Free Response - District Court of Connecticut - Connecticut

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UNITED STATES DISTRICT COURT FOR THE DISTRICT OF CONNECTICUT

Janice C. Amara, Gisela R. Broderick, : Annette S. Glanz, individually and : on behalf of all others similarly situated, : : Plaintiffs, : : vs. : : CIGNA Corp. and : CIGNA Pension Plan, : : Defendants. :

Civil. No. 3:01-CV-2361 (MRK) July 25, 2006

PLAINTIFFS' REPLY TRIAL BRIEF

Stephen R. Bruce Ct 23534 Suite 210 805 15 th St., NW Washington, DC 20005 (202) 371-8013 Thomas Moukawsher Ct 08940 Moukawsher & Walsh, LLC 21 Oak Street Hartford, CT 06106 (860) 287-7000 Attorneys for the Plaintiff Class

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Table of Contents

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 I. Section 7.3 of CIGNA's Plan Provides that Participants Will Lose Their Cash Balance Accruals If They "Elect" to Preserve Their Previously-Earned Annuity Benefits; This Violates ERISA's Nonforfeiture Rule. . . . . . . . . . . . . . . . 2 The Periods of "Wear-away" with No Additional Benefits Violate ERISA's 133 a% Accrual Rule. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 The "Benefit" that Section 204(b)(1)(H) Regulates Is the Same "Benefit" that Every Other Part of ERISA Section 204 Regulates. . . . . . . . . . . . . . . . . . . . . 6 A. CIGNA's Argument that the Rate of "Benefit Accrual" Does Not Refer to the Increase in the "Accrued Benefit" Is Contrary to Congress' and the Federal Agencies' Consistent Use of that Term . . . . . . 9 If an "Accrued Benefit" Is Determined in a Form "Other Than an Annual Benefit Commencing at Normal Retirement Age," ERISA §204(c)(3) Requires that It Be the Actuarial Equivalent of "Such Benefit" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Reductions in the Rate of an Employee's Benefit Accrual Based on Age Cannot Be Erased by Rephrasing the Discrimination as Based on the Number of Years to Retirement . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 The Treasury Department Has Never Adopted the "Consistent View" that CIGNA Suggests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 CIGNA's Criticisms of Richards as "Wrongly Decided"Do Not Withstand Review. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 The Periods of "Wear-Away" With No Additional Benefits Violate the Age Discrimination Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 CIGNA's Suggestion that It Would Be "Enormously Expensive" to Comply with the Age Discrimination Law Is Unsupported and Contrary to the Available Evidence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 i

II.

III.

B.

C.

D.

E.

F.

G.

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IV.

ERISA Section 204(h) Requires Understandable, Advance Notice of a Significant Reduction in Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 A. Section 204(h) Required CIGNA to Tell Its Employees that Their Future Benefits Were Being Reduced. . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 ERISA Section 204(h) Also Required Advance Notice of the Repeal of the Favorable "Rehire Rule" When that Action Had Disastrous Consequences for the Benefits of Rehired Employees. . . . . . . . . . . . . . . . 35

B.

V.

CIGNA's Summary of Material Modification and SPD Omit Any Disclosure of the Reductions and Falsely Assured Participants that the Cash Balance Benefits Were "Larger" or "Comparable" and that "Each Dollar's Worth of Credits Is a Dollar of Retirement Benefits Payable to You" . . . . . . . . . . . . . . . . 37 A. CIGNA Falsely Assured the Employees that the New Cash Balance Plan Was Comparable to or Better than the Old Plan in Order to "Avoid Any Significant Negative Reaction from Employees" . . . . . . . . . 38 CIGNA's Disclosures Resulted in "Likely Prejudice" to the Participants' Ability to Make Well-Informed Employment and Retirement Decisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

B.

VI.

CIGNA's Other Defenses to the Disclosure Violations Lack Merit. . . . . . . . . . . 50 A. B. CIGNA Had Notice of the SMM Claim under Rule 8. . . . . . . . . . . . . . . . 50 CIGNA Is the "Plan Administrator" for Disclosure Purposes Because It Controlled the Disclosures. . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 There Is No Statute of Limitations Barrier to the Section 204(h) Claim, or the SMM and SPD Claim. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Burke v. Kodak and Frommert Show that the Supreme Court's Schoonejongen Decision Does Not Preclude Relief for Disclosure Violations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

C.

