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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 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 I. II. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 In a Defined Benefit Plan, the "Accrued Benefit" Is an Annual Benefit Commencing at Retirement Age . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 A. Cash Balance Plans Are Required to Comply With the Rules for Defined Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 B. CIGNA's Cash Balance Plan Is a Defined Benefit Plan . . . . . . . . . . 7 CIGNA's Cash Balance Transition Method Produced Years of Service with No Additional Benefits in Violation of ERISA's Anti-Backloading and Vesting Rules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 A. CIGNA Set Up the "Wear-Away" Effect by Converting Participants' Accrued Benefits to Opening Account Balances with Less Protected and Lower Values and Then Building Future Accruals Only on This New Floor . . . . . . . . . . . . . . . . . . . . . . . . . . 10 B. A Period of Years Where Participants "Accrue No Additional Benefits" Violates ERISA's 133a% Accrual Rule . . . . . . . . . . . . . 15 C. Conditioning Future Accruals on Giving Up Statutory Rights to Previously-Earned Annuities Violates ERISA's Vesting Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 The Rate of an Employee's Benefit Accrual under CIGNA's Cash Balance Formula Decreases With Age. . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 A. CIGNA Recognized Its "Vulnerability" to the Age Discrimination Claim Because Its Actuaries Found the "Accrual Rates Decline with Increases in Age and Service" . . . . . . . . . . . . . . . . . . 30 B. Congress Always Uses the Term "Benefit Accrual" to Refer to the Increase in the Accrued Benefit. . . . . . . . . . . . . . . . . . . . . . . 33 C. An Employee's "Benefit Accrual" Under a Defined Benefit Plan Does Not Have a Primary and a Secondary Meaning . . . . . . . . . . . 36 D. Cash Balance Plans with Graded Pay Credits Can Only Comply with the 133a% Accrual Rule Based on the Increase in the "Accrued Benefit" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 E. Age Discrimination and the "Time Value of Money" Are Not Mutually Exclusive; In a Defined Benefit Plan, Age Discrimination Occurs When an Employer Offers Older Employees Lower
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III.

IV.

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F.

Retirement Benefits for a Year of Service than Younger Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 The Periods of "Wear-Away" Where Neither Accrued Benefits Nor Imputed Inputs Are Actually Paid to Older Employees Violate the Age Discrimination Rule.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 48 52 55

V.

CIGNA Violated Its Duty to Disclose Significant Benefit Reductions. . . A. CIGNA's Cash Balance Conversion Substantially Reduced Future Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B. Cash Balance Conversions "Mask" Benefit Reductions . . . . . . . . . C. CIGNA's Communications and the Uncontested Expert Testimony Show that CIGNA Did Not Disclose Reductions But Instead Assured Employees that the "New Plan" Offered "Comparable" or Larger" Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. The Purported Section 204(h) Notice Tells Participants that the Changes Are "Enhancements" and Does Not Mention Reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. CIGNA's Summary of Material Modification and SPD Tell Participants that the Benefits Are "Comparable" or "Larger" and Do Not Mention Reductions . . . . . . . . . . . . . . D. CIGNA Deliberately Withheld Accurate Information About the Effects of the Amendments to Avoid "Any Significant Negative Reaction from Employees." . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E. ERISA Section 204(h) Requires Advance Notice of a "Significant Reduction" in Future Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F. No Matter How Narrowly CIGNA Construes Section 204(h), It Cannot Be Satisfied by Telling Employees that Benefits Are "Enhanced" When They Are Actually Reduced . . . . . . . . . . . . . . . G. Benefit Reductions Must Also Be "Fully Explained" in Summaries of Material Modification or Updated Summary Plan Descriptions ...................................... H. Even If There Was No Affirmative Duty to Disclose at the Outset, CIGNA Had a Fiduciary Duty to "Speak Truthfully" When It Discussed the Effects of the Cash Balance Changes. . . . . . . . . . . . I. CIGNA's Disclosures Resulted in "Likely Prejudice" to the Participants' Ability to Make "Well-Informed Employment and Retirement Decisions." . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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VI.

CIGNA Did Not Disclose the Amendment of Its "Rehire Rule" to Former Employees and Does Not Contest that This Likely Prejudiced Them . . . 88

VII. In Violation of Treasury Regulations, Participants and Spouses Were Not Notified When Annuity Options Have Greater "Relative Values" than the Cash Balance Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 A. CIGNA Did Not Tell Participants or Spouses When the Cash Balance Accounts Were Worth Less than the Annuity . . . . . . . . . . 95 B. As Late as the Month Before Trial, CIGNA Was Withholding Information About the Greater Relative Value of the Part A/Tier 1 Annuities from Participants in the Depenbrock Group . . . . . . . . . 101 VIII. Complete Relief Including Past Benefits Can Be Provided to the Members of the Class under ERISA §§502(a)(3) and (a)(1)(B) Consistent With Great-West and the Second Circuit's Decisions in Frommert and Swede. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102 Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107

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TABLE OF AUTHORITIES FEDERAL CASES Amato v. Western Union International, Inc., 773 F.2d 1402 (2d Cir. 1985) 1

