Free Proposed Findings of Fact and Conclusions of Law - District Court of Connecticut - Connecticut

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UNITED STATES DISTRICT COURT DISTRICT OF CONNECTICUT -----------------------------------------------------X : JANICE C. AMARA, GISELA : R. BRODERICK, ANNETTE S. GLANZ : individually, and on behalf of others : similarly situated, : : Plaintiffs, : v. : : CIGNA CORP. AND CIGNA : PENSION PLAN, : : Defendants. : : -----------------------------------------------------X

3:01 CV 2361 (MRK) Trial Dates: September 11-15, 2006 January 24-25, 2007

DEFENDANTS' POST-TRIAL PROPOSED FINDINGS OF FACT

Dated: June 25, 2007

MORGAN, LEWIS & BOCKIUS LLP By: /s/ Joseph J. Costello Joseph J. Costello Jeremy P. Blumenfeld Jamie M. Kohen Admitted pro hac vice 1701 Market Street Philadelphia, Pennsylvania 19103-2921 (215) 963-5295/5258/5472 (215) 963-5001 (fax) ROBINSON & COLE James A. Wade (CT # 00086) 280 Trumbull Street Hartford, Connecticut 06103 (860) 275-8270 (860) 275-8299 (fax) Attorneys for Defendants CIGNA Corporation and CIGNA Pension Plan

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TABLE OF CONTENTS Page I. BACKGROUND ON CASH BALANCE PLANS AND TRADITIONAL PLANS........ 1 A. B. II. A. Traditional Defined Benefit Plans ......................................................................... 1 Cash Balance Plans ................................................................................................ 2 CIGNA's Part A Traditional Pension Plan And The Creation Of The Part B Cash Balance Plan ...................................................................................... 6 1. 2. All Plan Participants Earned Benefits Under Part A Through December 31, 1997 .................................................................................... 6 On November 4, 1997, CIGNA Amended The Plan To Freeze Accruals In Part A For Certain Plan Participants As Of December 31, 1997 .................................................................................... 8 On December 21, 1998, The Amendment Creating Part B Was Signed, Retroactive To January 1, 1998 .................................................. 10 1. 2. 3. Benefit And Interest Credits ........................................................ 12 Opening Account Balances, Protected Minimum Benefits, And Retirement............................................................................ 15 CIGNA Part B Plan Administration ............................................ 19 (a) (b) (c) III. Filing A Claim For Benefits ............................................ 21 Denial Of Claim............................................................... 21 Appeals Procedure ........................................................... 22

THE CIGNA PENSION PLAN......................................................................................... 6

3. B.

The Terms Of Part B............................................................................................ 12

PART B TREATS OLDER EMPLOYEES AT LEAST AS WELL AS IT TREATS YOUNGER EMPLOYEES (COUNT 3)......................................................... 23 A. Defendants' Expert's Analysis Of Age Discrimination Is Grounded In Sound Actuarial Science ...................................................................................... 23 1. 2. B. Mr. Sher's Credentials ................................................................. 23 Mr. Sher's Methodology And Conclusions ................................. 24

Plaintiffs' Expert's Analysis Of Age Discrimination Is Fatally Flawed ............. 30

IV. V.

PART B DID NOT RESULT IN FORFEITURES OR BACKLOADING (COUNT 1) ...................................................................................................................... 48 PLAINTIFFS AND THE TESTIFYING CLASS MEMBERS HAVE BEEN PROVIDED ABUNDANT INFORMATION REGARDING THEIR RETIREMENT BENEFITS AND HAVE SUFFERED NO LIKELY, OR ACTUAL HARM RESULTING FROM ANY OMISSIONS FROM THE SPD OR SECTION 204(H) NOTICE (COUNTS 2 AND 4)................................................... 53 -i-

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TABLE OF CONTENTS Page A. The Plan Administrator Provided Participants Several Written Communications Regarding The Freezing Of Accruals Under The Old Plan, The Creation Of Part B, And The Precise Amounts In Participants' Part B Accounts ................................................................................................... 54 1. A Memorandum Was Sent To Managers, A Letter Was Sent To Grandfathered Participants Notifying Them Of Their Status, And A Memorandum Was Sent To Human Resources Representatives And Key Benefits Contacts.............. 54 The Signature Benefits Newsletter Sent To Employees In Early November Provided Notice That Part A Accruals Would Be Frozen As Of December 31, 1997, Introduced The Cash Balance Plan, And Notified Participants That Information Regarding Their Opening Account Balances Was Forthcoming......................................................................... 55 In December 1997, All Participants Received A Signature Benefits Retirement Kit, Which Reinforced To Participants That CIGNA Would Freeze Accruals Under Part A For All Non-Grandfathered Participants As Of December 31, 1997, And Further Explained The Cash Balance Plan And That Account Balance Information Was Forthcoming ........................ 59 The Plan Administrator Provided Participants Precise Information Regarding Their OAB And Their Part B Pension Accounts Through Total Compensation Reports, Annual Account Statements, SPDs, A Retirement Planner, A Benefits Hotline, And Websites............................................... 67

2.

3.

4.

VI.

THE PART B SPD MET ERISA'S DISCLOSURE REQUIREMENTS ....................... 78 A. B. C. The Part B SPD Was Not Required To Disclose The Potential Wear-Away Effect, Which Was Not The Result Of A Plan Provision ............... 78 The Wear-away Effect Was Caused By Falling Interest Rates After The Conversion, Which The Plan Administrator Could Not Anticipate ............. 79 The Wear-away Effect Attributable To The Early Retirement Subsidy Could Only Possibly Affect A Small Subset Of Participants .............................. 84 1. The Wear-away Effect Attributable To The Early Retirement Subsidy Only Could Result For Eligible Employees During The Early Retirement Window ..................... 84 The Wear-away Effect Attributable To The Early Retirement Subsidy Only Resulted As to Participants' Annuity Options, And Defendants Anticipated Most Participants Would Elect A Lump Sum....................................... 86 -ii-

2.

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TABLE OF CONTENTS Page D. E. Plaintiffs' Communications Expert James Stratman's Analysis Was Highly Flawed...................................................................................................... 87 None Of The Plaintiffs Or Testifying Class Members Suffered Likely Or Actual Harm Resulting From Any Omission In The SPD Or Section 204(h) Notice ....................................................................................................... 88

VII. VIII.

DEFENDANTS' FAILURE TO PROVIDE PRESENT-VALUE DISCLOSURES PRIOR TO OCTOBER 2004 DID NOT VIOLATE ERISA (COUNT 5). ................... 103 PLAINTIFFS AND THOUSANDS OF CLASS MEMBERS SIGNED RELEASES WHICH BAR THEIR CLAIMS (ALL COUNTS)................................... 107

