 WL 2627564 (S.D.N.Y. 2006) .............................. 29 Hooven v. Exxon Mobil Corp., 465 F.3d 566 (3d Cir. 2006) ................ 38, 57 Hudson v. General Dynamics, 118 F. Supp. 2d 226 (D.Conn. 2000) ......... 39

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In re J.P. Morgan Chase Cash Balance Litigation, 460 F. Supp. 2d 479 (S.D. N.Y. 2006) .................................................................................... 86 Jensen v. Times Mirror Co., 634 F. Supp. 304 (D.Conn. 1986) ................. 83 Kling v. Fidelity Mgmt. Trust Co., 323 F. Supp. 2d 132 (D. Mass. 2004) .. 79 Langman v. Loeb, 328 F.3d 68 (2d Cir. 2003) .............................................. 6 Laurent v. PriceWaterhouseCoopers, 448 F. Supp. 2d 537 (S.D.N.Y. 2006) ...................................................................................................... 47 Layaou v. Xerox Corp., 238 F.3d 205 (2d Cir. 2001) ................................. 47 Lee v. Burkhart, 991 F.2d 1004 (2d Cir. 1993) ...................................... 78-79 Manginaro v. Welfare Fund of Local 21, 21 F. Supp. 2d 284 (S.D.N.Y. 1998) ............................................................................... 64, 82 Martens v. Thomann, 273 F.3d 159 (2d Cir. 2001) .................................... 73 McAuley v. IBM, 165 F.3d 1038 (6th Cir. 1999) ........................................ 39 McCarthy v. Associated Clearing Bureau, 1999 WL 1995185 (D.Conn. 1999) ....................................................................................................... 84 McCarthy v. Dun & Bradstreet, 482 F.3d 184 (2007) ................................ 48 Mertens v. Hewitt Associates, 508 U.S. 248 (1993) .................................... 16 Miles v. New York State Teamsters Conference Pension Fund, 698 F.2d 593 (2d Cir. 1983) .............................................................. 81-82, 85 Mullins v. Pfizer, 23 F.3d 663 (2d Cir. 1994) ....................................... 32, 38 Nechis v. Oxford Health Plans, 421 F.3d 96 (2d Cir. 2005) ................. 74, 77

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Paese v. Hartford Life & Accident Insurance Co., 449 F.3d 435 (2d Cir. 2006) ...................................................................................................... 74 Parry v. SBC Corp., 363 F. Supp. 2d 275 (D.Conn. 2005) ......................... 75 Parsons v. AT&T, 2006 WL 3826694 (D.Conn. 2006) ............................... 86 RIJ Pharm. Corp. v. Ivax Pharms, Inc., 322 F. Supp. 2d 406 (S.D.N.Y. 2004) ...................................................................................................... 27 Register v. PNC Financial, 477 F.3d 56 (3d Cir. 2007) .......................... 8, 34 Richards v. FleetBoston Fin. Corp, 427 F. Supp. 2d 150 (D.Conn. 2006) ........................................................................................... 12, 21, 80 Richards v. FleetBoston Fin. Corp, 238 F.R.D. 345 (D.Conn. 2006) ........ 59 Richards v. FleetBoston Fin. Corp, 2006 WL 2092086 (D.Conn. 2006) ................................................................................................. 47, 51 Romero v. Allstate, 404 F.3d 212 (3d Cir. 2005) ............................ 34, 85-86 Royal Indemnity Co. v. Wyckoff Heights Hospital, 953 F. Supp. 460 (E.D.N.Y. 1996) ....................................................................................... 7 Shane v. Connecticut, 821 F. Supp. 829 (D.Conn. 1993) ........................... 83 Shaver v. Siemens, 2007 WL 1006681 (W.D. Pa. 2007) ............................. 89 Siegel v. Converters Transport Inc., 714 F.2d 213 (2d Cir. 1983) ............ 83 Soares v. Connecticut, 8 F.3d 917 (2d Cir. 1993) ....................................... 70 Sosna v. Iowa, 419 U.S. 393 (1975) ............................................................ 73 Swede v. Rochester Carpenters Pension Fund, 467 F.3d 216 (2d Cir. 2006) ...................................................................................................... 87

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Swierkiewicz v. Sorema, 534 U.S. 506 (2002) ............................................ 65 Thomforde v. IBM, 406 F.3d 500 (8th Cir. 2005) ....................................... 92 Tootle v. ARINC, 222 F.R.D. 88 (D. Md. 2004) ........................................... 1 Travelers Ins. Co. v. 633 Third Associates, 14 F.3d 114 (2d Cir. 1994) .... 83 United States Parole Commission v. Geraghty, 445 U.S. 388 (1980) ........ 73 Venturini v. Metropolitan Life Insurance Co., 55 F. Supp. 2d 119 (D.Conn. 1999) ...................................................................................... 82 Wasley Products, Inc. v. Bulkalites, 2006 WL 3834240 (D. Conn. 2006) ....................................................................................................... 78 Weinreb v. Hospital for Joint Diseases Orthopaedic Institute, 404 F.3d 167 (2d Cir.2005) .................................................................................. 61 Weiss v. Regal Collections, 385 F.3d 337 (3d Cir. 2004) ........................... 73 Wells v. Harris, 185 F.R.D. 128 (D.Conn. 1999) ....................................... 83 White v. Secretary of Health and Human Services, 654 F. Supp. 888 (E.D.N.Y. 1987) ....................................................................................... 7 White v. Sundstrand, 256 F.3d 580 (7th Cir. 2001) .................................... 13 White v. White Rose Rood, 128 F.3d 110 (2d Cir. 1997) ............................ 83 Williams v. Caterpillar, 994 F.2d 658 (9th Cir. 1991) ................................ 13 Wolf v. National Shopmen Pension Fund, 728 F.2d 182 (3d Cir. 1984) .... 75 FEDERAL STATUTES, RULES, REGULATIONS AND LEGISLATIVE HISTORY ERISA §3(7), 29 U.S.C. §1002(7) .............................................................. 42
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ERISA §3(16)(A), 29 U.S.C. §1002(16) .................................................... 76 ERISA §102, 29 U.S.C. §1022 ................................................................... 32 ERISA §204(b)(1)(B), 29 U.S.C. §1054(b)(1)(B) ....................... 6, 13, 15-17 ERISA §204(b)(1)(H), 29 U.S.C. §1054(b)(1)(H) ............................... passim ERISA §204(b)(2), 29 U.S.C. §1054(b)(2) ............................................ 15-16 ERISA §204(c)(3), 29 U.S.C. §1054(c)(3) .................................................. 19 ERISA §204(g), 29 U.S.C. §1054(g) .......................................................... 13 ERISA §204(h), 29 U.S.C. §1054(h) ................................................... passim ERISA §205(g), 29 U.S.C. §1055(g) .......................................................... 20 IRC §417(e), 26 U.S.C. §417(e) ................................................................. 20 29 C.F.R. 2520.102-2 ................................................................. 32, 49-50, 53 29 C.F.R. 2520.104b-4(c) ........................................................................... 45 Treas. Reg. 1.401(a)-20 ............................................................................... 68 Treas. Reg. 1.401(a)(4)-3 ............................................................................ 17 Treas. Reg. 1.401(a)(4)-4(e)(1) ................................................................... 71 Treas. Reg. 1.411(a)-4 ................................................................................. 12 Treas. Reg. 1.411(b)-1(b)(3)(iii) ................................................................... 5 Treas. Reg. 1.411(d)-3(g)(6)(ii)(A) ............................................................. 71 Treas. Reg. 1.411(d)-4 ................................................................................ 70