Arizona Committee for Deferred Compensation Plans v. Norris, 463 U.S. 1073 (1983) ............................................................................................ 43 Arnett v. CalPERS, 179 F.3d 690 (9th Cir. 1999), vacated and remanded on other grounds, 528 U.S. 1111 (2000) ............................................... 44 BFP v. Resolution Trust Corp., 511 U.S. 531 (1994) ................................. 39 Becker v. Kodak, 120 F.3d 5 (2d Cir. 1997) ............................................... 51 Berger v. Xerox Corp. Ret. Income Guar. Plan, 338 F.3d 755 (7th Cir. 2003) ........................................................................................ passim Bixler v. Central Pa. Teamsters Health & Wel. Fund, 12 F.3d 1292 (3d Cir. 1993) ......................................................................................... 94 Bowen v. Massachusetts, 487 U.S. 879 (1988) ......................................... 104 Bryerton v. Verizon Communications, Inc., 2007 WL 1120290 (S.D.N.Y. 2007) ................................................................................ 30, 37 Burke v. Kodak Retirement Income Plan, 336 F.3d 103 (2d Cir. 2003), cert.denied, 540 U.S. 1105 (2004) ....................................... 76, 79, 86, 94 Burstein v. Allegheny Health Educ. & Research Fdn. Retirement Acct. Plan, 2004 WL 2612162 (E.D. Pa. 2004), on remand from 334 F.3d 365 (3d Cir. 2003) ................................................................... 76 Central Laborers' Pension Fund v. Heinz, 541 U.S. 739 (2004) .... 1, 24, 106 Chambless v. Masters, Mates & Pilots Pension Plan, 772 F.2d 1032 (2d Cir. 1985) ................................................................................... 52, 75
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Charles v. Pepco Holdings, 437 F. Supp. 2d 248 (D.Del. 2006) ............ 9, 14 In re Citigroup Pension Plan ERISA Litigation, 470 F. Supp. 2d 323 (S.D.N.Y. 2006) .............................................................................. passim In re Citigroup Pension Plan ERISA Litigation, 241 F.R.D. 172 (S.D.N.Y. 2006) ........................................................................ 83, 87, 106 In re Citigroup Pension Plan ERISA Litigation, 238 F.R.D. 345 (S.D.N.Y. 2006) ................................................................................ 71, 87 Connecticut v. Teal, 457 U.S. 440 (1982) ................................................... 47 Cooper v. IBM Personal Pension Plan, 457 F.3d 636 (7th Cir. 2006) ...................................................................... 29, 38, 42, 44 Copeland v. Geddes Federal Sav., 62 F.S.2d 673, 678 (N.D.N.Y.1999) .... 69 Costantino v. TRW, 13 F.3d 969 (6th Cir. 1994) ........................................ 95 Crosby v. Bowater, 212 F.R.D. 350 (W.D. Mich. 2002), vacated and remanded on other grounds, 382 F.3d 587 (6th Cir. 2004) ................... 11 Davis v. Adelphia, 475 F. Supp. 2d 600 (W.D.Va. 2007) ........................... 94 Depenbrock v. CIGNA Corp., 389 F.3d 78 (3d Cir. 2004) ............... 1, 13, 89 District Council 37, AFSME v. NY City Department of Parks, 113 F.3d 347 (2d Cir. 1997) .................................................................................. 47 Drutis v. Quebecor, 459 F. Supp. 2d 580 (E.D.Ky. 2006) .......................... 30 EEOC v. Jefferson Co. Sheriffs' Department, 467 F.3d 571 (6th Cir. 2006) ...................................................................................................... 43 Eaton v. Onan Corp., 117 F. Supp. 2d 812 (S.D.Ind. 2000) ............. 8, 30, 37 Eddy v. Colonial Life Insurance Co., 919 F.2d 747 (D.C. Cir. 1990) ........ 48
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Engers v. AT&T, 2007 WL 14585 (D.N.J. 2007) .......................................... 9 Esden v. Bank of Boston, 229 F.3d 154 (2d Cir. 2000) ........................ passim Finley v. Dun and Bradstreet Corp., 471 F. Supp. 2d 485 (D.N.J. 2007) ................................................................................................ 30, 37 Flanigan v. GE, 242 F.3d 78 (2d Cir. 2001) ............................................... 79 Frommert v. Conkright, 433 F.3d 254 (2d Cir. 2006) .......................... passim Gediman v. Anheuser-Busch, 299 F.2d 537 (2d Cir. 1962) ........................ 95 Geissal v. Moore Medical Corp., 524 U.S. 74 (1998) ................................ 67 General Dynamics Land System v. Cline, 540 U.S. 581 (2004) ................. 36 Gray v. Great American Recreation Association, Inc., 970 F.2d 1081 (2d Cir. 1992) ........................................................................................... 3 Great-West v. Knudson, 534 U.S. 204 (2002) ........................................ 105-6 Greenblatt v. Delta Plumbing & Heating, 68 F.3d 561 (2d Cir. 1995) ...... 39 Hamilton v. Air Jamaica, 945 F.2d 74 (3d Cir. 1991) ................................ 49 Harper v. Virginia Department of Taxation, 509 U.S. 86 (1993) ............. 106 Harte v. Bethelehem Steel, 214 F.3d (3d Cir.), cert. denied, 531 U.S. 1037 (2003) ............................................................................. 49 Hazen Paper Co. v. Biggins, 507 U.S. 604 (1993) ..................................... 45 Heidgerd v. Olin Corp., 906 F.2d 903 (2d Cir. 1990) ................................. 74 Hirt v. Equitable, 441 F. Supp. 2d 516 (S.D.N.Y. 2006) ...... 1, 30, 37, 66, 70 Hirt v. Equitable, 2006 WL 2627564 (S.D.N.Y. 2006) ......................... 70-71
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Hudson v. General Dynamics Corp., 118 F. Supp. 2d 226 (D.Conn. 2000) ...................................................................................................... 78 Hullett v. Towers, Perrin, Forster, and Crosby, 38 F.3d 107 (3d Cir. 1994) ...................................................................................................... 10 In re J.P. Morgan Chase Cash Balance Litigation, 460 F. Supp. 2d 479 (S.D.N.Y. 2006) ........................................................................ 29, 72 Jordan v. Federal Express, 116 F.3d 1005 (3d Cir. 1997) ......................... 94 Kimel v. Florida Board of Regents, 528 U.S. 62 (2000) ............................. 44 Klay v. Humana, 382 F.3d 1241 (11th Cir. 2004) ..................................... 87 Langman v. Loeb, 328 F.3d 68 (2d Cir. 2003) ............................................ 21 Lasche v. George W. Lasche Basic Profit Sharing Plan, 111 F.3d 863 (11 th Cir. 1997) ....................................................................................... 94 Laurent v. PriceWaterhouse, 448 F. Supp. 2d 537 (S.D.N.Y. 2006) .......... 30 Layaou v. Xerox Corp., 238 F.3d 205 (2d Cir. 2001) ...................... 52, 74-75 Layaou v. Xerox Corp., 330 F. Supp. 2d 297 (W.D.N.Y. 2004) ..... 76, 80, 86 Lyons v. Georgia-Pacific Corp., 221 F.3d 1235 (11th Cir. 2000), cert. denied, 532 U.S. 967 (2001) .................................................................... 1 McCarthy v. Dun & Bradstreet, 482 F.3d 184 (2d Cir. 2007) .................... 76 Meinhardt v. Unisys, 74 F.3d 420 (3d Cir. 1996) ....................................... 78 Mertens v. Hewitt Associates, 508 U.S. 248 (1993) .................................... 41 Metropolitan Life Insurance Co. v. Taylor, 481 U.S. 58 (1987) ................. 39 Mullins v. Pfizer, Inc., 23 F.3d 663 (2d Cir. 1994) ......................... 51, 78, 99
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Parsons v. AT&T, 2006 WL 3826694 (D.Conn. 2006) .............................. 29 Ream v. Frey, 107 F.3d 147 (3d Cir. 1997) ................................................ 83 Register v. PNC Financial, 477 F.3d 56 (3d Cir. 2007) ...................... passim Register v. PNC Financial, 2005 WL 3120268 (E.D. Pa. 2005) ................ 37 Reynoldsville Casket Co. v. Hyde, 514 U.S. 749 (1995) ........................... 106 Richards v. FleetBoston Fin. Corp., 427 F. Supp. 2d 150 (D. Conn. 2006) ............................................................................................... passim Richards v. FleetBoston Fin. Corp., 2006 WL 860674 (D.Conn. 2006) ..... 82 Richards v. FleetBoston Fin. Corp., 2006 WL 2092086 (D. Conn. 2006) .. 76 Richards v. FleetBoston Fin. Corp., 2006 WL 2979373 (D.Conn. 2006) ... 82 Romero v. Allstate, 404 F.3d 212 (3d Cir. 2005) .................................. 67, 69 Sereboff v. Mid Atlantic Medical Services, --U.S.--, 126 S. Ct. 1869 (2006) ................................................................................................... 104 Smith v. City of Jackson, 544 U.S. 228 (2005) ..................................... 39, 47 Soares v. State of Conn., 8 F.3d 917 (2d Cir. 1993) ................................. 100 Stahl v. Tony's Building Materials, 875 F.3d 1404 (9th Cir. 1989) ............ 52 Sunder v. U.S. Bank. Pension Plan, 2007 WL 541595 (E.D. Mo. 2007) ................................................................................................. 30, 37 Swede v. Rochester Carpenters Pension Fund, 467 F.3d 216 (2d Cir. 2006) .................................................................................................... 106 Syverson v. IBM, 472 F.3d 1072 (9th Cir. 2007) ........................................ 50