D.

VII.

CIGNA Does Not Contest that "Minimum Benefits" Earned under the Old Plan Have Not Been Protected and that Participants Were Never Notified of their Minimum Benefits, as the SPD Promised. . . . . . . . . . . . . . . . . . . . . . . . 67 ii

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A.

CIGNA Does Not Contest that the "Free 30%" Survivor's Benefit Is a Minimum Benefit that Was Not Protected. . . . . . . . . . . . . . . . . . . . . . 70 CIGNA Does Not Contest that the "Relative Value" of Optional Forms of Benefit With Unequal Values Has Not Been Disclosed . . . . . . 71 Exhaustion Is Not "Jurisdictional" and It Is Not Required for Statutory Claims; Moreover, Named Plaintiffs Amara and Broderick Exhausted CIGNA's Internal Claims Procedure. . . . . . . . . . . . . . . . . . . . 74

B.

C.

VIII. Frommert Shows that the Supreme Court's Great-West Decision Does Not Preclude Relief for ERISA Violations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 IX. The Releases that CIGNA Has Solicited from Over 2,000 Class Members, Mostly After the Certification of this Case as a Class Action, Contain an Express Exception for "Any Claims for Benefits Under Any Retirement ... Programs." . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 This Court Has Authority to Compel CIGNA to Comply with the Declaratory Order in the Depenbrock Litigation in Favor of Members of This Class. . . . . . . 86 The 2002 Class Certification Order May Be Altered or Amended to Define the Claims and Defenses Before Final Judgment Is Entered. . . . . . . . . . . . . . . . . 88

X.

XI.

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89

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TABLE OF AUTHORITIES FEDERAL CASES Arnett v. CalPERS, 179 F.3d 690 (9th Cir. 1999), vacated and remanded on other grounds, 528 U.S. 1111 (2000) ........................................................ 19 Auer v. Robbins, 519 U.S. 452 (1997) .................................................................. 22 Augustin v. Jablonsky, 2001 WL 770839 (E.D.N.Y. 2001) ................................. 87 Berger v. Xerox, 338 F.3d 755 (7th Cir. 2003) ............................................... 12, 16 Bonovich v. Knights of Columbus, 146 F.3d 57 (2d Cir. 1998); aff'g 963 F.Supp. 143 (D.Conn. 1997) ............................................................................. 3 Brody v. Enhance Reins. Co. Pension Plan, 2003 WL 1213084 (S.D.N.Y. 2003) .............................................................................................. 33 Burke v. Kodak Retirement Income Plan, 336 F.3d 103 (2d Cir. 2003), cert. denied, 540 U.S. 1105 (2004) ................................................ 45, 48-49, 54 Campanella v. Mason Tenders' District Council Pension Plan, 299 F. Supp. 2d 274 (S.D.N.Y. 2004); aff'd, 132 Fed. Appx. 855, 2005 WL 414844 (2d Cir. 2005) ........................................................................ 61, 75 Campbell v. BankBoston, 327 F.3d 1 (2003) .......................................................... 3 In re Cardinal Health, Inc. ERISA Litigation, 424 F. Supp. 2d 1002 (S.D.Ohio 2006) ............................................................................................................... 59 Carey v. IBEW Local 363 Pension Plan, 201 F.3d 44 (2d Cir. 1999) ................. 61 Carlson v. Principal Financial Group, 320 F.3d 301 (2d Cir. 2003) .................. 52 Carrabba v. Randalls Food Markets, 145 F. Supp. 2d 763 (N.D. Tex. 2000); aff'd, 252 F.3d 721 (5th Cir. 2001), cert. denied, 534 U.S. 995 (2001) .......... 84 Carter v. AT&T, 870 F. Supp. 1438 (S.D. Ohio 1994) ......................................... 83