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Defendants CIGNA Corporation ("CIGNA") and CIGNA Pension Plan (collectively, "Defendants") hereby propose the following findings of fact set forth below.1 I. BACKGROUND ON CASH BALANCE PLANS AND TRADITIONAL PLANS A. 1. Traditional Defined Benefit Plans The formula for earning benefits in a traditional defined benefit pension plan

typically is an annual benefit payable for the life of the employee ("annuity"), where the annual benefit is a percentage of the employee's "salary" multiplied by the employee's years of service. Salary may be defined as final salary, the average of salary in the last five years, or some other similar definition. For example, an employee might accrue a pension benefit commencing at age 65 of 1.5% of salary for every year of service. After 30 years of service he would have an annual pension benefit of 45% of salary. Trial Testimony of Lawrence Sher (hereinafter "Sher Tr.") 959-60; Ex. 10, Sher Report at 2. 2. The annuity has an actuarially equivalent present value based on interest rates

and the participant's age and life expectancy. In other words, using certain actuarial assumptions, the value of the annuity can be expressed as a lump sum value today. Sher Tr. 959-60. 3. By design, participants under traditional pension plans earn most of their

benefits in their last years of service. Traditional plans provide most of their benefits only after an employee stays with the same employer for many years. Sher Tr. 956, 960-63.
1

Defendants aimed herein to limit the Proposed Post-Trial Findings of Fact to those findings most critical to the Court's determination of the issues in this matter. Defendants note that additional facts supportive of Defendants' arguments may be found in exhibits not cited herein. On the first day of trial, the Court held that all exhibits were admitted as full exhibits and could be used by either party for any purpose. Tr. 10; see dkt. #233 (Defendants' List of Trial Exhibits); dkt. #238 (Plaintiffs' List of Trial Exhibits). However, the Court sustained Defendants' objections to the wholesale admission of Exhibits 181 - 193 and 196 - 199. Tr. 10. -1-

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4.

Traditional plans also frequently provide subsidized early retirement benefits

that encourage employees to stay with the employer until such benefits become available and then to leave. An unsubsidized early retirement benefit is a benefit payable before normal retirement age (typically age 65) that has the same value (discounting to present value and with actuarial adjustments) as the age-65 benefit. A subsidized early retirement benefit is a benefit payable before normal retirement age that has an overall value greater than the value of the normal retirement benefit. If the employee does not retire early, the value of the subsidized benefit is worn away and lost. Sher Tr. 963-65; Trial Testimony of Claude Poulin (hereinafter "Poulin Tr.") 212. B. 5. Cash Balance Plans "Cash balance" retirement plans were designed to reflect changes in the

workforce of employees and to allow employees to earn their retirement benefits more evenly over their careers. Sher Tr. 956; Ex. 10, Sher Report at 1. 6. Since the mid-1980s, hundreds of U.S. employers have adopted "cash balance"

retirement plans. Most of these plans resulted from the "conversion" of their traditional defined benefit plans to cash balance plans. Sher Tr. 949, 984-85, 987; Ex. 10, Sher Report at 1. 7. Recent estimates indicate that between one-quarter and one-third of large U.S.

employers sponsor a cash balance plan. According to the Pension Benefit Guaranty Corporation, over 1,500 cash balance plans and other similar "hybrid" plans were in existence as of 2003, providing pension benefits to over 8 million participants, one quarter of the total population covered by defined benefit plans. Ex. 531, Pension Benefit Guaranty Corp., Pension Insurance Data Book 2004, at 59 (2005), at http://www.pbgc.gov/docs/2004databook.pdf (last visited June 22, 2006). -2-

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8.

Usually, the amount of the cash balance benefit earned in any period is equal to

a percentage of the participant's pay during that period and, therefore, is often referred to as a "pay credit." Pay credits can be defined in a number of ways. For example, they may be a fixed percentage of pay (e.g., 5%), they may be integrated with social security (e.g., 3% of pay up to the social security wage base and 5% over the wage base), or they may vary by the employee's age or service (e.g., 4% of pay each year up to age 40 and 5% each year thereafter). Pay credits are periodically credited to a participant's account (e.g., each pay period). Sher Tr. 972-74; Ex. 10, Sher Report at 2-3. 9. In order to reflect economic changes associated with the passage of time, i.e.,

the time value of money, cash balance plans also provide for "interest credits," determined by applying a plan-specified interest rate to the participant's account balance. In most cases, the interest credit rate is a "floating" rate that changes annually (or more frequently) and is tied to a market rate such as the yield on a selected U.S. Treasury security. Sometimes, a floating interest credit rate is subject to a minimum fixed rate (e.g., 4%), to a maximum fixed rate (e.g., 8%), or both. Sher Tr. 972, 976-77; Ex. 10, Sher Report at 3. 10. Because of its different plan design, the benefit formula under a cash balance

plan is expressed in a different way than under a traditional defined benefit plan. In a traditional plan, the benefit formula is typically expressed as a life annuity beginning at the normal retirement age defined by the plan (often age 65). Conversely, the benefit in a cash balance plan is expressed as a current lump sum value that is equal to the employee's "cash balance account." Sher Tr. 959. 11. The fundamental formula in a cash balance plan ­ benefit credits and interest

credits ­ is easy to understand, and employees can appreciate exactly how those amounts will

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increase over time. Poulin Tr. 1559-60; Sher Tr. 955; Ex. 10, Sher Report at 1. 12. Cash balance plans allow employees to earn benefits more evenly throughout

their career, whereas traditional defined benefit plans are heavily economically backloaded. Sher Tr. 1397, 1443-1445. 13. Since most employees do not stay with the same employer for most of their

careers, employees will often receive more generous benefits under cash balance plans than under traditional defined benefit plans with similar costs. Cash balance plans are not inherently more or less costly than traditional defined benefit plans. Sher Tr. 1006-07; 117980. 14. Traditional defined benefit plans generally are viewed as, and are, less valuable

to employees in an increasingly mobile workforce, because benefits generally are frozen based on the employees' salary at termination of employment. Thus, inflation tends to eat away at the value of benefits earned in a traditional plan for employees who do not spend their entire career with one company. Sher Tr. 1442. Cash balance plans, by contrast, use interest credits to index benefits earned against inflation. Sher Tr. 1153-55; Ex. 10, Sher Report at 20. 15. Many cash balance plans are the result of "conversions" from traditional

defined benefit plans that are accomplished through plan amendments. There are two major approaches used in practice: the "sum-of" approach and the "opening balance" approach. Sher Tr. 988; Ex. 10, Sher Report at 3. 16. Under the "sum-of" approach, benefit accruals as of the conversion date under

the prior traditional benefit formula are frozen. At the same time, participants begin to receive benefit credits (and interest credits) going forward. The prior plan accrued benefits typically would continue to be paid under the forms previously allowed (which often do not include a

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lump sum option), and the cash balance portion usually is payable in a lump sum equal to the participant's account balance, or as an annuity. Essentially, the participant in these cases has two separate pension benefits, with different rules, formulas, and procedures governing each form. Ex. 10, Sher Report at 3-4. 17. Under the "opening balance" approach, participants are granted initial cash

balance accounts as of the conversion date to reflect their years of service under the prior benefit formula. Often, opening balances are determined based on the lump sum value of the accrued normal retirement benefit under the prior formula as of the conversion date, by discounting the benefit to present value using certain interest rates and actuarial factors prevalent at the time. Ex. 10, Sher Report at 4. 18. Sometimes, opening balances are increased to an extent to reflect subsidies

inherent in early retirement benefits under the prior formula. Many employers have been reluctant, however, to build early retirement subsidies into opening balances because that could result in a much more favorable treatment as compared to the prior benefit formula. That is because in a traditional plan, the value of early retirement subsidies dissipates, i.e., wears away and is lost, as the employee continues to work. Once the subsidized value of the early retirement benefit is factored into the opening balance, however, it does not wear away. Ex. 10, Sher Report at 4. 19. There is no provision of law that sets forth minimum requirements for

determining opening balances. In fact, the United States General Accounting Office has specifically stated that "current federal law does not govern how plan sponsors set opening hypothetical account balances for cash balance plans, provided that a plan ensures that participants do not receive less than the present value of prior accrued benefits if they separate