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Thomforde v. IBM, 406 F.3d 500 (8th Cir. 2005) ....................................... 50 Tocker v. Philip Morris, 470 F.3d 481 (2d Cir. 2006) ................................ 80 Tomlinson v. El Paso, 2007 WL 891378 (D. Colo. 2007) .............. 30, 46, 48 Tootle v. ARINC Inc., 222 F.R.D. 88 (D.Md. 2004) ................................... 30 Trust & Sav. Bank v. Salomon Smith Barney, 530 U.S. 238 (2000) ........... 39 United States v. Caccia, 122 F.3d 136 (2d Cir. 1997) .................................. 3 Wasley Products, Inc. v. Bulkalites, 2006 WL. 3834240 (D.Conn. 2006) .. 51 West v. AK Steel, 484 F.3d 395(6th Cir. 2007) .................................... 11, 105 Wheeler v. Pension Value Plan for Employees of the Boeing Co., 2007 WL 781908 (S.D.Ill. Mar. 13, 2007) ...................................................... 30 Wilkins v. Mason Tenders District Council Pension Fund, 445 F.3d 572 (2d Cir. 2006) ......................................................................................... 52 STATE CASES Ries v. Kane, 478 A.2d 1195 (N.J. Super. 1983) ........................................ 10

FEDERAL STATUTES, REGULATIONS, AND LEGISLATIVE HISTORY ADEA §4(i), 29 U.S.C. §623(i) .................................................................. 28 ADEA §7(f)(1)(A), 29 U.S.C. §626(f)(1)(A) ............................................. 50 ERISA §2(a), 29 U.S.C. §1001(a) ................................................................ 1 ERISA §3(16), 29 U.S.C. §1002(16) .......................................................... 51 ERISA §3(34), 29 U.S.C. §1002(34) ............................................................ 4
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ERISA §102(a), 29 U.S.C. §1022(a) ..................................................... 48, 87 ERISA §203(a), 29 U.S.C. §1053(a) ................................................. 5, 15, 23 ERISA §203(e), 29 U.S.C. §1053(e) ..................................................... 93, 95 ERISA §204(b)(1)(A), 29 U.S.C. §1054(b)(1)(A) ........................................ 8 ERISA §204(b)(1)(B), 29 U.S.C. §1054(b)(1)(B) ............................... passim ERISA §204(b)(1)(C), 29 U.S.C. §1054(b)(1)(C) ........................................ 8 ERISA §204(b)(1)(H), 29 U.S.C. §1054(b)(1)(B) ................. 6, 28, 35-38, 41 ERISA §204(b)(2), 29 U.S.C. §1054(b)(2) ............................................. 6, 28 ERISA §204(h), 29 U.S.C. §1054(h) ................................................... passim ERISA §204(g), 29 U.S.C. §1054(g) ..................................................... 105-6 ERISA §205(g), 29 U.S.C. §1055(g) .................................................... 93, 95 IRC §411(b)(1)(H), 26 U.S.C. §411(b)(1)(H) ............................................ 28 IRC §411(b)(2), 26 U.S.C. §411(b)(2) ....................................................... 28 IRC §417(e), 26 U.S.C. §417(e) .................................................................. 7 29 C.F.R. 1625.22(b)(3) .............................................................................. 50 29 C.F.R. 2520.102-2(a) ....................................................................... 49, 51 29 C.F.R. 2520.102-2(b) ............................................................ 49, 75-76, 81 29 C.F.R. 2520.102-3(l) ........................................................................ 50, 76 29 C.F.R. 2520.104b-3(a) ......................................................... 49, 51, 68, 76

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29 C.F.R. 2520.104b-4(c) ........................................................................... 90 29 C.F.R. 2590.606-1(a) ............................................................................. 50 Treas. Reg. 1.401(a)(4) ............................................................................... 35 Treas. Reg. 1.401(a)-20 .......................................................................... 95-96 Treas. Reg. 1.411(a)-11(c)(2)(i) ............................................................. 94-95 Treas. Reg. 1.411(b)-1(a) ...................................................................... 18, 34 Treas. Reg. 1.411(b)-1(b)(2)(ii)(A) ............................................................. 17 Treas. Reg. 1.411(b)-1(b)(3)(iii) ................................................................. 17 Treas. Reg. 1.411(b)-2(i) ............................................................................... 9 Treas. Reg. 1.411(d)-4 ................................................................................. 98 Treas. Reg. 1.411(d)-6 ................................................... 49, 51, 68, 73, 90-92 Treas. Reg. 1.417(e)-1(b)(2)(i) ...................................................... 94-95, 103 Treas. Reg. 54.4980F-1 ............................................................................... 69 52 Fed. Reg. 45360 (Nov. 27, 1987) ........................................................... 44 53 Fed. Reg. 11876 (April 11, 1988) .................................................... 29, 44 53 Fed. Reg. 31837 (Aug. 22, 1988) ........................................................... 95 60 Fed. Reg. 64320 (Dec. 15, 1995) ......................................... 19, 68, 73, 90 63 Fed. Reg. 68678 (Dec. 14, 1998) ......................................... 19, 35, 68, 73 64 Fed. Reg. 56578 (Oct. 13, 1999) ............................................................ 12

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65 Fed. Reg. 70227 (Nov. 21, 2000) ........................................................... 77 3 ERISA Leg. Hist. 4750 ............................................................................. 48 67 Fed. Reg. 76123 (Dec. 11, 2002) ............................................... 29, 31, 44 68 Fed. Reg. 17277 (April 9, 2003) ............................................................ 69 H.R. Conf. Rep. 93-1280, 1974 U.S.C.C.A.N. 5038 ............................. 21, 34 H.R. Conf. Rep. 99-453, reprinted in 131 Cong. Rec. 38124 ..................... 68 H.R. Conf. Rep. 99-1012, 1986 U.S.C.C.A.N. 3868 ................................... 36 IRS Notice 96-8, 1996-1 C.B. 359 ........................................................ 24, 26 Rev. Proc. 2005-23 .................................................................................... 106 MISCELLANEOUS Res. of Contracts 2d ..................................................................................... 27 Restatement (2d) of Trusts ................................................................. 103-104 Langbein, Questioning the Trust Law Duty of Loyalty, 114 Yale L.J. 929 (2005) ........................................................................................ 52, 94 Shea, Francese and Newman, Age Discrimination in Cash Balance Plans: Another View, 19 Va. Tax. Rev. 763 (2000) ............................... 37 Zelinsky, The Cash Balance Controversy, 19 Va. Tax. Rev. 683 (2000) ..... 4