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Treas. Reg. 1.411(d)-6 ................................................................................ 32 Treas. Reg. 1.417(a)(3)-1(c)(2)(i) .............................................................. 72 53 Fed. Reg. 31837 (Aug. 22, 1988) ........................................................... 66 H.R. Conf. Rep. 99-1012, 1986 U.S.C.C.A.N. 3868 .................................. 14 Fed. R. Civ. P. 15(c) .............................................................................. 83-84 Fed. R. Civ. P. 19 ....................................................................................... 80 STATE STATUTES Conn. Gen. Stat. Ann. §52-576 (2006) .................................................. 82 Conn. Gen. Stat. Ann. §46a-82(e) ............................................................... 83 MISCELLANEOUS Albert Feuer, When Are Releases of Claims for ERISA Plan Benefits Effective?, 38 J. M ARSHALL L. R EV. 773, 865-66 (Spring 2005). ......... 94 Manual for Complex Litig. (Fourth) ........................................................... 93 2000 Tax Notes Today (TNT) 62-44 ........................................................... 68 James A. Wooten, The Employee Retirement Income Security Act of 1974 (U.Cal. Press 2004) ................................................................................ 20

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Introduction There is no dispute that if CIGNA wanted to reduce its employees' future retirement benefits, it could have done so while avoiding "wear-aways" by using an "A + B" formula or similar structural protection. There is also no controversy that CIGNA as a major provider of employee benefits was more than capable of explaining benefit reductions in plain English. While CIGNA will not admit it, it could have also designed a formula that avoided age discrimination. Claude Poulin's testimony and cases like Tootle v. ARINC, 222 F.R.D. 88, 90 n.1 (D. Md. 2004), show this can be done. CIGNA chose a different path. It designed a formula with substantiallyreduced future retirement benefits, which declined further with age, and periods of wear-away with no additional benefits­and it kept its employees in the dark about the deep cuts in their benefits and the insidious effects of a "greater-of" design. CIGNA even instructed its communications people "not to compare the old to the new plans." PFF 306. Worse still, CIGNA led its employees in the opposite direction, telling them that their previously-earned benefits were "fully protected," promising that the benefits under the cash balance benefits would be "comparable" or "larger," and vowing that "Each dollar's worth of [cash balance] credits is a dollar of retirement benefits payable to you."
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Now, without presenting a single fact witness or document to this effect, CIGNA says that it did not expect for the cash balance formula to turn out this poorly, but even if CIGNA expected it, its only fiduciary duty was to tell employees the "exact amount" of their new cash balance accounts. As at trial, CIGNA brushes aside inconvenient facts and precedents in its rush to conclude that CIGNA bears no responsibility. Thus, CIGNA ignores the evidence that it knew it was cutting benefits while it was heralding the changes as "an overall improvement." In terms of the law, CIGNA repeatedly confines the precedents of this Circuit to "very narrow" facts,1 or simply ignores them.2 Beyond this reply, Plaintiffs have not prepared additional documents in response to CIGNA's voluminous proposed findings, conclusions of law, and responses to Plaintiffs' proposed findings. This Court's Order did not invite or require the parties to file responses to the other party's proposed findings or to prepare new conclusions of law. See Dkt. #246. If it will assist the Court,

Dfs. Br. at 20 (Esden); see also id. at 44 (the "only issue" in Esden is a whipsaw calculation of a lump sum; there is "no offset provision" here "as in Frommert"); at 57-58 ("Nor is this a situation where the employer ... misled [participants] into believing the benefits were larger than they were" as in Frommert). See, e.g., Dfs. Br. at 45-61 (ignoring Frommert's holding on likely prejudice) and id. at 127-30 (ignoring Swede's holdings on relief for ERISA violations).
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Plaintiffs will, of course, prepare such documents. With respect to CIGNA's proposed findings, Plaintiffs observe that there is more characterization than quotation, e.g., DFF 265-67, 294-95, and that when quotations appear, they are often preceded by inaccurate descriptions, e.g., DFF 128: "Poulin admitted as much at trial ...." when he did not. CIGNA's proposed findings of fact also rely heavily on legal conclusions by the actuarial experts, e.g., DFF 168 and 171, an approach which the Court warned against.3 I. "WEAR-AWAY" CLAIMS. A. The Periods of "Wear-Away" With No Additional Benefits Violate ERISA's 133a% Benefit Accrual Rule.