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from the employer." Ex. 533, United States General Accounting Office, Report to Congressional Requesters, Private Pensions, Implications of Conversions to Cash Balance Plans, September, 2000 at 30 (P02283); Ex. 10, Sher Report at 4. 20. However, in order to assure that participants always receive at least as much as

they were entitled to under the prior formula, cash balance plan conversions with opening balances generally provide that in no event will the employee's total benefit be less than the benefit earned on the conversion date under the pre-conversion benefit formula. Sher Tr. 98889; Ex. 10, Sher Report at 4. 21. The opening balance approach has been the more popular approach primarily

because employers perceived that employees would prefer to have all of the plan benefits expressed under the new paradigm ­ that is, in terms of a current lump sum value. From the employee's perspective, neither approach is inherently superior. It depends on the design details and on future events that are unknown at the time of the conversion (e.g., changes in interest rates, pay increase rates, etc.). Sher Tr. 987, 1343; Ex. 10, Sher Report at 4. II. THE CIGNA PENSION PLAN A. CIGNA's Part A Traditional Pension Plan And The Creation Of The Part B Cash Balance Plan 1. 22. All Plan Participants Earned Benefits Under Part A Through December 31, 1997.

Prior to January 1, 1998, CIGNA had a traditional pension plan for its

employees. Ex. 2, Prior CIGNA Pension Plan in effect before January 1, 1998 ("Part A"). When CIGNA created a cash balance plan for certain participants in the CIGNA Pension Plan (sometimes referred to as the "Plan"), known as "Part B," the original traditional defined benefit plan formula that continued for certain grandfathered participants was labeled "Part

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A." Ex. 2, Part A. For ease of reference, CIGNA's traditional defined benefit will be hereafter referred to as "Part A." 23. Depending on an employee's employment history, the employee would either

be entitled to benefits under the Tier 1 or Tier 2 formula under Part A. The "Tier 1" formula provides an age-65 annuity benefit equal to 2% of final three-year average pay for each year of service up to 30 years, less a "social security offset." The participant can retire early at age 55 with 10 or more years of service and receive an immediate annuity benefit equal to the accrued age 65 benefit (not reflecting the social security offset), reduced for early commencement by factors in the Plan. Upon reaching age 65, the benefit is reduced by the participant's social security offset. Ex. 2, Part A at 4.2, 4.3 (D00040-46). 24. The Tier 2 formula provides an age-65 annuity benefit equal to 1% of final

five year average pay for each year of service up to 35 years, less the social security offset. A Tier 2 participant could retire early after age 55 with 15 more years of service and receive an immediate annuity benefit equal to the accrued age-65 benefit (not reflecting the social security offset), reduced by 5% per year if benefits begin before age 65 (e.g., 50% for commencement at age 55). Upon reaching age 62, the benefit payable is reduced by the social security offset (adjusted to age 62). Ex. 2, Part A at 4.3(b) (D00046). 25. The early retirement benefits, i.e. pre-age 65 benefits, available under Tier 1

and Tier 2 were subsidized benefits, although the Tier 2 subsidy was not substantial. Ex. 2, Part A at 4.3 (D00043). 26. The Plan also included a provision that benefited certain married participants ­

the so-called "Preserved Spouse's Benefit" ­ whereby a portion of the participant's pension (generally 30%) would be payable after his or her death for the remaining lifetime of the

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surviving spouse. When this kind of protection is provided to retired participants, many pension plans reduce the participant's lifetime pension in order to compensate for the added value of the survivor payments. However, participants eligible for the Preserved Spouse's Benefit received it free of charge. A participant eligible for this coverage who elects to have a larger portion (e.g., greater than 30%) of the pension to continue to his or her spouse after the participant's death, would get credit for the free preserved spouse's benefit ­ i.e., only the difference between the amount elected and the amount of preserved spouse's benefit would serve to reduce the participant's lifetime pension. For example, a participant who elects a 50% spouse's benefit would only have his or her lifetime pension reduced to pay for the cost of providing the additional 20% spouse's benefit. Ex. 2, Part A at Section 6.4 (D00063). 27. The Tier 1 and Tier 2 formulas did not have a lump sum option. That is,

participants could elect their benefits in one of several different annuity options, but could not elect to receive their benefits as a lump sum. Ex. 2, Part A at Article VI (D00260 - 71); Sher Tr. 1026. 28. Under Part A, once employees were separated from employment with CIGNA,

their plan benefit was static and did not continue to grow or keep up with inflation, because it was based on earnings with CIGNA. Ex. 2, Part A at 4.2 (D00040 - 43). 2. On November 4, 1997, CIGNA Amended The Plan To Freeze Accruals In Part A For Certain Plan Participants As Of December 31, 1997.

29.

In November 1997, CIGNA's Chief Executive Officer ("CEO"), Wilson

Taylor, signed an amendment to the CIGNA Pension Plan freezing benefit accruals for all Tier 2 participants (also known as "new formula participants") and all Tier 1 participants with a combined age and years of credited service less than 45. Depenbrock v. CIGNA Corp., 278 F. Supp. 2d 461, 469 (E.D. Pa. 2003), reversed on other grounds, 389 F.3d 78 (3d Cir. 2004) -8-

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("Taylor's execution of Amendment Number 4 . . . froze the pension benefit accruals of the participants that would be converted to cash balance plan effective December 31, 1997"). 30. The amendment provided in part: Notwithstanding any other provision of the Plan, no Employee who, as of December 31, 1997, is a New Formula Participant or has a combined total Years of Credited Service and age less than forty-five (45) shall accrue any additional benefits under the Plan after December 31, 1997. The foregoing cessation and/or suspension in benefit accruals and exclusion from eligibility to participate in the Plan after December 31, 1997, shall remain in effect until the adoption of a subsequent amendment to the Plan, and such subsequent amendment may provide for benefit accruals under terms and conditions different from the Plan provision in effect before 1998. No such subsequent amendment shall result in the accrued benefits of any Participant being less than such Participant's accrued benefit under the plan as of December 31, 1997. Ex. 2, Amendment No. 4 (D00132 - 133). 31. Thus, according to the express words of Amendment No. 4, until a "subsequent

amendment" was adopted, the affected participants had their benefits frozen (i.e, accruals reduced to zero), and they would accrue no new pension benefits after December 31, 1997. Ex. 2, Amendment No. 4 (D00132). 32. The only Plan amendment causing a reduction in benefits was this freezing of

benefit accruals under Part A for certain participants, effective December 31, 1997. Ex. 2, Amendment No. 4 (D00132). 33. Those older, longer service employees whose age plus service totaled at least

45 and who were not "new formula participants" were grandfathered, and continued to accrue benefits under Part A. Ex. 2, Amendment No. 4 (D00132). 34. Indeed, Plaintiff's expert Mr. Poulin admitted that if there is a plan amendment

which freezes all future benefit accruals, the rate of benefit accrual for affected participants -9-

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would be zero, and that the subsequent adoption of a new plan would be an increase from the prior rate of benefit accrual. Poulin Tr. 387-88. 35. Mr. Poulin further admitted that if "CIGNA had ceased all future benefit

accruals effective December 31, 1997, and then in 2005 had adopted its cash balance plan retroactive to January 1st of 1998, that [adoption of the cash balance plan] would have been an increase in benefit accruals." Poulin Tr. 388. 3. 36. On December 21, 1998, The Amendment Creating Part B Was Signed, Retroactive To January 1, 1998.