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Chambless v. Masters, Mates & Pilots Pension Plan, 772 F.2d 1032 (2d Cir. 1985) ........................................................................................................ 38 Chao v. Malkani, __ F.3d __, 2006 WL 1703368 (4th Cir. June 22, 2006) ......... 67 Chapman v. Choicecare Long Island Term Disability Plan, 288 F.3d 506 (2d Cir. 2002) .................................................................................................. 53 Chisolm v. Plan Administrator of Joint Industry Board, 2004 WL 3267292 (E.D.N.Y. Oct. 19, 2004) ................................................................................ 47 City of Los Angeles v. Manhart, 435 U.S. 702 (1978) ......................................... 78 Cole v. Travelers Insurance Co., 208 F. Supp. 2d 248 (D.Conn. 2002) .............. 61 Cooper v. IBM, 274 F. Supp. 2d 1010 (S.D. Ill. 2003) ................................... 11, 25 Connecticut v. Teal, 447 U.S. 440 (1982) ............................................................ 29 Costantino v. TRW, 13 F.3d 969 (6th Cir. 1994) .................................................. 72 Crocco v. Xerox Corp., 137 F.3d 105 (2d Cir. 1998) ................................ 52-53, 59 In re Currency Conversion Fee Antitrust Litigation, 361 F. Supp. 2d 237 (S.D.N.Y. 2005) .............................................................................................. 79 Curtiss-Wright v. Schoonejongen, 514 U.S. 73 (1995) ........................................ 66 DePace v. Matsushita Electric Corp. of America, 257 F. Supp. 2d 543 (E.D.N.Y. 2003) .............................................................................................. 75 Depenbrock v. CIGNA, 389 F.3d 78 (3d Cir. 2004); rev'g 278 F. Supp. 2d 461 (E.D. Pa. 2003) ........................... 22, 32-33, 54-55, 86-88 Devlin v. Empire Blue Cross and Blue Shield, 274 F.3d 76 (2d. Cir. 2001) ........ 60 Dist. Council 37, AFSME v. NY City Dep't of Parks, 113 F.3d 347, 354 (2d Cir.1997) ................................................................................................... 29 Donaldson v. Pharmacia Pension Plan, __F.Supp.2d __, 2006 WL 1669789 (S.D.Ill. June 14, 2006) ................................................................................... 78 v

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Eastman Kodak v. STWB, __ F.3d __, 2006 WL 1835245 (2d Cir. June 26, 2006) ................................................................................................. 22 Engers v. AT&T, 2001 U.S. Dist. LEXIS 25889 (D.N.J. 2001) ........................... 28 Engler v. Cendant Corp., 2006 WL 1408583 (E.D.N.Y. 2006) ........................... 75 Esden v. Bank of Boston, 229 F.3d 154 (2d Cir. 2000) ......... 2, 5, 10, 16, 25-26, 31 Exarhakis v. Visiting Nurse Svc., 2006 WL 335420 (E.D.N.Y. Feb 13, 2006) .... 49 Felker v. Pepsi-Cola Co., 863 F. Supp. 71 (D.Conn. 1994) ................................. 65 Flanigan v. GE, 242 F.3d 78 (2d Cir. 2001) .................................................. 41, 45 Frommert v. Conkright, 433 F.3d 254 (2d Cir. 2006) ................................... passim Great-West v. Knudson, 534 U.S. 204 (2002) ........................................... 52, 77-78 Hamilton v. Carell, 243 F.3d 992 (6th Cir. 2001) ................................................ 58 Harris Trust & Sav. Bank v. Salomon Smith Barney, Inc., 530 U.S. 530 (2000) . 52 Heidgerd v. Olin Corp., 906 F.2d 903 (2d Cir. 1990) .......................................... 54 Hein v. FDIC, 88 F.3d 210 (3d Cir. 1996) ........................................................... 67 Hickey v. Chicago Truck Drivers, Helpers and Warehouse Workers Union, 980 F.2d 465 (7th Cir. 1992) .......................................................................... 10 Hirt v. Equitable, __ F. Supp. 2d __, 2006 WL 2023545 (S.D.N.Y. July 20, 2006) ............................................................................................. 28, 32, 39, 53 In re Household International Tax Reduction Plan, 441 F.3d 500 (7th Cir. March 20, 2006) .............................................................................................. 76 Hudson v. General Dynamics Corp., 118 F. Supp. 2d 226 (D.Conn. 2000) ........ 41 Hurlic v. S. California Gas Co., No. 05-5027 (C.D. Cal. Mar. 24, 2006) ............ 28