CIGNA does not dispute that there were periods of one or more years after its cash balance conversion when the members of the class did not earn any additional retirement benefits. Wear-away periods exist whether the benefits payable at early or normal retirement age are examined.4 Gisela Broderick's and Patricia Flannery's retirement benefits did not increase at all after they were rehired by CIGNA in the year 2000. Ms. Flannery's benefits have not increased

Plaintiffs also observe that virtually all of the factual references in Defendants' brief are off by one, e.g., a cite to DFF 162 is really to DFF 163. With no supporting citation, Defendants incorrectly assert that "much of Plaintiffs' evidence regarding Count 1 relates to the wear-away of subsidized early retirement benefits." Dfs. Br. at 40 n.30.
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after over six years of additional service. PFF 53-59 and 102-3. Plaintiffs have also shown that the normal retirement benefits of Annette Glanz, who was a younger participant, did not increase at all in annuity form in 1998, 1999 and a third year (2000 or 2002 depending on whether Mr. Poulin's or Sher's analysis is used). PFF 60-62 and 104-6. CIGNA says it should be allowed to set up a Chinese wall within its benefit formulas and satisfy the accrual rules without regard to the "interaction" between the cash balance formula and the prior formula which creates periods with no new accruals. In the disclosure section of its brief, CIGNA admits that the periods of wear-away are the result of the "interaction of various Plan provisions." Dfs. Br. at 66 and 70. But in the backloading section, CIGNA contends that the same "interaction" should be ignored for purposes of compliance, while it continues to apply to limit actual accruals and payments. Remarkably, CIGNA never explains what benefits Ms. Glanz earned in 1998, 1999 or 2002 under its theory. Nor does CIGNA explain what benefits Ms. Broderick and Ms. Flannery earned in 2000-2004 and 2000-2006, respectively. CIGNA dances around the numbers and fails to address the example in the 133a% regulations which shows that an intermediate period of years with little or

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no accruals violates this anti-backloading rule. 1.411(b)-1(b)(3)(iii) (Example 3).5 Even CIGNA's expert demurred when it came to explaining how CIGNA's Plan satisfies the 133a% rule. While Mr. Sher was critical of Plaintiffs' position, he carefully pointed out that he was not showing how the Plan complies with 133a% rule. PFF 118. Again, this was not by chance. Charles v. PEPCO, 437 F.Supp.2d 248, 251 (D.Del. 2006), indicates that even if CIGNA's theory about treating each formula separately was accepted, CIGNA would have problems complying with the 133a% rule because of the dramatic impact of variable rates of interest in converting account balances to "accrued benefits" payable at retirement age. PFF 31-33 and 44-45. While judgment should not be granted to CIGNA because it does not show how it satisfies the backloading rules even under its theory, Plaintiffs certainly wish to respond to CIGNA's chief argument against their position, namely, that the 133a% rule must be applied without consideration of the "interaction between various Plan provisions"­even if the current amendment provides for such an

A recent onslaught of letters from ABC, ERIC, Mr. Sher, and other consultants to the Treasury Department about the IRS position on "greater-of" formulas asks that Treasury modify this regulation, which has been in effect for 30 years. See PFF 113-114 and infra pp. 9-10.
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interaction. See Dfs. Br. at 35-37.6 CIGNA's construction of Section 204(b)(1)(B)(i) raises an interpretive issue which has obviously troubled the Third Circuit in Register and Judge Hall in Richards. If the "amendment to the plan which is in effect for the current year" contains an adverse interaction with previously-earned benefits, is that interaction considered or ignored when the amendment is "treated as in effect for all other plan years"? The problem with CIGNA's approach is that it has the effect of reading out a critical element of the amendment in effect for the current year, namely, the interaction with the previously-earned benefits. If the plan says that all employees accrue additional benefits at a rate of $10 per month, with no interaction with a previous accrual rate of $5 per month, the "current amendment" clause clearly allows the "across-the-board increase[] in benefit rates" and the 133a% rule is satisfied even though $10 is more than 133a% of $5. See Langman v. Loeb, 328 F.3d 68, 71 (2d Cir. 2003). However, if a plan states that all employees accrue additional benefits at a rate of $10 per month, except that employees with Defendants contend that Mr. Poulin "admitted" at trial that if the current plan is treated as in effect for all years, there are no wear-aways. Id. at 36. However, the passage which CIGNA quotes concerns whether employees hired after the cash balance conversion will have wear-aways. See DFF 165. Mr. Poulin simply affirmed that a pre-condition to wear-away is the existence of a previouslyearned benefit, i.e., a "greater of" formulation "wears away" previously-earned benefits instead of offering additional accruals.
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previously-accrued benefits at a $20 per month rate will not accrue any benefits in the current and subsequent years until the new formula catches up, CIGNA's approach leads to an absurd result. The negative interaction with previously accrued benefits would be applied in operation, but ignored for purposes of complying with the anti-backloading rules. The result would be fictional "compliance" benefits substituting for real benefit accruals for a number of years before real accruals pick up again. Because this is the very backloading that the rules are designed to prevent, Plaintiffs submit that CIGNA's approach is wrong. The primary constraint of the 133a% rule is that the participant must earn an "accrued benefit" in "each plan year" that is "payable at normal retirement age." In the Second Circuit, "payable" "means that payment is owed." EM Ltd. v. Republic of Argentina, 382 F.3d 291, 294 (2d Cir. 2004).7 It does not mean a fictional payment.