On December 21, 1998, the CEO signed the Plan document for the cash

balance plan, Part B, as well as an updated Part A Plan document, Ex. 2, Part A at D10336 443); Ex. 1, Part B at D10444 - 10530; Depenbrock, 389 F.3d 78 (holding that "December 21, 1998, is the effective date of the amendment" implementing the cash balance plan). 37. Although the Plan document was not signed until December 1998, it was

retroactive to January 1, 1998. Depenbrock, 389 F.3d at 83. Thus, Part B participants received pension and interest credits in 1998 for the entire year. See, e.g., Ex. 519, Pension Plan Statement for the Period Ending June 30, 1998 (reflecting benefit and interest credits earned from January 1, 1998 to June 30, 1998). 38. The adoption of Part B resulted in an increase in benefit accruals for non-

grandfathered participants who moved to the cash balance plan because the previously adopted Amendment No. 4 had frozen all of their benefit accruals. That is, non-grandfathered participants went from having no benefit accruals (under Amendment No. 4) to accruing benefits under Part B. Ex. 11 at 1-5 39. The non-grandfathered participants who were employed as of December 31,

1997 became participants in Part B, and their Part A accrued benefits were converted to an

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opening account balance in Part B at that time. Ex. 1, Part B at Section 1.28 (D00278-79). 40. Additionally, any employees hired for the first time after January 1, 1998

automatically became participants in Part B upon their hire. Ex. 1, Part B at Section 2.1 (D00285). These individuals are not part of the class in this case, which only includes Part B participants who previously were participants in Part A. 41. Plan participants who were no longer employed by CIGNA on December 31,

1997, did not become participants in Part B unless and until they were rehired. Accordingly, these individuals are not part of the class in this case because they never were participants in Part B. Ex. 1, Part B at 2.4(a) (D00285). 42. Part B provides that grandfathered participants in Part A who left CIGNA and

then were rehired by CIGNA after the adoption of the Part B would become participants in Part B upon their rehire. Ex. 1, Part B at Section 2.4 (00285). 43. Originally, the Plan Administrator placed rehires who rejoined CIGNA

between January 1, 1998 and December 21, 1998 (when Part B was signed) into Part B. Depenbrock, 389 F.3d at 80. However, in a lawsuit filed by a rehire, John Depenbrock, the United States Court of Appeals for the Third Circuit determined that those rehires should have remained in Part A because the amendment creating Part B and establishing its rule applicable to rehires was not valid until signed by the CEO on December 21, 1998. Depenbrock, 389 F.3d at 82-83. 44. As a result of the Depenbrock decision, the Plan Administrator decided to

notify other grandfathered Part A participants who were rehired between January 1, 1998 and December 21, 1998 that their benefits would be recalculated under Part A. Ex. 539, Letters from Plan Administrator Regarding Depenbrock dated February 4, 2005. There are

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approximately 194 employees who fall into this group. Ex. 176, Depenbrock Letters at SuppD0484. B. The Terms Of Part B 1. 45. Benefit And Interest Credits

Under the Plan, participants receive a "hypothetical" individual cash balance

account that grows with the addition of benefit and interest credits. Ex. 1, Part B at Article IV. 46. Under Part B, participants earn benefit credits (referred to as "benefit credits")

based on a percentage of their "Eligible Earnings" each year, plus interest on their account balance. Ex. 1, Part B at Article VI (D00291 - 93). 47. The benefit credit rate is age- and service-favored ­ i.e., Part B provides a

higher credit rate to older or longer service employees than similarly situated younger or shorter service employees.2 The following table shows the Plan's benefit credit rates: Table A: Benefit Credit Rates Under Part B of CIGNA Pension Plan Age Plus Service Under 35 35 ­ 44 45 ­ 54 55 ­ 64 65 or over Rate Applied to Pay Up to Integration Level 3% 4% 5% 6% 7% Rate Applied to Pay Over Integration Level 4.5% 5.5% 6.5% 7.5% 8.5%

Ex. 1, Part B at 4.1(a); Sher Tr. 973; Ex. 10, Sher Report at 6. 48. For example, an employee who is age 40 with 10 years of service in 2003 (i.e,

age plus service is 50) and earns $60,000 receives a benefit credit in 2003 of $3,247.50 (5% of
2

The benefit credit rate also is integrated with Social Security to some extent ­ i.e., provides a higher credit rate on pay over the "Social Security integration level." Part B provides that the integration level is one-half of the Social Security taxable wage limit in each year (e.g., $34,200 in 1998 and $43,500 in 2003). Ex. 503, Amendment 1.2 to Part B (D00323). - 12 -

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$43,500 plus 6.5% of $16,500). Had the same employee been age 60 rather than 40, the benefit credit would be $1,200 higher, or $4,447.50 (7% of $43,500 plus 8.5% of $16,500). For any two participants who have the same service and pay history, the older one will receive a benefit credit in a given year that is either the same or higher than the younger employee. Similarly, as an employee continues in service, his or her benefit credit rates will either remain the same or increase from one year to the next. Ex. 10, Sher Report at 6-7. 49. Participants also receive interest credits quarterly on their account balances at a

floating rate that is subject to change at the beginning of each calendar year. The annualized Plan rate is the rate on five-year U.S. Treasury securities (constant maturity) in the preceding November plus 0.25% (subject to a minimum of 4.5% and a maximum of 9.0%). Ex. 1, Part B at Section 4.2(b) (D00293). 50. Interest credits continue to be added to a participant's account until the account

is paid out as a lump sum or until annuity payments start. Ex. 1, Part B at Section 4.2 (D00292 - 293). 51. The interest credit rate under Part B is the same for all participants, regardless

of age. Although that rate can fluctuate from year to year (based on the yield on five year Treasury securities plus .25%), all participants in any given year will earn interest at the same rate. Ex. 1, Part B, Section 4.2; Sher Tr. 977; Ex. 10, Sher Report at 7, 9. 52. Notably, Plaintiff's expert, Claude Poulin has admitted that this rate

approximates "the kind of investment return retiring plan participants would experience in the marketplace if they chose to invest in `relatively risk-free investments.'" McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 202 (2d Cir. 2007) (quoting Claude Poulin when testifying

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about the 30-year Treasury rate, which usually is slightly higher than the 5-year Treasury rate). Poulin Tr. 309. 53. The actual historical interest credit rates under Part B of the Plan are as follows: Table B: Interest Credit Rates Under Part B of CIGNA Pension Plan Year 1998 1999 2000 2001 2002 2003 2004 2005 2006 Plan Interest Credit Rates 6.05% 4.79% 6.22% 5.95% 4.50% 4.50% 4.50% 4.50% 4.70%

Poulin Tr. 276, 349; Ex. 10, Sher Report at 7; Ex. 587, 2004 Annual Account Statement (P 1273); Ex. 588, 2005 Annual Account Statement (P 2400). 54. In any given year, the older employee's benefit will equal or exceed the benefit

payable to a similarly situated (i.e., same salary history and years of service) younger employee. Poulin Tr. 309-10; Sher Tr 974-75. 55. Moreover, CIGNA's pay and interest credit rates were both well within the

mainstream rates provided by other cash balance plans. Sher Tr. 983, 989, 1001; Ex. 17, 2004 Mellon Survey of Cash Balance Plans, at 12-14.