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Introduction "ERISA was enacted for the purpose of assuring employees that they would not be deprived of their reasonably-anticipated pension benefits." Amato v. Western Union Int'l, 773 F.2d 1402, 1409 (2d Cir. 1985) (citing ERISA §2(a), 29 U.S.C. §1001(a)). "There is no doubt about the centrality of ERISA's object of protecting employees' justified expectations of receiving the benefits their employers promise them." Central Laborers' Pension Fund v. Heinz, 541 U.S. 739, 743 (2004). Congress recognized that "ERISA's vesting provisions could be thwarted if employers were permitted too much latitude in defining accrued benefits." Amato, 773 F.2d at 1409. The first "cash balance" pension formula is generally credited to the Bank of America in 1985. See Lyons v. Georgia-Pacific Corp., 221 F.3d 1235, 1238 n.2 (11th Cir. 2000), cert. denied, 532 U.S. 967 (2001). Although it was not obvious to employees or the public at the outset, it is now established that cash balance formulas are a part of "corporate America's recent effort to curb costs by, inter alia, scaling back the benefits provided under pension plans." Depenbrock v. CIGNA, 389 F.3d 78, 79 (3d Cir. 2004); see also Hirt v. Equitable, 441 F.Supp.2d 516, 536-37 (S.D.N.Y. 2006); U.S. Gov't Accounting Office, Private Pensions:

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Information on Cash Balance Pension Plans (2005); and ¶¶12-15.1 Cash balance pension formulas "mimic the simplicity of a defined contribution plan" such as a 401(k) plan by referring to employee accounts and hypothetical credits. Esden v. Bank of Boston, 229 F.3d 154, 158 (2d Cir. 2000). In Berger v. Xerox, 338 F.3d 755, 758 (7th Cir. 2003), Judge Posner determined that cash balance formulas cannot be subject to a "hybrid" legal status, but must be regulated as defined benefit plans because "the employee has no actual account, the employer makes no contributions to an employees account, and so there is no account balance to which interest might be added." In Esden, supra, 229 F.3d at 159 n.6 and 171, the Second Circuit held that cash balance plans are subject to regulation as defined benefit plans, and that the statutory rules cannot be supplanted by ones "more accommodating to the design objectives" of cash balance sponsors. The violations that this class action addresses all relate to the protections that Congress has enacted over a period of more than 30 years for "accrued benefits" under defined benefit plans. As demonstrated below, CIGNA failed to comply with ERISA's anti-backloading, vesting, age discrimination and disclosure rules. CIGNA's violations are not inherent to a cash balance design. CIGNA could

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"¶" refers to the Plaintiffs' Proposed Post-Trial Findings.
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have designed a cash balance formula that complies with the anti-backloading, vesting and age discrimination rules. And it could have drafted its communications about the changes to warn employees about benefit reductions and other unfavorable aspects of its new plan design. But, as shown below, CIGNA consistently failed to tell its employees that the changes were reducing benefits. And, in the most stunning default at trial, CIGNA opted to call none of the witnesses that it promised would explain how the company sought to comply with the law and honestly communicate the changes to employees. Tr. 909, line 4 910, line 15 and 1060, lines 4-14.2 I. In a Defined Benefit Plan, the "Accrued Benefit" Is an Annual Benefit Commencing at Retirement Age. Federal law defines two types of pension plans: (1) defined benefit plans and (2) defined contribution plans. ERISA's standards for defined benefit plans focus on protecting justified expectations of monthly or annual income in retirement. Defined contribution plans, such as 401k plans, are plans with separate individual accounts. For those plans, ERISA's standards focus on making sure that employers actually make promised contributions and protecting the investment To the extent any of CIGNA's defenses depend on facts which are especially within CIGNA's sphere of knowledge, Plaintiffs respectfully submit that the Court should draw the "missing witness" inference. See United States v. Caccia, 122 F.3d 136, 138-39 (2d Cir. 1997); Gray v. Great American Recreation Ass'n, Inc., 970 F.2d 1081, 1082 (2d Cir. 1992).
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returns on the accounts. Berger v. Xerox, supra, 338 F.3d at 757; Zelinsky, "The Cash Balance Controversy," 19 Va.Tax Rev. 683, 687-93 (2000). The distinctions between defined benefit and defined contribution plans are found in ERISA's definitions of the two types of plans and the definition of the "accrued benefit." Under ERISA, an "individual account plan" or "defined contribution" plan is: a pension plan which provides for an individual account for each participant and for benefits based solely upon the amount contributed to the participant's account, and any income, expenses, gains, and losses and any forfeitures of accounts of other participants which may be allocated to such participant's account. ERISA §3(34), 29 U.S.C. §1002(34).3 A defined benefit plan is defined more simply as: "a pension plan other than an individual account plan." ERISA §3(35). Critical to the distinction between these two types of plans is ERISA's split definition of the "accrued benefit": The term "accrued benefit" means­ (A) in the case of a defined benefit plan, the individual's accrued benefit determined under the plan and except as provided in §204(c)(3), expressed in the form of an annual benefit commencing at normal retirement age. (B) in the case of a plan which is an individual account plan, the This brief generally follows the convention of citing ERISA sections without the parallel U.S.C. citations. Where the text does not include the parallel citation, it can be found in the Table of Authorities.
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balance of the individual's account. ERISA §3(23); Esden, supra, 229 F.3d at 163. A defined benefit plan is permitted to provide its benefits at earlier ages or in different forms, but ERISA §§3(23)(A) and 204(c)(3) require that in those instances plans must provide at least the actuarial equivalent of the benefit expressed in the form of an annuity at retirement. To protect the interests of employees and their spouses in a secure retirement, Congress has enacted a series of minimum standards which build on the "accrued benefit" as defined for each of these two types of plans. Some of these rules cover both kinds of plans, but the application of the rule depends on the definition of the "accrued benefit." For example, ERISA establishes minimum vesting requirements for "accrued benefits." ERISA §§3(19) and 203. But the "accrued benefit" that must be vested is different in each type of plan. Critical to the discussion below, ERISA contains three important provisions specifically directed at problems with defined benefit plans: First, to keep plan sponsors from avoiding the vesting rules through the mathematical formulas under which employees earn "accrued benefits," ERISA establishes "anti-backloading" rules. The anti-backloading rules regulate the rates at which benefits must accrue under a defined benefit plan. ERISA §§204(a)(1) and 204(b)(1). There are no

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parallel rules for defined contribution plans. Second, since 1986, ERISA has prohibited age discrimination in the rate of an employee's benefit accrual under a defined benefit plan. ERISA §204(b)(1)(H). A different test based on the rate at which contributions are made to the employee's account applies to defined contribution plans. ERISA §204(b)(2). Third, ERISA §204(h) requires employers to notify employees in advance when a plan is amended to reduce the rate of future benefit accrual. Only a subset of defined contribution plans called "money purchase pension plans" are subject to this requirement.4 A. Cash Balance Plans Are Required to Comply with the Rules for Defined Benefit Plans.