See also Royal Indem. Co. v. Wyckoff Heights Hosp., 953 F. Supp. 460, 466 (E.D.N.Y. 1996) ("payable" is defined as "Capable of being paid; suitable to be paid; admitting or demanding payment; justly due; legally enforceable. A sum of money is said to be payable when a person is under an obligation to pay it. Payable may therefore signify an obligation to pay at a future time, but, when used without qualification, term normally means that the debt is payable at once, as opposed to "owing"); White v. Secretary of Health and Human Services, 654 F.Supp. 888 (E.D.N.Y. 1987) ("Accrued benefits are defined as benefits due and payable...benefits withheld pursuant to section 402(t)(1)) are never payable. Therefore, benefits withheld under section 402(t)(10) may not accrue").
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Other than quoting the Third Circuit's decision in Register v. PNC Finan., 477 F.3d 56 (3d Cir. 2007), CIGNA offers no reasoning to support that result. Dfs. Br. at 37. Plaintiffs do not hesitate to acknowledge that Register is inconsistent with their position. For compliance purposes, Register simply red pencils any interaction between two or more formulas so the anti-backloading tests can be satisfied with benefits that are not "payable." Register is wrong because it revises the statutory language, is inconsistent with Treasury Department regulations, and does not take the purpose of the accrual rules "seriously." See In re Citigroup, 470 F.Supp.2d 323, 338 (S.D.N.Y. 2006). Register's revision of the Treasury Department's aggregation regulation as applying only to two or more "coexisting" formulas, 477 F.3d at 72, draws a distinction which is not in the regulation. The notion that a formula does not "co-exist" when it is in the current amendment but is not providing ongoing accruals would insert a new rule into the regulation that the Treasury Department never adopted. Under a "greater of" formula, two or more formulas in the current amendment are used to determine the benefits accrued in the current plan year. The Treasury Department's regulations require aggregation of such formulas. Under Chevron U.S.A. v. Natural Resources Defense Council, 467 U.S. 837 (1984), the Treasury Department's position cannot effectively be set aside on a novel ground.
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CIGNA acts as though it has been unaware that the IRS requires a plan with two or more formulas to aggregate formulas for compliance with the antibackloading rules. Dfs. Br. at 38. But this regulation has been in effect since 1977 and criticisms of it and a related example in the 133a% rule by the American Benefits Council ("ABC") and ERIC, of which CIGNA is a member, date back to 2000 and suggest that CIGNA is aware of this. As the 2003 Conference of Consulting Actuaries audiotape showed at trial, Mr. Sher specifically asked about this and the IRS told him that "You look at the net benefit and when you have ... a period of zero accruals and the other kicks in, it's an issue on a 133 and 1/3." Ex. 52 at 12. An "Action Alert" from ABC states that some of the companies who are members of ABC have already received letters from the IRS about backloading violations from "greater of" transition formulas.8 Yet another letter by ABC and ERIC about "greater of" formulas was sent to the Treasury Department on July 18, 2007, indicating that there was a recent meeting on this issue.9

8

Available at http://www.americanbenefitscouncil.org/documents/aa01-

01.cfm. Available at http://www.americanbenefitscouncil.org/documents/backloading_groupletter0718 07.pdf.
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In a July 9, 2007 letter to the Treasury Department on behalf of his employer, Buck Consultants, CIGNA's expert, Mr. Sher, now admits that he has been aware of the "IRS Position" concerning "greater of" transition provisions for at least "seven years."10 At trial, he testified that "as far as I know," the "wearaway situation" has "never been considered to be problematic or raised as problems by the government." PFF 109.11 As at trial, Mr. Sher criticizes the IRS position (which he previously ascribed to Mr. Poulin) and requests that the issues be viewed in a different way. Contrary to CIGNA's argument founded on a memo from another law firm, see Dfs. Br. at 38-39, Mr. Sher's letter shows that he understands that the "IRS Position" concerns "greater of" formulas where one of the formulas provides a minimum or frozen benefit.12

Available at http://www.buckconsultants.com/buckconsultants/Portals/0/Documents/PUBLICA TIONS/Buck_Research/Comment_Letters/Comment_to_IRS_CB_Plans_07_09_0 7.pdf Mr. Sher also stated that in "his experience," benefit formulas are tested separately for compliance in both his expert report and deposition testimony. Ex. 10 at 35 and Ex. 192 at 262. CIGNA relies on a May 18, 2007 memo from Ivins Phillips & Barker, a Washington law firm specializing in ERISA, which CIGNA attaches as "Exhibit A" and tries to elevate by describing it as an "article." Dfs. Br. at 39 n.29. CIGNA says that Plaintiffs invited this by submitting recent statements from the American Benefits Council (ABC) and the ERISA Industry Committee (ERIC). But Plaintiffs submitted ABC's and ERIC's statements because CIGNA is a member
10
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Alternatively, CIGNA seeks to excuse the periods with no accruals by attributing the length of these periods, in large part, to the decline in interest rates after 1997. Dfs. Br. at 27 and 71-76. This is a non-sequitur because ERISA's antibackloading rules do not contain any exception for years in which interest rates are low (or, e.g., years in which any economic indicator is low). Unless the statute or regulations allow for it, the failure to comply with the accrual rules is not excused by a "hybrid" feature that the plan sponsor designs and gains from by paying lower benefits. B. Section 7.3 of the Plan Violates ERISA Because It Requires Participants to "Elect" Between Forfeiting the Previously-Earned Annuity (Including Any Early Retirement Features) or Forfeiting Any Cash Balance Accruals.