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2. 56.

Opening Account Balances, Protected Minimum Benefits, And Retirement

Former Part A participants who began coverage under Part B under the terms

of the Plan received opening balances based on the present value of their accrued benefits under the applicable Part A benefit formula as of December 31, 1997. Ex. 1, Part B at Section 1.28 (D00278 - 279). 57. New hires after December 31, 1997 were placed into Part B with an opening

account balance of zero because they had no previously earned benefit. Employees rehired between December 21, 1998 and December 31, 2000 became participants in Part B and had their Part A benefits converted into an opening account balance. Employees rehired after December 31, 2000 became entitled to two different benefits based on two different formulas: one based on the benefits earned under Part A before they left CIGNA and a separate benefit based on their service in Part B once they were rehired. Poulin Tr. 307-310; Ex. 504, Amendment No. 2 to Part B. 58. For purposes of calculating the present value of each participant's accrued

benefit under Part A, different present value factors (and the benefits to which they apply) were used depending upon individual circumstances. Poulin Tr. 307-310; Ex. 1, Part B at Section 1.28 (D00278 - 79). 59. The most favorable treatment was provided to participants who were eligible

for Part B on January 1, 1998 and whose age plus service totaled 55 or more on such date. For such a participant, the opening balance was equal to the present value of the participant's subsidized age 62 early retirement benefit, using an interest rate equal to the five-year Treasury rate in effect in November 1997, minus 0.75% -- i.e., 5.05%. Mortality was assumed at all ages based on the 1983 (unisex) Group Annuity Mortality Table ("1983 GAM

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Table"). Ex. 1, Part B at 1.28 (D00278 - 79); Poulin Tr. 309-10; Sher Tr. 982-83; Ex. 10, Sher Report at 8. 60. Because the normal retirement benefit under Part A generally was only payable

if the participant lived until commencing benefits, the opening account balances were adjusted to reflect that the normal retirement benefit under Part B would be payable regardless of whether the participant lived until retirement. In other words, participants' annuity benefits were subject to a mortality adjustment to account for the life-insurance value of the benefit included under Part B that did not exist under Part A. Plaintiff's expert, Claude Poulin, admitted that this mortality adjustment was appropriate. Poulin Tr. 482-84. 61. For all other Part B participants, the opening balances were determined based

on the accrued Part A normal retirement benefit (payable at age 65), using an interest rate equal to the five-year Treasury rate in effect in November 1997, plus 0.25% -- i.e., 6.05%. For participants joining Part B after January 1, 1998, i.e., rehires, open account balances were based on the 30-year Treasury bond rate in effect at the time. Again, mortality was assumed at all ages based on the 1983 GAM Table. Ex. 1, Part B at 1.28 (D00278 - 79); Poulin Tr. 309; Sher Tr. 981-82, 992-993; Ex. 10, Sher Report at 8. 62. Thus, for these older employees, the benefit was converted into an opening

account balance using a lower (and hence more favorable) interest rate. Poulin Tr. 309-10; Sher Tr. 982; Ex. 10, Sher Report at 8. In other words, the calculations used to set opening account balances favored older employees. Certain older employees, i.e., those with more than 55 age and service points (including testifying class members Hogan and Curley), had their opening account balances based on a more favorable age-62 subsidized benefit and using

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a more favorable (lower) interest rate. Poulin Tr. 220-21; 309-10; Sher Tr. 982-83; Pls. Ex. 10, Sher Report at 8. 63. In addition, Mr. Poulin admitted that an older employee's opening account

balance will always be higher than the account balance of a similarly-situated younger employee (with the same years of service and earnings history before 1998), even in the absence of the age-favored open account balance provision in Part B. Poulin Tr. 309-10. 64. The setting of these opening account balances was within the mainstream of

practice in cash balance conversions. In fact, the most common approach is not to include any early retirement subsidies in opening balances. This is because an early retirement subsidized benefit is lost if not taken at early retirement. If the early retirement subsidized benefit is included in the opening account balance, the employee who retires at normal retirement age will have an increased account balance based on a subsidized benefit that he or she did not actually elect to receive. Sher Tr. 982-83, 991-993. 65. Under Part B, any participant (including any of the Plaintiffs) is entitled at

retirement to receive a benefit at least as valuable as his or her account balance, including all benefit and interest credits. Ex. 1, Part B at Section 7.1 (D00305 - 07); Ex. 1, Part B at Section 1.1 (D00270). 66. At retirement, or upon termination of employment, a participant can elect to

receive benefits in the form of a lump sum. Alternatively, a participant can elect to receive benefits in one of several other forms available, including a single life annuity (stream of monthly payments payable for life) or a joint and survivor annuity (stream of monthly payments for life, with additional payments payable to a spouse for the life of the spouse). Ex. 1, Part B at Section 7.2 (D00307 - 09).

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67.

If the amount of the account is less than a certain minimum benefit earned by

the participant before January 1, 1998 set forth in Part B (the "Minimum Benefit"), the participant receives the equivalent of the account balance (including all benefit and interest credits) plus additional pension benefits sufficient to raise the participant's overall retirement benefit up to the minimum. Ex. 1, Part B at Sections 1.1(c) (D00270), 1.32 (D00280), 7.3(b) (D00309). 68. In other words, a participant is entitled to the greater of a retirement benefit

based on his account balance or the Minimum Benefit set forth in Part B. Ex. 1, Part B at Sections 1.1(c) (D00270), 1.32 (D00280), 7.3(b) (D00309). 69. Specifically, Section 1.1(c) of the Plan provides that: Minimum Benefit. In the case of a Participant who has a Part A Accrued Benefit which is converted into an Initial Retirement Account, such Participant's Accrued Benefit, expressed in the form of an immediate lump sum distribution, shall in no event be less than the present Equivalent Actuarial Value (determined using the Applicable Interest Rate and the Applicable Mortality Table) of the Participant's Minimum Benefit. Ex. 1, Part B at Section 1.1(c) (D10451). 70. The Minimum Benefit is defined as a participant's age-65 annuity benefit under

Part A, enhanced by the value of the "Preserved Spouse's Benefit," if applicable. Ex. 1, Part B at Section 1.32 (D00280). 71. Normal retirement age under the Plan is defined generally as age 65. Ex. 1,

Part B at Section 1.34 (D00281). 72. In addition, Section 7.3 of the Plan protects other benefits, in other benefit

forms (e.g., early retirement subsidized benefits), to which an employee was entitled under the prior formula. Ex. 1, Part B at Section 1.34 (D00281); Ex. 1, Part B at Section 7.3(c) (D00309). - 18 -

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73.