In Esden, the Second Circuit held that, as much as plan sponsors or benefit consultants may want to create a "hybrid" legal status, cash balance plans are "defined benefit" plans, with "wide-reaching" "regulatory consequences": notwithstanding that cash balance plans are designed to imitate some features of defined contribution plans, they are nonetheless defined benefit plans under ERISA. n 6. The regulatory consequences of this classification are wide-reaching. First, ERISA § 3(23) provides different definitions of "accrued benefit" for defined benefit and defined contribution plans. Only for a defined contribution plan is "accrued benefit" defined as simply "the balance of the individual's account."... Second, defined benefit plans are subject to a series of parallel statutory constraints ... from which defined contribution plans are exempted. Those relevant to this case include: Money purchase pension plans are relatively uncommon today. The more common "401k" plans are qualified as profit sharing or stock bonus plans and are not subject to this rule.
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limitations on "backloading" of accruals ...; the valuation rules of I.R.C. §417(e) ... and the definitely determinable benefits requirement of I.R.C. §401(a)(25). 229 F.3d at 158 (internal citations omitted). The Second Circuit concluded that "however `hybrid' in design a cash balance plan may be, it remains subject to a regulatory framework that is in many regards rigidly binary." Id. In Richards v. FleetBoston, 427 F.Supp.2d 150 (D. Conn. 2006), a cash balance pension case with similar claims to this one, Judge Hall followed Esden in holding that "defined benefit plans face significantly different requirements from those applicable to defined contribution plans." Id. at 163-65. In Berger v. Xerox, supra, 338 F.3d at 763, Judge Posner observed that when a "hybrid" cash balance plan does not comply with the rules for defined benefit plans, the meaning of "hybrid" is clear: "for `hybrid' read `unlawful.'" B. CIGNA's Cash Balance Plan Is a Defined Benefit Plan.

In certifying the lawsuit as a class action, Judge Squatrito recognized that CIGNA's conversion of its traditional defined benefit pension plan to a "cash balance" formula "changed the method of calculating and accounting for annuity benefits by basing the amount of the annuity upon a hypothetical individual account balance. This hypothetical balance is derived from "credits" reflecting a predetermined percentage of the employee's salary ("benefit credit") and interest

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at a predetermined rate ("interest credit"). Thus, the cash balance plan resembles a defined contribution plan, but remains a defined benefit plan." Slip Op. filed Dec. 20, 2002, at 2. CIGNA's Application for Determination to Internal Revenue Service also affirms, under oath, that CIGNA's Plan continues to be a defined benefit plan. Ex. 37 at DO1954. III. CIGNA's Cash Balance Transition Method Produced Years of Service with No Additional Benefits in Violation of ERISA's Anti-Backloading and Vesting Rules. The "only" benefit accrual test that a cash balance pension plan like CIGNA's "might satisfy is the so-called 133a percent test under ERISA section 204(b)(l)(B)." Esden, supra, 229 F.3d at 167. This is because the 133a% test is the only accrual rule that a formula which bases benefits on each year's pay can satisfy. Id. at 167 n.18; Register v. PNC Finan., 477 F.3d 56, 70 (3d Cir. 2007); In re Citigroup Pension Plan ERISA Litig., 470 F.Supp.2d 323, 337 (S.D.N.Y. 2006); Eaton v. Onan Corp., 117 F.Supp.2d 812, 843 (S.D.Ind. 2000). The two other accrual rules in ERISA are designed for defined benefit formulas that use averages of final or highest pay. See ERISA §§204(b)(1)(A) and (C). Due to the costcutting impetus for their adoption, cash balance formulas invariably eschew benefit calculations based on final or highest average pay and base benefits on

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each year's pay.5 ERISA's 133a% benefit accrual rule requires that "the value of the benefit accrued in any year ... not exceed the value of a benefit accrued in any previous year by more than 33%." Esden, supra, 229 F.3d at 169; ERISA §204(b)(1)(B); Treas. Reg. 1.411(b)-2(i)(B). Viewed from the other direction, the 133a% accrual rule requires that the participant earn an "annual rate" of benefit accrual in each "particular plan year" which is not less than 75% of the accrual rate in any later plan year. Esden, 229 F.3d at 167. The accrued benefit earned in each particular plan year cannot simply be a bookkeeping notation; it must represent a "payable" addition to the participant's retirement income. Cf. In re Citigroup, supra, 470 F.Supp.2d at 337 (accrual rules must be satisfied "in any given year"); Charles v. Pepco Holdings, 437 F.Supp.2d 248, 251 (D.Del. 2006) (plaintiffs must have the opportunity to prove "whether the use of a variable interest rate actually caused plaintiffs' accrued benefits to decrease `on account' of additional service"); Engers v. AT&T, 2007 WL 14585 *4 (D.N.J. Jan. 3, 2007) (ERISA §204(b)(1)(B) "states two conditions that must both be met. Both ... refer to the benefit `payable at [the] normal retirement age.'

There are some hybrid plans called "pension equity" plans which base benefits on final or highest average pay. See Dan McGill, Fundamentals of Private Pensions (8th ed.) at 314-16 (defining a "pension equity" plan).
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Whether or how this covers Plaintiffs' complaints that their benefits have not been paid depends on interpretation of the word `payable'").6 A. CIGNA Set Up the "Wear-Away" Effect by Converting Participants' Accrued Benefits to Opening Account Balances With Less Protected and Lower Values and Then Building Future Accruals Only on This New Floor.