Although both parties describe CIGNA's formula as a "greater of" formula, CIGNA does not even actually ensure that participants receive the greater of two benefits, but instead provides an "election" in which participants can elect the less valuable of the two. At trial, CIGNA's expert, Mr. Sher, agreed that this is how Section 7.3 operates. Pls. Br. at 25. Exhibit 158 shows, moreover, that Mercer specifically advised CIGNA that any participant electing the cash balance lump sum will "forfeit the value of the early retirement subsidy." PFF 412.

of both organizations. Ivins Phillips is a law firm, not a membership organization.
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Treasury regulations in effect since 1988 make clear that the payment of vested benefit accruals cannot be conditioned on the participant giving up other benefits. Treas. Reg. 1.411(a)-4. CIGNA's brief does not distinguish the Treasury regulations or the "election" provided in Section 7.3 of CIGNA's Plan document. Dfs. Br. at 44. CIGNA simply sidesteps the Second Circuit's reliance in Esden, on the same regulations. See 229 F.3d 154, 166-67 (2d Cir. 2000). In the age discrimination portion of its brief, CIGNA describes Esden as a decision which is limited to "accrued benefits." Dfs. Br. at 21. But the election in Section 7.3 applies to "accrued benefits" so the distinction that CIGNA draws will not work. To counter Esden, CIGNA relies on Judge Hall's ruling in Richards. But whether or not Richards is correctly decided on this issue, it does not address an "election." Under Section 7.3 of CIGNA's Plan, Lillian Jones and Douglas Robinson "elected" cash balance lump sums and thereby gave up protected annuities that were worth nearly twice as much. PFF 403-4 and 417-18. In Richards, there were no such elections. Plaintiffs pointed this out in their opening brief, Pls. Br. at 27-28, and CIGNA does not respond. Instead, CIGNA turns to Bonovich v. Knights of Columbus, 146 F.3d 57 (2d Cir. 1998), aff'g, 963 F.Supp. 143 (D.Conn. 1997), and three decisions in other circuits, none of which involve elections to forego protected accrued
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benefits. Bonovich, a case in which Your Honor participated, did not deal with an election. Moreover, the decision specifically states that the renewal commissions whose offset was at issue in that case "cannot be construed as previously earned and deferred wages." 146 F.3d at 62. Campbell v. BankBoston, 327 F.3d 1 (1st Cir. 2003), also did not involve an election and, as CIGNA acknowledges, is limited to whether the anti-cutback protection in ERISA §204(g) was violated.13 II. "AGE DISCRIMINATION" CLAIMS. A. CIGNA's Argument that the Term "Benefit Accrual" in ERISA §204(b)(1)(H) Does Not Refer to the Change in the "Accrued Benefit" Ignores the Statutory Context and Usage and Ultimately Substitutes a Neologism of "Imputed" "Inputs" for the Statute's Established Terms.

Mr. Poulin's mathematical analysis of CIGNA's cash balance formula is not controversial. In fact, CIGNA internally computed virtually identical "accrual rates." PFF 137. If ERISA §204(b)(1)(H) refers to the rate at which accrued benefits are earned, as §§204(b)(1)(B) and 204(h) do, plaintiffs should prevail. If the statute allows a plan sponsor to use the rate at which imputed "inputs" are credited to a hypothetical account, as Cooper v. IBM permitted, defendants should

White v. Sundstrand, 256 F.3d 580 (7th Cir. 2001), and Williams v. Caterpillar, 994 F.2d 658 (9th Cir. 1991), are like Campbell not precedential in this Circuit. Those decisions, too, did not involve elections as in Section 7.3 or the Treasury regulations on which Plaintiffs rely.
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prevail. CIGNA attempts to manufacture a controversy about Plaintiffs' or Mr. Poulin's theory not working after 65. Dfs. Br. at 18-20. But this is a diversion.14 The central interpretive issue is whether Section 204(b)(1)(H) is best construed by comparing it with the other rules on benefit accruals under defined benefit plans or analogizing it to the rules on allocations under defined contribution plans. An important preliminary point, however, is that CIGNA is not actually requesting that the Court adopt the defined contribution test, which requires actual contributions to an actual individual savings account. CIGNA indirectly acknowledges that it is not requesting this, but asks instead for an as-yet unspecified amalgamation of the defined benefit and defined contribution tests. Dfs. Br. at 9 (there are "several ways that one could measure whether Part B is age discriminatory"), 15 (there are "many ways to calculate a rate of benefit accrual"), 16 n.13, and 26-27 n.22 (benefit accrual "does not have a single self-evident meaning"). CIGNA contends that this is acceptable because the statute is

The 1986 Conference Report indicates that if the Plan's accrual rate is a retirement benefit of $10 per month per year of service, the same "additional benefit of $10 per month" can be offered to those who work past age 65, 1986 U.S.C.C.A.N. 3868, 4026, even though their remaining life expectancies are progressively shorter. Mr. Poulin and Plaintiffs agree with the Conference Report. Defendants' suggestion that Plaintiffs' theory necessitates an $11 per month benefit for a year of service by an employee who is age 66, $12 per month for an employee who is age 67, etc., see DFF 135, is unfounded.
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"ambiguous." Dfs. Br. at 12-20. The indefiniteness of CIGNA's position on how it complies is similar to its approach to the 133a% rule. CIGNA criticizes Plaintiffs' position while remaining non-committal on its own. CIGNA's approach to the statute is also wrong for four reasons. First, a statute is not ambiguous because a phrase or word in isolation can be read in different ways. Any dictionary shows that words have different meanings. A word or phrase is only "ambiguous" in a legal sense if the potentially different meanings cannot be resolved by context. See, e.g., Deal v. United States, 508 U.S. 129, 131-32 (1993). Judges Hall, Scheindlin and Baer ruled that the meaning of the term "benefit accrual" can be resolved by context. Section 204(b)(1) regulates benefit accruals under defined benefit plans and Section 204(b)(2) regulates the allocation of monetary contributions under defined contribution plans. For purposes of Section 204, benefit accruals means the change in the accrued benefit, as shown by §204(b)(1)(B) and by §204(h), which was enacted only six months before §204(b)(1)(H).15 Giving the term "benefit accrual" a meaning that is more akin to the phrase "allocations to the employee's account"