The most common reason that a participant might be entitled to more than the

value of his or her account balance is if the participant was entitled to a subsidized early retirement benefit under the prior Plan, which would be preserved under Section 7.3 of Part B, but was not included (for most employees) as part of the employee's opening account balance. Under these circumstances, the participant is entitled to his or her protected higher subsidized early retirement benefit. Sher Tr. 988-89, 992-95, 1010, 1028-29, 1087; Poulin Tr. 226-27. 74. Because the initial account balance was calculated by converting each

participant's annuity benefit into a lump sum using a particular interest rate, a subsequent decrease in interest rates also could cause an employee's Minimum Benefit to exceed the value of the employee's account balance. Under these circumstances, the participant is entitled to his or her protected Minimum Benefit. Poulin Tr. 214-15; Sher Tr. 1009-1016, 1024-25, 1026. 75. For many participants, the minimum benefit is irrelevant because the

participant's account balance exceeds the minimum benefit value at the time of benefit commencement. Sher Tr. 988-89, 992-95, 1010, 1028-29, 1087. 3. 76. CIGNA Part B Plan Administration

Both the Part A and Part B Plan documents provided that the Plan

Administrator shall be "the person, entity, or committee responsible for the administration of the Plan as specified in Article XIII." Ex. 1, Part B at Section 1.46 (D00282); Ex. 2, Part A at Section 15.1 (D00098). 77. Both the Part A and Part B Plan documents provided that a Plan Administrator

would be designated by "The Committee," which was defined as "the CIGNA Corporation Corporate Benefit Plan Committee, or a successor entity or group of persons, that is the

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Named Fiduciary for the Plan as described in Article XII." Ex. 1, Part B at Section 1.17 (D00272); Ex. 2, Part A at Section 1.18 (D00010). 78. Both the Part A and Part B Plan documents provided that the "Committee shall

delegate to a Plan Administrator the duties, authority and functions set forth in this Article XIII." Ex. 1, Part B at Section 13.1 (D00329); Ex. 2, Part A at Section 15.1 (D00098). 79. Thus, the Plan document vested authority in the Benefits Committee to appoint

a Plan Administrator. Ex. 1, Part B at 13.1 (D00329); Ex. 2, Part A at 15.1 (D00098). 80. In accordance with these Plan provisions, the Committee formally designated

Stewart M. Beltz, Assistant Vice President Benefits, as the Plan Administrator for the traditional defined benefit plan on March 29, 1996. Ex. 507, Plan Administrator Appointments at SuppD1098. 81. The Committee designated Mr. Beltz's replacement as Plan Administrator,

Gerald T. Meyn, Vice President, on May 14, 2003. Ex. 507, Plan Administrator Appointments at SuppD1099. 82. Effective August 20, 2004, the Committee replaced Mr. Meyn with John Arko

as Plan Administrator. Ex. 507, Plan Administrator Appointments at SuppD1092. 83. The 1998 Part B summary plan description ("SPD") and 1999 Part B SPD

explicitly list the Plan Sponsor and the Plan Administrator for Part B: Plan Sponsor ... Plan Administrator CIGNA Corporation Stewart M. Beltz CIGNA Corporation 1601 Market Street Philadelphia, PA 19192

Ex. 505, 1998 Part B SPD at 17 (D00842); Ex. 506, 1999 Part B SPD at J-10 (D00652).

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84.

CIGNA is the Plan Sponsor for the CIGNA Pension Plan. Ex. 1, Part B at

Section 14.1 (D00333). 85. CIGNA is not the Plan Administrator for the CIGNA Pension Plan. Ex. 1, Part

B at Section 13.1 (D00329 - D00330). 86. John Arko is the current Plan Administrator for the CIGNA Pension Plan. Ex.

1, Part B at Section 13.1 (D00329 - D00330). 87. The Plan Administrator has the power to "interpret and construe the provisions

of the Plan" and to "determine all questions relating to a Participant's participation and benefits under the Plan." Ex. 1, Part B at Sections 13.2(a), 13.2(d) (D00329); Ex. 2, Part A at 15.2(a), 15.2(d) (D00098). 88. The Plan contains a detailed claims and appeals procedure for employees who

have questions or concerns about their benefits. Ex. 1, Part B at Article XIII. As detailed in the Plan, the Claims Procedure states: 13.5 Claims Procedure (a) Filing A Claim For Benefits. A Participant or Beneficiary shall notify the Plan Administrator or its delegate of a claim for benefits under the Plan. Such request may be in any form adequate to give reasonable notice to the Plan Administrator or its delegate and shall set forth the basis of such claim and shall authorize the Plan Administrator or its delegate to conduct such examinations as may be necessary to determine the validity of the claim and to take such steps as may be necessary to facilitate the payment of any benefits to which the Participant or Beneficiary may be entitled under the Plan. The Plan Administrator shall make all determinations as to the right of any person to a benefit under the Plan. Denial Of Claim. If the Plan Administrator denies in whole or in part any claim for benefits under the Plan by any Participant or Beneficiary, the Plan Administrator shall furnish the claimant with written notice of the decision not later than ninety (90) days after receipt of the claim, unless special circumstances require an

(b)

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extension of time for processing the claim. If such an extension of time for processing is required, written notice of the extension shall be furnished to the claimant before the end of the initial ninety- (90-) day period. In no event shall such extension exceed the period of ninety (90) days from the end of the initial period. The extension notice shall indicate the special circumstances requiring an extension of time and the date by which the Plan Administrator expects to render the final decision. The written notice of the denial of a claim shall set forth in a manner calculated to be understood by the claimant: (1) (2) (3) The specific reason or reasons for the denial; Specific reference to the pertinent Plan provisions on which the denial is based; A description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and Appropriate information as to the steps to be taken if the claimant wishes to submit his claim for review.

(4) (c)

Appeals Procedure. A claimant or his authorized representative may request a review of the denied claim by the Plan Administrator. Such request shall be made in writing and shall be presented to the Plan Administrator not more than sixty (60) days after receipt by the claimant of written notice of the denial of the claim. The claimant shall have the right to review the pertinent documents and to submit issues and comments in writing. The Plan Administrator shall make its decision on review not later than sixty (60) days after receipt of the claimant's request for review, unless special circumstances require an extension of time, in which case a decision shall be rendered as soon as possible, but not later than 120 days after receipt of the request for review. The decision on review shall be in writing and shall include the specific reasons for the decision, written in a manner calculated to be understood by the claimant, and specific references to pertinent Plan provisions on which the decision is based. The Plan claims procedure shall be administered in accordance with the applicable regulations of the Department of Labor.