In its cash balance conversion, CIGNA converted the retirement benefits that its employees had already earned to opening account balances. As shown by the report of Claude Poulin, the class' actuarial expert, the opening balances did not reflect the full value of participants' previous benefits. Mr. Poulin explained how a shortfall between the value of participants' retirement benefits and the opening accounts necessarily developed from: (1) CIGNA's exclusion of rights to "subsidized" early retirement benefits, including a valuable "Social Security supplement," and (2) CIGNA's application of a "pre-retirement mortality" discount. Tr. 211, line 6 - 212, line 13; Ex. 3 (Poulin Rpt) ¶¶ 25 and 32. When benefits are not completely lost in the event of death before retirement, preretirement mortality discounts have been found to violate ERISA's anti-forfeiture Accord Hullett v. Towers, Perrin, Forster, and Crosby, 38 F.3d 107, 113 (3d Cir. 1994) ("payable means the point at which money may be paid on demand, not the point at which payment actually commences"); Ries v. Kane, 478 A.2d 1195, 1199, 1201 (N.J. Super. 1983) (employer's position on meaning of "payable" "would result in the employer not being responsible to pay any benefit"; court should interpret statute in a way that "avoid[s] the anomalous result of a bill which is intended to increase benefits, yet does not do so").
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requirements. See West v. AK Steel, 484 F.3d 395, 2007 WL 1159951, *14-15 (6th Cir. 2007) ("Even if the participant were to die before the age of 65, his or her beneficiary is still entitled to the entire accrued benefit").7 In addition, because of falling interest rates after 1997, the new opening balances had a lower and less stable value in terms of retirement income than the participants' previous benefits (which were expressed in annuity form). As Mr. Poulin explained, converting annuity benefits to opening accounts transforms the benefits into something like a variable annuity. Tr. 445, line 2 - 446, line 24; Ex. 3 (Poulin Rpt) ¶33-35. If interest rates move above the rate used at the conversion, retirement benefits increase. But if interest rates go down, as they have since 1997, the retirement benefits that can be restored with the hypothetical account decrease. Id. After establishing these opening accounts, CIGNA provided that future benefit accruals could only be built on top of the new hypothetical floor. Because the opening accounts did not reflect the full value of the previously-earned benefits and because interest rates fell after 1997, the benefits of many members of the Plaintiff class failed to increase at all for a number of years. Accord Berger v. Xerox Corp., supra, 338 F.3d at 764 (describing use of pre-retirement mortality discount as "unfathomable"); Crosby v. Bowater, 212 F.R.D. 350, 361-62 (W.D. Mich. 2002), vacated and remanded on other grounds, 382 F.3d 587 (6th Cir. 2004).
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In certifying the class, Judge Squatrito described this claim: In layman's terms, as a result of these calculations plaintiff experienced a period where benefits "constructively" accrued in her cash balance account. This is so because the minimum benefit payable to plaintiff was greater than her hypothetical account balance, which means that plaintiff would not begin to realize the accrual of benefits under Plan B until her hypothetical account balance exceeded the amount of the minimum benefit. 12/20/02 Slip Op. at 3 - 4. The period of what Judge Squatrito described as constructive accruals is more commonly known as a "wear-away." In Richards, Judge Hall found that a wear-away causes employees "to work for many years following [a cash balance conversion] without actually accruing any new benefits, despite the existence of a hypothetical cash balance account that show[s] benefits being added each quarter." 427 F.Supp.2d at 155.8 In the case of the named Plaintiff Janice Amara, CIGNA's "wear-away" made her participation in the CIGNA cash balance accruals illusory for more than seven years. See Ex. 32 at 28174 and 28629. Under the old plan formula, Ms. Amara had earned early retirement benefits of $1,833.65 a month starting at age 55. Ex. 3 (Poulin Rpt) ¶¶ 24-26. But CIGNA's opening account for Amara was $91,124.88, which converts to an age 55 annuity of only $900 per month. Id. But Accord 64 Fed. Reg. 56578, 56579 (Oct. 13, 1999) (as a result of "wearaway" designs, "employees who had already earned benefits may not earn additional retirement benefits for varying periods of time after the conversion"; the wear-away effect "continues until an employee's benefit under the on-going cash balance formula `catches up' with the employee's protected benefit").
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for the Third Circuit's 2004 decision in Depenbrock v. CIGNA, 389 F.3d 78, which restored her to the old formula, Ms. Amara would have spent the rest of her career with CIGNA `catching up' with the level of benefits she had already earned. Dramatically illustrating the difference between the two formulas, Ms. Amara's benefits nearly doubled when she was put back under the old formula. ¶164. The same type of wear-aways applied to Plaintiffs Gisela Broderick and Patricia Flannery who were unaffected by the Depenbrock decision. After Ms. Broderick was rehired in 2000, she worked for three and one-half years. But her pension benefits when she retired were exactly the same as when she was rehired. Her benefit was $2,010 per month at age 65 when she left CIGNA in 1997 and the same amount when she retired in 2004.9 The same happened to Ms. Flannery who is still at work with CIGNA: Her retirement benefits have not increased at all based on her employment between 2000 and 2006. ¶¶58-59. Because named Plaintiff Annette Glanz was younger than Broderick and Flannery and did not have a right to early retirement benefits, her benefits caught up with her previous level of benefits after three years, but the accruals in those

Tr. 1299, line 12 - 1300, line 4 (Sher testimony that Broderick's cash balance benefit in the last year was still $200 less than the $2,010 that she had five years earlier) and Ex. 235, first page. Mr. Poulin calculated Ms. Broderick's age 60 benefit and found that the cash balance amount lagged still farther behind: $1,400 compared with $2,191. ¶55.
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`catch up' years were never regained. ¶¶60-61. Mr. Poulin prepared a spreadsheet to show Annette Glanz's benefit accruals on a year-by-year basis. It shows that her annuity benefit at the end of 2000 was $566.88, only $2.88 more than the $564 benefit she had at the beginning of 1998. Ex. 6 and ¶¶60-61, 104-105. In response to Mr. Poulin's spreadsheet, Defendants' expert, Mr. Sher, prepared a spreadsheet on Ms. Glanz's accruals showing practically the same effects. The only difference was that Mr. Sher calculated Ms. Glanz's benefits with a method that made the years with no additional accruals Years 1, 2 and 5, rather than Years 1 through 3 under Mr. Poulin's method. ¶106 and Exs. 234 and 235.10 CIGNA was aware of the "wear-away" effects. For example, an internal CIGNA memorandum acknowledges: "Using the present value of normal retirement age benefits results in a significant "wear-away" period during which time employees accrue no additional benefits with future service." Ex. 40 at 28635; see also ¶¶81-92. Actuary Andy Hodges testified at his June 2003 deposition that he was aware of wear-aways at the time of the conversion and that

Mr. Sher disclaimed that his spreadsheet had anything to do with compliance with the 133a% rule and stated, several times, that he was not opining on whether CIGNA's Plan satisfies this rule. ¶118. Without testimony from Mr. Sher or any other witness, it is difficult to understand what CIGNA relies on as its defense. In Charles v. Pepco Holdings, supra, 437 F.Supp.2d at 251, the district court denied judgment when it was "unclear exactly what calculation defendants are proposing as the proper method to test compliance."
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a "myriad of factors" caused wear-away periods, including early retirement subsidies, pre-retirement mortality discounts, and falling interest rates. He also recognized that wear-away periods could last up to six years. ¶¶82-85. A wear-away design is not an inherent or necessary part of a cash balance conversion. Cash balance conversions can be designed without wear-aways. ¶¶7478. In fact, the Pension Protection Act of 2006 requires all cash balance conversions after June 29, 2005 to be designed with no wear-aways. P.L. 109-280, §701(a)(1), adding ERISA §204(b)(5)(B)(ii). CIGNA's "wear-away" design has two critical legal ramifications. First, the periods with no additional benefits followed by benefits in later plan years violate the prohibition in ERISA's 133a% accrual rule against "backloading" benefit accruals. ERISA §204(b)(1)(B). Second, CIGNA's design makes payment of the benefits derived from the cash balance credits conditional on whether the employee elects to forego payment of his or her previously-accrued benefits in annuity form. This causes a loss or forfeiture of the cash balance accruals (or conversely the previously-accrued benefits, depending on the election) in violation of the nonforfeitability requirements in ERISA §203(a). B. A Period of Years Where Participants "Accrue No Additional Benefits" Violates ERISA's 133a% Accrual Rule.