CIGNA attempts to distinguish Congress' use of the term "benefit accrual" in Section 204(h) by stating that "[o]bviously" the age discrimination rule "has a different purpose" "so it is reasonable" for the same term to be interpreted "differently." Dfs. Br. at 26 n.22.
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in §204(b)(2) and less akin to the accrual rate in §§204(b)(1)(B) and 204(h) ignores the differences in language and the contextual links. Second, CIGNA espouses an approach at odds with general principles of statutory construction and Esden when it encourages this Court not to assume a consistent use of "rate of benefit accrual" and "accrued benefit" in a defined benefit plan. Dfs. Br. at 16. Esden holds that the statute must be interpreted consistently and that the sponsors of cash balance plans cannot "have it both ways." 229 F.3d at 167 n.8; and see, e.g., Mertens v. Hewitt Assocs., 508 U.S. 248, 260 (1993) (language used in one portion of the statute "should be deemed to have the same meaning" elsewhere). The sponsors of cash balance plans must conform with the rules applicable to defined benefit plans which focus "rigidly" on age-65 annuities. While this has "wide-reaching" regulatory consequences, Esden, 229 F.3d at 158, ERISA's regulatory scheme was enacted first and in our nation's legal framework it has priority over the design preferences of plan sponsors or their consultants. A defined benefit plan cannot measure an accrued benefit as an age-65 annuity, but measure the rate of benefit accrual as an imputed contribution to a hypothetical account. This would make a defined benefit plan fish and fowl. Regardless of any other circuit's views, the Second Circuit has forbidden this in Esden.
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CIGNA relatedly contends that it is unclear whether Congress intended for "benefit accrual" in §204(b)(1)(H) to refer to the benefit payable at normal retirement age as it did in §204(b)(1)(B). Dfs. Br. at 14. However, the statutory context and the direction in ERISA §204(b)(1)(H)(v) that "the subsidized portion of any early retirement benefit is disregarded in determining benefit accruals" again provides clear guidance that the statutory rule is directed at normal retirement benefits. In its discussion of wear-aways only a few pages away, CIGNA acknowledges as much. Dfs. Br. at 38. Third, if the statutory section remains ambiguous after examining its context, the legislative history and the regulatory agencies' use of the term "benefit accrual" can be examined. The 1974 ERISA Conference Report, the 1986 OBRA Conference Report and the Treasury regulations repeatedly show that "benefit accrual" refers to the change in the accrued benefit. Pls. Br. at 33-36.16 Even in the 2006 Pension Protection Act, which prospectively legalizes many cash balance formulas, Congress never uses the term "benefit accrual" in any other manner. Instead, it redefined the term "accrued benefit" (the very term which CIGNA maintains is unconnected to §204(b)(1)(H)). See P.L. 109-280, §701(a)(1). CIGNA contends that the Treasury Department has used the term "benefit accrual" in other ways. But the one example that CIGNA offers in its Proposed Findings (DFF 101) is a red herring. Treas. Reg. 1.401(a)(4)-3 establishes a general test for non-discrimination in favor of highly-compensated employees based on the "normal accrual rate" and "the most valuable accrual rate." In both
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As a counterbalance to Plaintiffs' citation of the Treasury Department regulations going back to 1977 on "benefit accrual," CIGNA cites a series of almost identically-worded, one-sentence statements from the Treasury Department, including in administration budget proposals, as an "endorsement of cash balance plans." Dfs. Br. at 24-26. There are three important points which CIGNA ignores. First, these statements never interpret the term "benefit accrual" but rather, in CIGNA's own words, "endorse" a conclusion. As long ago as 1996, CIGNA's consultant, Mercer, recognized that the Treasury's statement is "without explanation." Ex. 19 at EPTO4170. Second, these statements obviously offer a more limited endorsement than Defendants would like. They simply conclude that cash balance formulas are not "inherently" illegal, without reaching the question of whether formulas like CIGNA's violate the law. Third, Congress directed the three Federal agencies (Treasury, Labor and the EEOC) to coordinate interpretations of §204(b)(1)(H). P.L. 99-509, §9204(d). The only coordinated agency views concerning §204(b)(1)(H) were in the 2002 proposed regulations which tried to establish a "special" rule for cash balance formulas but were subsequently withdrawn.

instances, the "accrual rate" is the increase in the "accrued benefit ... during the measurement period." 1.401(a)(4)-3(d)(1).
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Finally, even if the statute remains ambiguous (at least in a lay sense) after considering context, legislative history and regulatory usage, the courts have the responsibility to make considered, non-legislative decisions to resolve such ambiguities. No authority is provided for a court to say, "Okay, it's ambiguous, let's legislate a rule accommodating to one party or the other's interests." See, e.g., Esden, 229 F.3d at 171 (refusing to reformulate rules to be "more accommodating to the design objectives of cash balance plans"). There is also no judicial authority to amalgamate aspects of the statutory tests for defined benefit and defined contribution plans into a "hybrid" that comports with neither rule. Developing a rule that tests for age discrimination based on "imputed" "inputs" (as the Seventh Circuit did in Cooper v. IBM, 457 F.3d 636, 639-40 (2006)) substitutes "neologisms" for the "legal terminology" used under the statute. See BFP v. Resolution Trust Corp., 511 U.S. 531, 537 (1994). No interpretive principle that the reward for finding and sustaining an ambiguity in a statute is a test based on neologisms. Id. CIGNA falls back on its analogy to the "time value of money." Dfs. Br. at 911 and 22-24. Practically all of us use the time value of money in some contexts and Congress uses it in the context of defined benefit retirement plans to determine the present value of accrued benefits as set forth in ERISA §§204(c)(3)
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and 205(g).17 However, the time value of money is not implicit in every transaction or statutory rule and an analogy to the time value of money built on hypothetical credits to hypothetical accounts cannot, in particular, create a safe haven for discrimination on the basis of age. As Mr. Poulin testified, benefits under CIGNA's cash balance formula cannot be calculated without reference to the number of years between the participant's current age and age 65. Clearly, defined benefit formulas do not have to function this way. For over a century pension plans such as one initiated by the Pennyslvania Railroad Company in 1900 have calculated the amount of benefits payable in retirement age based on years of service and a percentage of an average of salary. James A. Wooten, The Employee Retirement Income Security Act of 1974 (U.Cal. Press 2004), at 20.18 CIGNA and its expert now say that it does not make, and presumably has never made, "economic or actuarial sense" to provide two employees with the same years of service and salary but different current ages with the same "age-65 benefit." Dfs. Br. at 8-11. As CIGNA should know based on the line of business in which it is engaged, this is the way defined benefit plans were designed both