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Ex. 1, Part B at Section 13.5 (D00330 - 331) 89. The Plan also accounts for the fact that occasionally errors may occur by

specifically providing that the Plan Administrator will correct any mistakes: 13.6 Clerical Error If any fact pertaining to eligibility for an amount of benefits payable under the Plan to a Participant or other payee has been misstated, or in the event of clerical error, the benefits will be adjusted by the Plan Administrator or its delegate on the basis of the correct facts in a manner precluding individual selection. Ex. 1, Part B at Section 13.6 (D00331 - 332). 90. Prudential Retirement ("Prudential") is the record keeper for the CIGNA

Pension Plan, since the Stock Purchase and Asset Transfer of CRIS of CIGNA to Prudential in November 2003. Morris Tr. 753-54, 836. III. PART B TREATS OLDER EMPLOYEES AT LEAST AS WELL AS IT TREATS YOUNGER EMPLOYEES (COUNT 3) A. 91. Defendants' Expert's Analysis Of Age Discrimination Is Grounded In Sound Actuarial Science. Defendants' expert, Lawrence Sher, has proposed a methodology for

determining the rate of an employee's benefit accruals with respect to cash balance benefits under Part B of the CIGNA Pension Plan. The Court finds that Mr. Sher's methodology and conclusions are sound and grounded in well-accepted principles of actuarial science. 1. 92. Mr. Sher's Credentials

Lawrence Sher is a Principal and the Director of Retirement Policy at Buck

Consultants, Inc., an actuarial and employee benefits consulting firm owned by Affiliated Computer Services. He is a Fellow of the Society of Actuaries and has practiced as an

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actuary since 1973. He practices primarily in the area of pension benefits. Sher Tr. 944-50; Ex. 10, Sher Report at 1, Appendix A. 93. Mr. Sher has extensive experience designing and consulting with respect to

defined benefit pension plans, including cash balance plans. In the past sixteen years, he has devoted a significant portion of his time to issues relating to cash balance plans, including providing technical assistance and advice to his firm's consultants and clients and to government officials, initiating and supervising research activities, speaking at professional conferences, publishing articles, and responding to questions from the media. Sher Tr. 94850; Ex. 10, Sher Report at 1- 2, Appendix A. 94. Pursuant to Fed. R. Evid. 702, the Court finds that Mr. Sher is qualified as an

expert by his knowledge, skill, experience, training and education on the design of cash balance and traditional defined benefit plans generally, and the operation of Parts A and B of the CIGNA Pension Plan specifically. The Court further finds that Mr. Sher's testimony is based on sufficient facts and data drawn from the record, and is the product of reliable actuarial principles and methods, and that Mr. Sher has applied these principles and methods reliably to the facts of this case. 2. 95. Mr. Sher's Methodology And Conclusions

Mr. Sher described several ways that one could measure whether Part B is age

discriminatory. Using each methodology, Mr. Sher concluded that Part B is not age discriminatory. Sher Tr. 1133-53; Pls. Ex. 10, Sher Report at 8-20. 96. The Part B benefit credits for any older employee are at least as great as for any

younger employee with the same years of service and pay. Ex. 1, Part B, at Section 4.1 (D00291); Pls. Ex. 10, Sher Report at 8-9.

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97.

In addition, all Part B participants, regardless of age, receive interest credits at

an interest rate equal to the rate on five-year Treasury securities for the year plus 0.25% (subject to the 4.5% minimum and 9% maximum rates). Ex. 1, Part B, at Section 4.2 (D00292 - 293); Ex. 10, Sher Report at 7, 9. 98. Section 204(b)(1)(H)(i) of ERISA uses the undefined phrase "the rate of an

employee's benefit accrual." This phrase is not a term of art that has a specific meaning in the actuarial profession. Actuaries calculate benefit accrual rates in a variety of contexts. Sometimes actuaries project benefits and then attribute those benefits to particular years of service or periods of time, in which case the actuary has calculated a benefit accrual "rate." In this general sense, actuaries commonly calculate benefit accrual rates. However, there is no universal method that actuaries invariably or ordinarily use for these purposes. Benefit accrual rates can be determined in a variety of ways, and the method that should be used in any given instance depends on the purpose of the calculation and the guidance, if any, given in the applicable rules and regulations. Sher Tr. 1129-53; Ex. 10, Sher Report at 9. 99. Indeed, even Mr. Poulin calculated different rates of benefit accrual for the

same plan depending on the purpose of his calculations and what he was trying to analyze. Poulin Tr. 395-97. Specifically, Mr. Poulin calculated different rates of benefit accrual for the same career average plan when he compared the career average plan to a three-year final average pay formula and to a five-year final average pay formula. Poulin Tr. 395-97; Ex. 4, Poulin Supp. Report, at Exhibits 1, 2. 100. In some instances, ERISA and the Internal Revenue Code spell out precisely

how benefit accrual rates should be determined. For example, ERISA and the Code provide significant details as to how benefit accrual rates must be determined in testing a defined

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benefit plan under the anti-backloading rules in ERISA sections 204(b)(1)(A), (B) and (C) and the parallel provisions of the Code. In this instance, IRS regulations provide even more details as to how to comply with those provisions. Under these circumstances, actuaries follow the requirements of the statute and regulations. Sher Tr. 1210-13, 1411; Ex. 10, Sher Report at 910. 101. Other provisions in ERISA and the Code allow a choice among various

methods of calculating benefit accrual rates. For instance, section 1.401(a)(4)-3 of the nondiscrimination regulations introduces the term "accrual rate" and proceeds to define two types of rates, the "normal accrual rate" and the "most valuable accrual rate," and then provides three general approaches for calculating either of those rates. These regulations permit additional variations in how the rates can be calculated, for example, by allowing social security benefits to be "imputed" into the rates and by allowing the rates to be stated as dollar amounts or as a percentage of pay, where pay may be determined in alternative ways. Ex. 10, Sher Report at 10. 102. Still other provisions, such as ERISA section 204(b)(1)(H)(i), provide no

specificity at all about how the employee's benefit accrual rate is to be determined. In these instances, an actuary called upon to calculate a rate of benefit accrual should choose a method that is consistent with sound actuarial and economic principles and with the purpose for which the determination is being made. Of course, the actuary should reflect applicable regulations or other binding authority. Sher Tr. 1133-44; Ex. 10, Sher Report at 10. 103. A preliminary question is whether it is even necessary to engage in actuarial

calculations of the rate of benefit accrual under the Part B cash balance formula. Section 204(b)(1)(H)(i) asks whether the "rate of an employee's benefit accrual" is frozen or reduced

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"because of the attainment of any age." If it is clear from the terms of a benefit formula that benefits continue to accrue in the same manner before and after the attainment of any given age or in a manner that becomes more favorable as age progresses, then there is no reason why mathematical calculations would be required. Sher Tr. 1133-34; Ex. 10, Sher Report at 10-11. 104. Under the CIGNA Part B cash balance formula, as age progresses, benefit

credit rates continue to apply at the same or at a higher level. And, interest is credited to all participants at a rate indexed to five-year Treasury securities (subject to the minimum and maximum fixed rates). Neither interest credits nor benefit credits are reduced or frozen because of the attainment of any age. Thus, actuarial calculations are not required in order to see that the cash balance formula does not reduce the rate of an employee's benefit accrual because of age. Sher Tr. 1139-44; Ex. 10, Sher Report at 11. 105. To the extent that actuarial calculations are required, an appropriate means of

determining the rate of benefit accrual under the Part B cash balance formula is to measure the rate of growth in an employee's account balance. Table C-1 illustrates this approach for an employee hired at age 30 with a starting salary of $60,000 per year and 4.5% annual pay increases. The interest-crediting rate is also assumed to be 4.5% in all years. Sher Tr. 113444; Ex. 10, Sher Report at 11.