Wear-away periods during which a participant's net benefit accruals cease
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and then pick up again violate ERISA's 133a% accrual rule. Internally, CIGNA has recognized that its cash balance conversion produced periods of "wear-away" in which participants "accrue no additional benefits," earn little or no benefits" and "see no benefit improvement." See ¶¶86-87, 381. ERISA's 133a% accrual test requires that the "annual rate" of benefit accrual "payable at the normal retirement age" can go up by no more than 133a% in any later plan year. ERISA §204(b)(1)(B). If no additional benefits are earned for a period of several plan years with accruals picking up again in later years, the plan does not comply with the statutory rule against backloading. This is because the rate of benefit accrual after the period of wear-away period ends is "infinitely" greater than the rate in the years with no additional benefit accruals. Tr. 240, line 22 - 241, line 21, and Ex. 3 (Poulin Rpt) ¶ 30. CIGNA's non-compliance with the ERISA's 133a% rule cannot be repaired by drawing on the higher rates of accrual under the plan's previous formulas as if they were a reservoir of credits. Treasury regulations issued in 1977 make clear that higher accruals from previous years cannot be averaged with lower or non-existent rates in intermediate years to avoid a violation. Instead, the plan's formula must pass the test based on the accruals in "each particular plan year." The Treasury regulations offer an example in which a plan offers a 2% accrual rate

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in the first 5 years of participation, followed by a 1% rate in years 6-10, and then 1.5% in all years thereafter. The regulations provide that the accrual rates in the years 6-10 must comply with the statutory requirements without resorting to the higher accrual rates in the earlier years. As a result, the lower accrual rate in years 6-10 violates the law, notwithstanding that an average accrual rate for years 1-10 would not fall below 1.5%. Treas. Reg. 1.411(b)-1(b)(3)(iii) (Example 3). In Richards, Judge Hall did not find a violation of the 133a% rule because of a special rule in ERISA §204(b)(1)(B)(i). That subsection provides that in satisfying the 133a% rule "any amendment which is in effect for the current year shall be treated as in effect for all other plan years." ERISA §204(b)(1)(B)(i) and Treas. Reg. 1.411(b)-1(b)(2)(ii)(A). Judge Hall held that if §204(b)(1)(B)(i) applied, "employees such as Richards would never have accrued a benefit under the Traditional Plan, and would have started accruing benefits under the cash balance formula from the start of their employment. Assuming such a scenario, such employees would suffer no backloading of benefits" because they "never have accrued a benefit under the Traditional Plan, and would have started accruing benefits under the cash balance formula from the start of their employment." 427 F.Supp.2d at 171. Likewise, Register v. PNC Finan., 477 F.3d 56, 71-72 (3d Cir. 2007), holds that "once there is an amendment to the prior plan, only the new plan

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formula is relevant when ascertaining if the plan satisfies the 133 1/3% test." The construction of the clause in 204(b)(1)(B)(i) that was accepted in Register and Richards is inconsistent with the example referenced above and with the Treasury regulation in effect since 1977 which provides that when benefits are "determined under more than one plan formula," the benefits "must be aggregated in order to determine whether or not the accrued benefits under the plan for participants satisfy one of the alternative methods." Treas. Reg. 1.411(b)-1(a). The IRS has also issued "Alert Guidelines on Minimum Vesting Standards" which confirm that the aggregation regulation applies when a plan has two formulas, one of which offers a minimum benefit. In an example, a plan's regular benefit formula offers a benefit of 0.5% of compensation for each year of service. In year X, the plan becomes "top-heavy" which requires a "minimum" accrual of 2% per year. The IRS concludes that if the plan provides that a participant shall receive "not less than" the "greater of" his or her accrual under the regular formula or the topheavy minimum, it will violate the 133a% rule. The IRS shows how for a participant with 6 years of service the net increase in the first two years of 0.5% will be exceeded by the 2% accrual rate in future years by more than 133a%. Ex. 39 at 12. In regulations issued under ERISA §204(h), the Treasury Department also recognizes that a "minimum benefit" provision can affect the "rate of future

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benefit accrual." 60 F.R. 64320, 64322 (Dec. 15, 1995); 63 F.R. 68678, 68681 (Dec. 14, 1998). Neither CIGNA nor its expert contests that the frozen benefit used under its "greater of" approach is a "minimum benefit." At a November 2003 meeting of the Conference of Consulting Actuaries, CIGNA's actuarial expert, Mr. Sher, was recorded on audiotape questioning a panel of IRS officials about whether the aggregation regulation applies to a frozen minimum benefit that has the effect of eliminating or reducing net accruals in future plan years. The IRS officials are recorded telling 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 12.11 Although the discussion at the CCA meeting is unofficial, recent April 16 and May 18, 2007 comments to the IRS from the American Benefits Council (ABC) and the ERISA Industry Committee (ERIC), both of which include CIGNA as members,12 confirm the IRS's position. ABC states that: "there is a problem with the way that the IRS has been interpreting the backloading rules; in general,

In his expert report, Mr. Sher nevertheless asserted that in his "experience," the 133a% test is performed without taking into account the effect of the benefits under the protected but frozen formula. Ex. 10 (Sher Rpt) at 35; see also Tr. 1045, lines 19-22 (testifying that "as far as I know", the government has never raised any problems with respect to the "wearaway situation").
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¶113. Mr. Sher's firm, Buck Consultants, is also a member of ABC. Id.
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the IRS interpretation invalidates `greater of' formulas." ERIC states that "the Service's current application of the 133a% test to hybrid plans is disallowing some of the most participant-favorable [sic] methods of conversion," namely, "a `greater of' approach for current plan participants." 13 Unaware of the IRS's position, the Register decision suggested that the aggregation regulation is inapplicable because "it applies in cases where there are two co-existing formulas under a single plan." 477 F.3d at 72. This is wrong because the aggregation regulation is mandatory and it contains no exception based on whether formulas which are indisputably in the current plan are characterized as "co-existing." If Register means that the aggregation regulation should not apply where one formula is frozen but still an operative part of the current plan, i.e., it does not offer "on-going" accruals, this is also a construction of the regulation that the IRS has never espoused or adopted. That position, moreover, would make no sense from a legislative or regulatory perspective. If it was correct, a participant who accrues no additional benefits for a plan year would counter-factually be assumed to have an accrued

¶¶113-114. Also available online at http://www.americanbenefitscouncil.org/documents/irs_notice_2007-6_comments. pdf , at 20, and http://www.eric.org/forms/uploadFiles/b34900000012.filename.Notice_2007-6_E RIC_Comments_ver.3.pdf , at 3.
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benefit that is "payable at the normal retirement age" for purposes of the 133a% test. To illustrate, if a plan with a $20 per month benefit formula is amended after 10 years to offer a $10 per month benefit, an employer could adopt a "greater of" formula under which participants with 10 years of service would earn no additional benefits for the next 10 years. According to Register, this formula would comply with the anti-backloading rules even though no additional accruals are actually payable to longer-service employees for the next 10 plan years. ERISA §204(b)(1)(B)(i), the clause about the amendment "in effect for the current year" on which Register and Richards rely, was intended to serve a different purpose than this. The ERISA Conference Report explains this clause as follows: "For example, if a plan provides a one percent rate of accrual for all participants in 1976, and is amended to provide a 2 percent rate of accrual for all participants in 1977, the plan will meet this test, even though 2 is more than 1-1/3 times 1." H.Conf. Rep. 93-1280, at 274, 1974 U.S.C.C.A.N. 5038, 5055. In Langman v. Loeb, 328 F.3d 68, 71 (2d Cir. 2003), the Second Circuit explained that this clause is intended to allow "across-the-board increases in benefit rates made at some future time on behalf of all current employees regardless of past service." The Treasury Department's aggregation regulation is no impediment to these purposes. A plan that is amended to provide a 2% benefit accrual in all