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Jensen v. Times Mirror Co., 634 F. Supp. 304 (D.Conn. 1986) .......................... 65 Katt v. City of New York, 151 F. Supp. 313 (S.D.N.Y. 2001) ............................... 6 Kling v. Fidelity Management Trust Co., 323 F. Supp. 2d 132 (D. Mass. 2004) . 59 Langman v. Loeb, 328 F.3d 68 (2d Cir. 2003) ....................................................... 4 Layaou v. Xerox Corp., 238 F.3d 205 (2d Cir. 2001) ........................................... 38 Layaou v. Xerox Corp., 330 F. Supp. 2d 297 (W.D.N.Y. 2004); on remand from, 238 F.3d 2005 (2001) ................................................................. 43-44, 54 Lee v. Burkhart, 991 F.2d 1001 (2d Cir. 1993) .................................................... 55 Manginaro v. Welfare Fund of Local 71, 21 F. Supp. 2d 284 (S.D.N.Y. 1998) .................................................................................. 47, 49, 61 Martsolf v. JBC Legal Group, P.C., 2005 WL 331544 (M.D. Pa. 2005) ............. 89 McCarthy v. Associated Clearing Bureau, 1999 WL 1995185 (D.Conn. 1999) .......................................................................................................... 64-65 McCoy v. Laborers Local 222 Pension Plan, 188 F. Supp. 2d 461 (D.N.J. 2002), aff'd, 2003 WL 1512167 (3d Cir. 2003) .............................................. 76 McDonald v. Pension Plan of NYSA-ILA Pension Trust Fund, 2001 WL 1154630 (S.D.N.Y. 2001); aff'd in part, rev'd in part, 320 F.3d 151 (2d Cir. 2003) ............................................................................................. 86-87 Medoy v. Warnaco Employees Long Term Disability, 2005 WL 3775953 (E.D.N.Y. Dec. 24, 2005) ............................................................................... 47 Miles v. New York State Teamsters Conference Pension & Retirement Employee Pension Benefit Plan, 698 F.2d 593 (2d Cir. 1983) .................. 60-61 Minadeo v. ICI Paints, 398 F.3d 751 (6th Cir. 2005) ..................................... 59-60 Mirabel v. General Motors Acceptance Corp., 537 F.2d 871 (7th Cir. 1976) ..... 69 Mullins v. Pfizer, 23 F.3d 663 (2d Cir. 1994) ................................................. 41, 45 vii

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National Football Scouting, Inc. v. Cont'l Assur. Co., 931 F.2d 646 (10th Cir.1991) ......................................................................................................... 58 Nechis v. Oxford Health Plans, 421 F.3d 96 (2d Cir. 2005) ..................... 55, 74-75 Paese v. Hartford Life and Accident InsuranceCo., 449 F.3d 435 (2d Cir. May 24, 2006) ................................................................................................. 74 Parry v. SBC Corp., 363 F. Supp. 2d 275 (D.Conn. 2005) .................................. 76 Richards v. FleetBoston Fin. Corp., 427 F. Supp. 2d 150 (D.Conn. 2006) .. passim Estate of Ritzer v. National Organization of Industrial Trade Unions Insurance Trust Fund, 822 F. Supp. 951 (E.D.N.Y. 1993) ............................ 47 Rousey v. Jacoway, 544 U.S. 320 (2005) ............................................................. 19 Sereboff v. Mid Atlantic Medical Svcs., Inc., __ U.S. __, 126 S. Ct. 1869 (2006) .............................................................................................................. 78 Shane v. Connecticut, 821 F. Supp. 829 (D.Conn. 1993) ..................................... 65 Sheehan v. Metropolitan Life Insurance Co., 368 F. Supp. 2d 228 (S.D.N.Y. 2005) ............................................................................................................... 44 Siegel v. Converters Transportation, Inc., 714 F.2d 213 (2d Cir. 1983) ............. 66 Smith v. City of Jackson, 544 U.S. 228 (2004) ..................................................... 29 Stahl v. Tony's Building Materials, 875 F.3d 1404 (9th Cir. 1989) ..................... 38 State Teachers Retirement Board v. Fluor, 654 F.2d 843 (2d Cir. 1981) ............ 64 Stolarz v. Rosen, 2005 WL 2124545 (S.D.N.Y. 2005) ........................................ 75 Swierkiewicz v. Sorema, 534 U.S. 506 (2002) ..................................................... 51 Thomforde v. IBM, 406 F.3d 500 (8th Cir. 2005) ................................................. 84 Tootle v. ARINC, 222 F.R.D. 88 (D.Md. 2004) .................................................... 27 viii