ERISA §205(g) is more commonly referred to as Code §417(e), which is the parallel provision in the Internal Revenue Code. Plans for hourly employees sometimes offer a benefit of $X per month for each year of service, rather than a percentage of salary.
20
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before and after ERISA. Whatever else may be said, CIGNA was ill-advised to jettison the traditional, non-discriminatory design for one that directly challenges the statutory focus on normal retirement benefits without carefully considering the consequences. Make no mistake, no one challenges CIGNA's right to control costs. ERISA allows future rates of accrual to be reduced or even frozen across-the-board (after a proper Section 204(h) notice), and it also permits limits which are not based on age. ERISA §204(b)(1)(H)(ii) allows benefits to be either capped at a certain amount or limited after a certain number of years of participation.19 The benefits earned in a plan year are not, however, permitted to be reduced based on age, even if an employer or its consultants believe that this is the only result that makes "economic or actuarial sense" and that paying the same age-65 benefit to two employees with equal service and salaries is "nonsensical" or "bizzare[]." Dfs. Br. at 11. Because the amount of retirement benefits earned in a year is "perfectly correlated" with age under CIGNA's cash balance formula, Richards, 427 F.Supp.2d 150, 168 (D.Conn. 2006), CIGNA's formula discriminates. "A plan shall not be treated as failing to meet the requirements of this subparagraph [204(b)(1)(H)(i)] solely because the plan imposes (without regard to age) a limitation on the amount of benefits that the plan provides or a limitation on the number of years of service or participation which are taken into account for purposes of determining benefit accrual under the plan."
21
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One can argue, as CIGNA's expert does, that this discrimination in benefit amounts can be justified on the basis of the increasing actuarial costs to the plan sponsor of providing the same benefit to older employees. But unlike Section 4(a) of the ADEA, ERISA §204(b)(1)(H) and ADEA §4(i) do not offer an affirmative defense based on actual or imputed "costs incurred." Although cited in Plaintiffs' brief, CIGNA does not distinguish the en banc ruling in EEOC v. Jefferson Co. Sheriffs' Dept., 467 F.3d 5761, 572 (6th Cir. 2006), that it is age discrimination for benefits to be calculated "in such a way that an older employee ... receives ... lower monthly payments" than a younger employee.20 Just as Congress' views on any number of economic, social and foreign policy issues can change, sometimes in inconsistent directions, Congress' views on ERISA and the ADEA can change. Whatever Congress' views are today, it is clear that the 1986 Congress placed a priority on ensuring that employees accrue retirement benefits for a year of service which are not reduced as they grow older. If a defined benefit plan's rate of benefit accrual is $10 per month per year of service when employees are in their 20's or 30's, that rate of benefit accrual cannot

In May of 2007, the Solicitor General of the United States filed a brief in support of the EEOC and in opposition to the defendants' petition for certiorari of the ruling in EEOC v. Jefferson Co. See http://www.usdoj.gov/osg/briefs/2006/0responses/2006-1037.resp.pdf, at 8-9.
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be gradually reduced to $9 per month, $8 per month, $7, etc., as an employee moves into his or her 40s, 50s or 60s. Even if an employer could justify such reductions on the basis of the imputed actuarial costs of providing benefits to older workers, ERISA and the ADEA do not recognize that justification. CIGNA is not allowed to do the same thing by calling it a "hybrid" formula and analogizing to the time value of money. At bottom, CIGNA and its expert are rebelling against the statutory scheme. They argue that equal benefit accruals for older employees in terms of the age-65 benefit does not make "economic or actuarial sense." Dfs. Br. at 11. As Esden and Notice 96-8 show, however, whatever advantages cash balance formulas legitimately bring to the table, e.g., less volatile costs and the alleged simplicity of an hypothetical account, they must comply with the rules for defined benefit plans. For defined benefit plans, the statutory keystone is the normal-retirement-age annuity. As Esden says, this has "wide-reaching" "regulatory consequences," 229 F.3d at 158, which the consultants who designed and promoted "cash balance" formulas evidently did not appreciate. One of them is that when older workers' benefit accruals are compared with younger workers for age discrimination purposes it is the age-65 annuity, not imputed inputs, that matters. The wisdom of having a plan type that is based on age-65 annuities can be debated and changed,
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as Congress has done with the PPA. But as a matter of statutory construction there is little room for debate about the proper interpretation of the law as it existed from 1986 to 2006. This Court should ignore CIGNA's claim that the "economic implications" of the decision is a good reason to see the age discrimination rules its way. Dfs. Br. at 6 and 129-30. As this case has developed, it has become clear that continuing the old pension plan formula because of the absence of the Section 204(h) notice and eliminating the wear-aways have greater financial implications than the pure Cooper v. IBM issue of eliminating age discrimination in rates of accruals under the cash balance formula. As CIGNA advised its Board in 1999, CIGNA's graduated pay credit schedule lessened CIGNA's "vulnerability" to this claim, PFF 140, as does the fact that it employs very few workers who are in their late 50's or 60's. Ex. 201 (showing only 8% of Plan B participants over age 55 and only 3% over age 60). CIGNA introduces no evidence to suggest that the costs of complying with the law "would threaten the solvency of CIGNA's pension plan." Dfs. Br. at 130. B. Even if Age Discrimination Could Be Measured by Costs Incurred, the Periods of "Wear-Away" With No Additional Benefits Violate the Age Discrimination Rule.