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future plan years will comply with the 133a% rule after application of the aggregation regulation. Interpreting this clause in the manner of Register and Richards has the effect of allowing a "scenario" in which benefits that are not "payable" to be treated as payable when an employer uses a "greater of" transition in combination with a reduction in future rates of accrual. Simply put, a clause like this should not be construed to nullify the language and purpose of the general rule; the requirement that benefits accrue and be "payable" for each plan year cannot be replaced with one that accepts hypothetical notations. Most importantly, as the aggregation regulation shows, the Treasury Department and the IRS have never interpreted ERISA's accrual rules in a manner which permits this. As Esden makes clear, neither CIGNA nor other companies are allowed "to have it both ways." 229 F.3d at 167 n.8. If an amendment "in effect for the current year" provides that the benefits under a prior formula are taken into account, the accrual rule must be satisfied when the benefits under the two formulas are aggregated. ERISA does not allow employers to satisfy the 133a% accrual rule when participants actually accrue "no additional benefits" in a plan year. Allowing accruals that exist only as notations to substitute for benefits that are actually paid in retirement defeats the statutory purpose of preventing backloading and thereby

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ensuring a relatively even progression in the accrual of retirement benefits. Here, as the Plaintiffs' actuarial expert found, there was a zero rate of accruals in plan years following CIGNA's cash balance conversion (the "wearaway" period). Tr. 240, line 22 - 241, line 21; Ex. 3 (Poulin Rpt) ¶ 30. If the zero rates of accrual are followed by non-zero rates in later plan years, the Plan violates the 133a% accrual rule. Id. Structurally, this violation, as well as the violation of the anti-forfeiture rule described next, can be remedied by requiring CIGNA to ensure that the cash balance accruals are always provided as an addition to the previously-earned benefits, i.e., the A + B formula discussed at trial.14 C. Conditioning Future Accruals on Giving Up Statutory Rights to Previously-Earned Annuities Violates ERISA's Vesting Requirements.

To keep promises of accrued benefits from becoming illusory, ERISA §203(a) also provides that benefit accruals must be "nonforfeitable" once a participant has the number of years of service required to be vested (which is generally five years). ERISA §3(19) defines a non-forfeitable right as a right that is "unconditional." ERISA §203(a)(3) catalogs a number of exceptions under which losses of benefits will not be considered forfeitures. In every other instance, As mentioned, Section 701(a) of the 2006 Pension Protection Act requires this for any cash balance conversion after June 29, 2005, regardless of the accrual method or other factors. P.L. 109-280, §701(a)(1), adding ERISA §204(b)(5)(B)(ii).
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however, a loss or reduction of accrued benefits is prohibited after a participant is vested. Under ERISA, direct and indirect reductions are equally unlawful. In Central Laborers' Pension Trust v. Heinz, supra, 541 U.S. at 744, the Supreme Court held that "placing materially greater restrictions on the receipt of the benefit `reduces' the benefit just as surely as a decrease in the size of the monthly payment." Treasury regulations have provided since 1988 that "A right which, at a particular time, is conditioned under the plan upon a subsequent event, subsequent performance, or subsequent forbearance which will cause loss of such right is a forfeitable right at that time." Treas. Reg. 1.411(a)-4. In IRS Notice 96-8, 1996-1 C.B. 359, the Treasury Department explains that: If benefits ... have accrued [but] those benefits are disregarded when benefits commence before normal retirement age, the plan has effectively conditioned entitlement to the benefits ... on the employee not taking a distribution prior to retirement age. Section 7.3 of CIGNA's amended Plan document places just these kinds of restrictions on the receipt of participants' benefits. This Section requires participants in CIGNA's Plan to "elect" to keep their prior benefits "in annuity form." Ex. 1 at D00309. A participant who "elects" to keep the benefits he or she earned in plan years before January 1, 1998 as an annuity loses the right to payment of the cash balance accruals earned in the years after that date. ¶¶120-23.
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The right to receipt of the cash balance accruals is thus conditioned on foregoing receipt of previously-earned benefits in annuity form, including, most notably, receipt of the previously-earned benefits at early retirement age. If a participant wants to receive the previously-earned benefits at early retirement, CIGNA makes the participant give up any cash balance accruals. As Mr. Sher testified, "if you elect a lump sum, you are not going to get a subsidy. The subsidies are provided if you elect an annuity." Tr. 1428, line 2 - 1433, line 3. Conversely, Ms. Broderick testified that she "assumed" the pension and interest credits listed in her benefit statements "was money that was going to be paid to me when I retired." But when she elected an annuity, she never received any of those amounts. Tr. 105, line 3 107, line 14. Esden struck down a condition like this. In Esden, the Bank of Boston converted to a cash balance plan in 1989. The Bank protected the benefits that Ms. Esden earned with her 16 years of service before the change and offered her additional accruals for her service after the change on top of those benefits. But if Ms. Esden commenced her benefits before normal retirement age, the Bank would pay her only part of the cash balance benefits she earned after the change. According to Esden, the plan sponsor "trie[d] to have it both ways" by claiming compliance with ERISA's benefit accrual rules, but conditioning the right to

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payment of the accruals earned in certain plan years on when the participant commenced benefits. 229 F.3d at 167 n.8 and 168. The Second Circuit held that the Bank of Boston could not "offer an employee the voluntary choice of a partial forfeiture in exchange for a particular form of payment." Id. at 173. The Court concluded that "part of [Ms. Esden's] pension benefit was made conditional on the distribution option chosen, in violation of the anti-forfeiture provisions of ERISA §203(a)." Id. at 158 and 168. In so holding, the Second Circuit relied on the Treasury Department's nonforfeitability regulation and IRS Notice 96-8. 229 F.3d at 167-78 and 173. In Berger v. Xerox, the Seventh Circuit relied on Esden in holding that the "law forbids" a plan to "condition[] the employee's right to future interest credits on the form of the distribution that he elects to take (pension at age 65 rather than lump sum now)." 338 F.3d at 763. When a "plan concedes that the employee has an absolute, vested, indefeasible entitlement ... to a pension at age 65," it cannot condition those benefits. 338 F.3d at 761. The Second Circuit found another condition illegal in Frommert v. Conkright, 433 F.3d 254, 260-61 (2d Cir. 2006). There, Xerox's retirement plan offered the "greater of" benefits under two or more formulas. Xerox amended one of the formulas to create a "hypothetical" or "phantom" offset. The Second Circuit

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held that "although the application of the phantom account does not directly deplete an employee's pension account, by altering the comparative process, it imposes a condition on the payment of benefits that leads just as surely to a decrease." 433 F.3d at 2