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Travelers Insurance Co. v. 633 Third Assocs., 14 F.3d 114 (2d Cir. 1994) ......... 64 United States v. Kelly, 6 F. Supp. 2d 1168 (D.Kan. 1998) ..................................... 7 Varity Corp. v. Howe, 516 U.S. 489 (1996) ......................................................... 60 Venturini v. Metropolitan Life Ins. Co., 55 F. Supp. 2d 119 (D.Conn.1999) ....... 61 Vogel v. America Kiosk Management, 371 F. Supp. 2d 122 (D.Conn. 2005) ...... 70 Wachtel v. Guardian Life Insurance, __ F.3d __, 2006 WL 1790555 (3d Cir. June 30, 2006) ......................................................................................... 88 Weiss v. Regal Collections, 385 F.3d 337 (3d Cir. 2004) .................................... 70 Wells v. Gannett Retirement Plan, 385 F. Supp. 2d 1101 (D.Colo. 2005) ........... 28 Wells v. Harris, 185 F.R.D. 128 (D.Conn. 1999) ........................................... 64, 66 Wetzel v. Liberty Mutual Insurance Co., 508 F.2d 239 (3d Cir.), cert. denied, 421 U.S. 1011 (1975) ...................................................................................... 87 White v. Sundstrand, 256 F.3d 580 (7th Cir. 2001) ................................................ 3 White v. White Rose Rood, 128 F.3d 110 (2d Cir.1997) ...................................... 64 Wilkins v. Mason Tenders Dist. Council Pension Fund, 445 F.3d 572 (2d Cir. 2006) ............................................................................................................... 38 Williams v. Caterpillar, 994 F.2d 658 (9th Cir. 1991) ........................................... 3 Wolf v. National Shopmen Pension Fund, 728 F.2d 182 (3d Cir. 1984) .............. 76

FEDERAL STATUTES, REGULATIONS, RULES, AND LEGISLATIVE HISTORY ERISA §204(b)(1)(B), 29 U.S.C. §1054(b)(1)(B) ........................................... 4, 14 ERISA §204(b)(1)(H), 29 U.S.C. §1054(b)(1)(H) ........................................ passim ix

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ERISA §204(b)(2), 29 U.S.C. §1054(b)(2) ..................................................... 11-12 ERISA §204(g), 29 U.S.C. §1054(g) ......................................................... 3, 74, 81 ERISA §204(h), 29 U.S.C. §1054(h) ............................................................ passim ERISA §205(g), 29 U.S.C. §1055(g) ............................................................. 71, 74 IRC §401(a)(9), 26 U.S.C. §401(a)(9) ................................................................ 15 29 C.F.R. 2520.102-2(b) ....................................................................................... 40 29 C.F.R. 2530.203-3(b)(4) .................................................................................. 15 29 C.F.R. 2530.204-1(a) ....................................................................................... 13 Treas. Reg. 1.401(a)-4 .............................................................................. 12, 13, 23 Treas. Reg. 1.401(a)-9 .......................................................................................... 15 Treas. Reg. 1.411(a)-11(c)(2)(i) ........................................................................... 71 Treas. Reg. 1.401(a)-20 ........................................................................................ 71 Treas. Reg. 1.411(b)-1(a) ....................................................................................... 5 Treas. Reg. 1.411(b)-1(b)(2) ............................................................................ 4, 14 Treas. Reg. 1.411(d)(6) ........................................................................................ 36 Treas. Reg. 1.417(e)-1(b)(2)(i) ............................................................................. 71 52 F.R. 45360 (Nov. 27, 1987) ............................................................................. 18 53 F.R. 11876 (April 11, 1988) ............................................................................ 18 53 F.R. 31837 (Aug. 22, 1988) ............................................................................. 71 63 F.R. 68678 (Dec. 14, 1998) ............................................................................. 14

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67 F.R. 76123 (Dec. 11, 2002) .................................................................. 18, 22-23 H. Conf. Rep. 93-1280, 1974 U.S.C.C.A.N. 5038 ................................................. 4 H. Conf. Rep. 99-1012, 1986 U.S.C.C.A.N. 3868 ........................................... 9, 15 H. Rep. 99-453 ...................................................................................................... 34 S. Rep. 98-575, 1984 U.S.C.C.A.N. 2547 ............................................................ 15 3 ERISA Leg. Hist. 4750 ...................................................................................... 37 IRS Notice 96-8, 1996-1 C.B. 359 ................................................................. 10, 23 Rev. Rul. 76-259, 1976-2 C.B. 111 ........................................................................ 3 F.R.C.P. 11(b)(3) .................................................................................................. 49 F.R.C.P. 15(c) ...................................................................................................... 64 F.R.C.P. 19 ....................................................................................................... 52