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Table C-1: Rate of Increase in Account Balance3 (4.5% Annual Pay Increases; 4.5% Annual Interest Credit Rate)
Rate of Employee's Benefit Accrual Based on Incr. in Acct. Balance Not Time Value Adj. IRS Prop. Approach Including Interest Excluding Interest [1] Age 31 32 33 34 35 40 45 50 55 60 65 Service 1 2 3 4 5 10 15 20 25 30 35 [2] Pay 60,000 62,700 65,522 68,470 71,551 89,166 111,117 138,471 172,561 215,042 267,981 [3] Benefit Credits 2,048 2,140 2,891 3,021 3,157 4,826 7,125 10,264 12,791 15,940 19,864 [4] [5] [6] [7] [8] [9]

Interest End of Yr. As Dollar As a % of As Dollar As a % of Credits Acct. Bal. Amount Pay Amount Pay ­ 92 193 331 482 1,525 3,291 6,132 10,396 16,387 24,698 2,048 4,280 7,364 10,716 14,355 40,236 83,545 152,663 254,201 396,482 593,409 2,048 2,232 3,084 3,352 3,639 6,351 10,416 16,396 23,187 32,327 44,562 3.41% 3.56% 4.71% 4.90% 5.09% 7.12% 9.37% 11.84% 13.44% 15.03% 16.63% 2,048 2,140 2,891 3,021 3,157 4,826 7,125 10,264 12,791 15,940 19,864 3.41% 3.41% 4.41% 4.41% 4.41% 5.41% 6.41% 7.41% 7.41% 7.41% 7.41%

Sher Tr. 1134-44; Ex. 10, Sher Report at 12. 106. The resulting rates are determined in dollar amounts (columns 6 and 8) and as a

percentage of pay (columns 7 and 9). Columns 6 and 7 take the total increase in account balance during each year. Looking at these results, it is not surprising that annual changes in account balances increase more and more quickly over time as interest credits begin to accumulate on growing account balances. If one considers the time value of money, however, the rates of increase would track the benefit credit amounts (Column 8) and the benefit credit rates (Column 9) because the time value of money would offset the interest credits paid under the formula. In fact, the IRS proposed regulations mentioned earlier do precisely that. Column 8 presents the time value adjusted rates determined in accordance with the IRS
3

For simplicity of illustration, Table C-1 adds interest credits at the end of the year. Ex. 10 at 12. - 28 -

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proposed regulations using dollar amounts and Column 9 does so as percentages of pay. Again, the rates either remain level or increase in each passing year. Sher Tr. 1134-44; Ex. 10, Sher Report at 12-13. 107. The following Table C-2 repeats the calculations in Table C-1 except that,

rather than assuming 4.5% annual pay increases, no annual pay increases are assumed (i.e., the employee's pay is assumed to remain at $60,000 in all years). Sher Tr. 1144-; Ps' Ex. 10, Sher Report at 13. 108. Table C-2: Rate of Increase in Account Balance4 (No Annual Pay Increases; 4.5% Annual Interest Credit Rate)
Rate of Employee's Benefit Accrual Based on Incr. in Acct. Balance Not Time Value Adj. IRS Prop. Approach Including Interest Excluding Interest [1] Age 31 32 33 34 35 40 45 50 55 60 65 Service 1 2 3 4 5 10 15 20 25 30 35 [2] Pay 60,000 60,000 60,000 60,000 60,000 60,000 60,000 60,000 60,000 60,000 60,000 [3] Benefit Credits 2,048 2,048 2,648 2,648 2,648 3,248 3,848 4,448 4,448 4,448 4,448 [4] Interest Credits ­ 92 188 316 449 1,267 2,434 4,036 6,124 8,727 11,971 [5] [6] [7] [8] [9]

End of Yr. As Dollar As a % of As Dollar As a % of Acct. Bal. Amount Amount Pay Pay 2,048 4,188 7,025 9,989 13,086 32,676 60,372 98,168 146,669 207,110 282,430 2,048 2,140 2,836 2,964 3,097 4,515 6,282 8,484 10,572 13,175 16,419 3.41% 3.57% 4.73% 4.95% 5.16% 7.53% 10.47% 14.14% 17.62% 21.96% 27.36% 2,048 2,048 2,648 2,648 2,648 3,248 3,848 4,448 4,448 4,448 4,448 3.41% 3.41% 4.41% 4.41% 4.41% 5.41% 6.41% 7.41% 7.41% 7.41% 7.41%

Sher Tr. 1144-45; Ex. 10, Sher Report, p.13.

4

For simplicity of illustration, Table C-2 adds interest credits at the end of the year. Ex. 10 at 13. - 29 -

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109.

Using the growth in an employee's account balance to measure an employee's

rate of benefit accrual (whether time value adjusted or not) is consistent with the fact that the basic promise in the cash balance formula is the employee's account balance. Part B generally provides (Section 1.1) that on any date of determination the "Accrued Benefit, expressed in the form of an immediate lump sum distribution" is equal to the participant's cash balance account. Ex. 1, Part B, at Section 1.19(a) (D00270); Ex. 10, Sher Report at 13-14. 110. Consistent with Section 1.1, every form of benefit that an employee may elect

to receive with respect to the cash balance benefit is derived from the employee's account balance. Ex. 10, Sher Report at 14. B. 111. Plaintiffs' Expert's Analysis Of Age Discrimination Is Fatally Flawed. Plaintiffs' expert, Claude Poulin, has proposed a methodology for determining

the rate of an employee's benefit accrual with respect to cash balance benefits under Part B of the CIGNA Pension Plan. Mr. Poulin has admitted that he did not offer (and was not asked to offer) any opinions on the process for calculating lump sum benefits in a cash balance plan known as "whipsaw." Poulin Tr. 356-57. The Court finds that Mr. Poulin's methodology and conclusions are flawed and unreasonable as a matter of actuarial science. 112. The Poulin methodology measures rates of benefit accrual by considering the

size of the benefit that an employee would have if the employee (i) left the balance in his or her cash balance account to accumulate until age 65, and then (ii) converted the age 65 account balance into a life annuity. Poulin Tr. 262; Sher Tr. 1146-51; Ex. 10, Sher Report at 15. Thus, Plaintiffs' expert, Mr. Poulin, insisted at trial that there is only one mathematical formula that can be used to calculate a participant's accrued benefit and to test for age discrimination under ERISA Section 204(b)(1)(H). He testified:

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Q. Sir, am I correct that your formula [in paragraphs 13 and 14 of your report] is based on your opinion that the calculation of the rate of benefit accrual must be made with reference to the age 65 annuity? A. Yes, it is. * * * Q. Just so we are clear, your method doesn't address the rate of -- aside from what's in paragraphs 13 and 14, you don't address any other way of measuring the rate of benefit accrual in a cash balance plan, correct? A. This is correct. Poulin Tr. 347-48; Ex. 3 at 4-5. 113. The second of these steps ­ conversion of the account balance into a life

annuity ­ has no impact on the analysis. Ex. 10, Sher Report at 15. 114. On the other hand, the first step -- measuring the size of the benefit that the

employe