Applying §204(b)(1)(H) to wear-aways is not a theory that Plaintiffs'
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counsel coined. The IRS Chief Counsel's 1999 Senate testimony recognized that "we are considering the whole range of factors that might indicate a cash balance plan conversion has resulted in age discrimination. For example, we will consider the impact of the wearaway period as it affects employees of different ages." Ex. 532 at 5. A period of wear-away means that the actual amount of retirement benefit payment that will be made for a year of service and the cost incurred are nil. During a period of wear-away, CIGNA cannot satisfy either the statutory test prescribed for defined benefit plans or the test for defined contribution plans. For Gisela Broderick's and Patricia Flannery's years of service from 2000 to 2004 and 2000 to 2006, there were no actual payments or additional costs incurred by CIGNA. By contrast, for new hires, employees with little or no benefits under the prior formulas, and employees who are not eligible for early retirement benefits under the prior formulas, in other words, younger employees, there were actual payments and costs. PFF 69-70 and 157. For CIGNA to satisfy the age discrimination test, hypothetical credits would have to substitute for actual payments or actual costs incurred. In its responses to Plaintiffs' proposed findings, CIGNA admits that wear-away is "more likely" for participants who are eligible for early retirement
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and that "early retirement eligibility is a function of age." See Dfs. Resp. to Pls. Prop. Findings, ¶¶70 and 134. Yet now CIGNA contends that Plaintiffs have not provided sufficient evidence of the discrimination for "large groups of older and younger employees." Br. at 28. CIGNA obviously is not counting its own responses or the fact that Ms. Amara, Ms. Broderick, Ms. Flannery, Ms. Jones, and Mr. Robinson are all relatively older employees whose service and salary is not atypical. CIGNA conveniently forgets that Plaintiffs requested the data to do a "large group" comparison of periods of wear-away and CIGNA never produced the key data element for that comparison, namely, the accumulated cash balance amount. Plaintiffs' Proposed Findings state: The Plaintiff class requested electronic data in discovery that would show how many participants continued to have protected benefits in excess of their cash balance account in each year. Ex. 34 (Req. No. 4). CIGNA has not produced the requested data, despite the Plaintiffs' Motion to Compel and two Rule 30(b)(6) depositions. PFF 66. Plaintiffs' pre-trial motion for adverse inferences further stated that CIGNA was not producing the data needed to show "wear-aways" on a plan-wide basis. Dkt. # 199 (8/31/2006) at 9. CIGNA cannot suggest after trial that Plaintiffs should be required to offer proof based on "large groups" when CIGNA prevented that from happening at trial by not producing the data and presented no inconsistent evidence of its own (even though it has that data). In fact, when a
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party has "especially full knowledge" but does not offer any evidence, an inference can be drawn against that party. Gray v. Great American Recreation Ass'n, 970 F.2d 1081, 1082 (2d Cir. 1992) ("The non-appearance of a litigant at trial or his failure to testify as to facts material to his case as to which he has especially full knowledge creates an inference that he refrained from appearing or testifying because the truth, if made to appear, would not aid his contention"); RIJ Pharm. Corp. v. Ivax Pharms, Inc., 322 F.Supp.2d 406, 419 (S.D.N.Y. 2004) ("where a party fails to provide relevant information within its control...the Court may infer that the information, if disclosed, would be harmful to the party who fails to provide it"). CIGNA alternatively argues that the wear-aways cannot violate §204(b)(1)(H) because the "subsidized portion of any early retirement benefit is disregarded in determining benefit accruals." Dfs. Br. at 29-30. Here, CIGNA relies on a linguistic slight of hand. Plaintiffs are not asking that this Court award Ms. Broderick or Ms. Flannery "subsidized" early retirement benefits to redress the ERISA §204(b)(1)(H) violation. Plaintiffs simply contend that older employees must receive the cash balance benefits that they were promised (which are by definition "unsubsidized") in addition to the benefits they previously earned. Ms. Broderick's and Ms. Flannery's benefits did not improve for four and
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six years, respectively, whether their benefits payable at early or normal retirement age are considered. If a plan sponsor could take a participant's older age (or a proxy for age like early retirement eligibility) and turn it into a basis for not paying additional accruals, this would open a gaping hole in ERISA's protection. ERISA §204(b)(1)(H) proscribes reductions and cessations in benefit accruals because of age (which must include direct proxies for age). As with the treatment of the "current amendment" under the 133a% accrual rule, CIGNA's approach would take a statutory subsection and interpret it in a way that upends the general rule and purpose. The subsection about disregarding the subsidized portion of early retirement benefits should be interpreted to mean what it says, namely, that the accrual of the "subsidized" portion of early retirement benefits is outside of the general rule. Because CIGNA's cash balance formula does not offer subsidized early retirement benefits, this is a moot point here. To satisfy ERISA §204(b)(1)(H), Plaintiffs merely seek to ensure that the unsubsidized cash balance accruals earned after 1997 are actually paid to both older and younger workers alike.

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III.

"204(h) NOTICE" CLAIMS. A. ERISA §204(h) Required CIGNA to Tell Its Employees that Their Future Benefits Were Being Significantly Reduced.

ERISA §204(h) was enacted to give employees advance notice of benefit reductions. The statutory heading and language, Conference Report and case law all show that "written notice of the reduction" is required. Although the legislative history is sparse, this was clearly done so that employees may "take steps quickly to protect themselves as best they can," Hirt, 2006 WL 2627564 *2, including complaining or bargaining about the reductions, "seeking injunctive relief, altering retirement investment strategies, or perhaps considering other employment." Frommert v. Conkright, 433 F.3d F.3d 254, 266 (2d Cir. 2006). The statute recognizes the importance of "timely action" by requiring the notice to be in advance. In re Citigroup, 470 F.Supp.2d at 266. Notice at a later date is useful but advance notice clearly offers possibilities for rollbacks and other modifications due to negative employee reactions that are less likely to occur later. Here, Mr. Poulin's calculations and CIGNA's own documents show that CIGNA's conversion to a cash balance formula produced benefit reductions on the order of 30-50%. PFF 162-70 and 174-85. Even CIGNA's expert admitted that his calculations indicate a 0