STATE STATUTES Conn. Gen. Stat. Ann. §52-576 (2006) ................................................................. 61

MISCELLANEOUS Albert Feuer, "When Are Releases of Claims for ERISA Plan Benefits Effective?" 38 J. M ARSHALL L. R EV. 773, 865-66 (Spring 2005) .................. 85 EEOC Compliance Manual .................................................................................. 19 Manual for Complex Litig. (Fourth) ..................................................................... 79 Restatement (2d) of Trusts .................................................................................... 50

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Introduction CIGNA's trial brief shows that practically all of its defenses are based on legal, not factual, arguments. CIGNA's brief would be over 110 pages if 12 and 9 point fonts had not been used, but in all of that briefing, there is no contest to the basic facts that Plaintiffs are presenting. CIGNA does not contest that: (1) A pre-retirement mortality discount of up to 10% was applied in computing opening account balances which participants never regain; (2) For years after the cash balance conversion, many participants did not earn any additional benefits at all; (3) There were substantial benefit reductions from 30% to close to 50% in future benefit accruals; (4) If the rate of benefit accruals is measured by the accrual of retirement benefits, the accrual rate is reduced with advancing age; (5) There was no disclosure of any of these features in CIGNA's Section 204(h) notice, its Summary of Material Modifications or its SPDs; (6) There was no disclosure to vested separated employees of the modified rehire rule until after they returned to work; (7) There was no notice to employees, as the SPDs expressly promised, when their cash balance benefits were less than their old plan "minimum benefits," and for thousands of class members the minimum benefits were not protected at all; (8) There was no disclosure of the "relative value" of optional forms of benefit, and in particular, no notice that participants who elected a lump sum were "forfeiting" the value of early retirement benefits; and (9) The declaratory relief in the November 2004 Depenbrock decision and January 2005 district court order is still not implemented for over 175 members of this class whose retirement benefits would be improved and, in many cases, nearly doubled. 1

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In a "Memorandum Regarding Defendants' Responses to Plaintiffs Proposed Trial Exhibits," CIGNA objects to some of Plaintiffs' supporting exhibits as hearsay. Plaintiffs respond to those objections in a memorandum filed concurrently with this Reply. To the extent those objections are overruled, CIGNA offers no evidence in rebuttal. I. Section 7.3 of CIGNA's Plan Provides that Participants Will Lose Their Cash Balance Accruals If They "Elect" to Preserve Their Previously-Earned Annuity Benefits; This Violates ERISA's Nonforfeiture Rule. Section 7.3 of CIGNA's Plan document expressly requires participants to "elect" to preserve their prior benefits "in annuity form." Pls. Ex. 1 at D00309. A participant who "elects" under Section 7.3 to receive benefits earned in plan years before January 1, 1998 as an annuity loses any right to payment of the cash balance accruals earned in all plan years after that date. Pls. Prop. Findings ¶82.1 Plaintiffs maintain that the elective forfeiture of cash balance accruals after January 1, 1998 violates ERISA §203(a). In Esden v. Bank of Boston, 229 F.3d 154, 173 (2000), the Second Circuit found that part of a participant's accrued benefit had been made conditional on the distribution option chosen in violation of the anti-forfeiture rule. Esden held that a company cannot "offer an employee the voluntary choice of a partial forfeiture in exchange for a particular form of payment." The court relied on Treasury Regulation 1.411(a)-4, which provides that a right which is conditioned on "subsequent forbearance which will cause a loss of

References to Plaintiffs' Proposed Findings of Fact are hereafter referred to as "¶__." Defendants' Proposed Findings are identified as "Dfs. Prop. Findings ¶__." 2

1

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such right" is a forfeitable right. CIGNA's brief does not address Esden's holding or the Treasury regulation (other than an effort to distinguish Esden factually, Dfs. Br. at 36). Instead, CIGNA recharacterizes Plaintiffs' claim as something else: See Dfs. Br. at 31 (Count 1 "essentially challenges the Plan's formula for calculating an opening account balance"); id., at 1-2 ("Count 1 alleges that the formula used to calculate opening account balances for the cash balance plan" violated ERISA); and Dfs. Mem. Re Pls. Prop. Trial Exs., at 1. The cases which CIGNA cites do not provide a basis for ignoring Esden or the regulations. Bonovich v. Knights of Columbus, a case in which your Honor participated, specifically stated that the renewal commissions that were being offset "cannot be construed as previously-earned and deferred wages." 146 F.3d 57, 62 (2d Cir. 1998), aff'g, 963 F.Supp. 143, 147 (D.Conn. 1997). As CIGNA acknowledges, the First Circuit decision in Campbell v. BankBoston, 327 F.3d 1 (2003), concerns ERISA §204(g), not the forfeiture of benefits accrued under the cash balance formula. Dfs. Br. at 34 n.20.2 II. The Periods of "Wear-away" with No Additional Benefits Violate ERISA's 133 a % Accrual Rule. CIGNA internally recognized that its cash balance conversion resulted in periods

White v. Sundstrand, 256 F.3d 580 (7 th Cir. 2001), and Williams v. Caterpillar, 994 F.2d 658 (9 th Cir. 1991), are not precedential in this circuit and are, moreover, not inconsistent with Esden. Sundstrand concerned a "floor offset" arrangement, which allows benefits "concurrently" accruing under a profit-sharing plan to be offset. See Rev. Rul. 76-259, 1976-2 C.B. 111. 3

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of "wear-away" in which participants "accrue no additional benefits," earn little or no benefits" and "see no benefit improvement." See ¶¶67-68, 283. CIGNA asserts that the 133 a% accrual test can be satisfied, despite the periods in which participants "accrue no additional benefits," if it is allowed to make a counter-factual assumption: "If Part B is assumed to have existed for all prior years, then no employees would have opening account balances or minimum benefits and there would be no wearaway." Dfs. Br. at 39; see also id. at 38. As CIGNA accurately states (Dfs. Br. at 38), the statute provides that "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). But CIGNA misunderstands what this clause does. In Langman v. Loeb, 328 F.3d 68, 71 (2d Cir. 2003), the Second Circuit explained that this clause permits "across-the-board increases in benefit rates made at some future time on behalf of all current employees regardless of past service." The ERISA Conference Report explains the clause in a similar manner: "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. If an amendment does not increase benefit rates "for all participants" or "acrossthe-board," but instead provides for a period with no accruals for some participants

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because of an interaction with their prior benefits, the "ultimate effect" of the amendment must be examined. Frommert v. Conkright, 433 F.3d 254, 268 (2d Cir. 2006). If the ultimate effect could be ignored, as CIGNA urges, a plan could offer a one percent of pay rate of accrual for all years before the current one, and a 1.33 percent of pay accrual thereafter but with "no additional accruals" for a period of years if an employee's previous accruals exceeded 10 percent of pay. The interaction with the past accruals would mean that longer-service workers received nothing more for a period of years followed by accruals in later years that are infinitely greater. As Esden makes clear, neither CIGNA nor other companies are allowed "to have it both ways." 229 F.3d at 167 n.8. If the amendment "in effect for the current year" provides that the benefits under a prior formula are taken into account, the accrual rule must actually be satisfied on that basis. The opening section of the Treasury regulations makes this clear by specifying that if 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); see also IRS Alert Guidelines on Minimum Vesting Standards (12/98) (Pls. Ex. 39) at 12. There is no authority under which a plan can satisfy the 133 a% accrual rule based on a counter-factual assumption about an amendment, even though a participant is actually accruing "no additional benefits." The statutory language and purpose are designed to ensure that participants

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actually earn an additional retirement benefit in each plan year that is payable at retirement. As the Plaintiffs' actuarial expert found, there was a zero rate of accruals for plan years immediately after CIGNA's cash balance conversion (the "wear-away" period). Pls. Ex. 3 (Poulin Rpt) ¶ 30. If a zero rate of accruals is followed by positive rates of accruals in later plan years, the Plan violates this anti-backloading rule because the rates of accrual in later years are "infinitely" greater than the zero rates of accrual in the earlier plan years. Id. If CIGNA's position were correct, a participant who actually accrues no additional benefits could be assumed counter-factually to have an accrued benefit that is "payable at the normal retirement age" for a plan year. This would turn the statute into a pro forma mathematical exercise which bears no relationship to whether any additional benefit is actually payable for that plan year. III. The "Benefit" that Section 204(b)(1)(H) Regulates Is the Same "Benefit" that Every Other Part of ERISA Section 204 Regulates. CIGNA's argument on the age discrimination provision in ERISA §204(b)(1)(H) displays no respect for the statutory language. CIGNA instead relies on anticipated testimony from an actuarial expert, Lawrence Sher, who has a strong interest in the legality of cash balance plans because he has been advising companies to adopt them for over 15 years.3

Expert testimony from a qualified expert with a partisan interest in the outcome is generally not excluded per se, but weighed appropriately. See, e.g., Katt v. City of New 6

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CIGNA's Proposed Findings describe how Mr. Sher believes that the statutory language should be interpreted: Mr. Sher proposes that if a provision such as §204(b)(1)(H) provides "no specificity at all about how the employee's benefit accrual rate is to be determined," "an actuary ... 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." Dfs. Prop. Findings ¶90. There is no indication that the "purpose for which the determination is being made" is Congress' purpose; rather it appears to be the purpose the employer, or an actuary, deems fit. In other words, through Mr. Sher, CIGNA proposes that an actuary can adopt an actuarially or economically defensible interpretation of the statute if a term is not defined within the subparagraph in which appears or in applicable regulations. Since Congress rarely defines each term in each statutory subparagraph and no final regulations have been issued because of the controversy over cash balance plans, this approach would leave the plan sponsor or actuary free to establish the basic effect of a statute. To justify this, CIGNA asserts that Congress could not have intended to enact a law that compares the rate at which retirement benefits are earned because this is, in its view, a "meaningless mathematical comparison," "nonsensical," and inconsistent with

York, 151 F.Supp. 313, 363 (S.D.N.Y. 2001); United States v. Kelly, 6 F.Supp.2d 1168, 1179-84 (D.Kan. 1998) (determining areas where partisan expert's "testimony extend[ed] beyond his demonstrated areas of specialized knowledge"). 7

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"fundamental economic principles." Dfs. Br. at 3, 13-15 and 30.4 CIGNA argues that if an employee hired at age 45 earns a $17,600 per year annuity at age 65 and an employee hired at age 50 earns a $14,100 per year annuity at age 65, based on the same period of service and salaries, comparing those two retirement benefits is "nonsensical." Id. at 15.5 At bottom, CIGNA contends that because it costs more (from an individual, non-group perspective) to provide the annuity of $17,600 to the employee hired at age 50, it is irrational for Congress to enact a law that requires both older and younger workers to earn the same benefit for the same period of service and the same salary. See Dfs. Br. at 13-15; Dfs. Prop. Findings at ¶¶101-103; 127-130. It is undeniable, however, that retirement benefits are the foundation for the statutory regulation of defined benefit plans. As Judge Hall stated: "Congress' intent was to assure a benefit measured as of normal retirement age. The value of that benefit does not change, regardless of whether the employee is younger or older than normal retirement age. What it costs to provide the benefit may change depending on an employee's age. However, that was not Congress' concern when it prohibited the diminution of the rate of accrual of the benefit
4

CIGNA also maintains that comparisons of "the benefits accrued by an individual at various ages" are "distorted by the time value of money." Dfs. Br. at 15 n.8. Mr. Sher's position is inconsistent with a prior statement. In 1991, he advised the Internal Revenue Service, in a letter published in Tax Notes, that cash balance plans could satisfy all of ERISA's requirements, including the age discrimination standard, based on benefits. New Ex. 200. Now he asserts that it is "absurd" to do this. Dfs. Prop. Findings ¶130. The Exhibits numbered 200-216 which are referenced in the Reply brief are new Trial Exhibits, submitted in response to the positions taken in Defendants' Trial Brief, Proposed Findings and Conclusions. 8
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expressed as an annual benefit commencing at normal retirement age." Richards v. FleetBoston, 427 F.Supp.2d 150, 166 (D.Conn. 2006). As Richards suggests, Congress is well aware that, from a non-group perspective, offering defined benefits to older workers "costs" more.6 But pension benefits are, however, not funded on that basis. Pension benefits are funded as group insurance. CIGNA's point that a $17,600 annuity "costs" more for the age 50 employee is only valid if the costs of retirement benefits are conceptualized from a non-group perspective, and without taking into account that (1) the cost of annuities is actually amortized and (2) no one stays young forever. A. CIGNA's Argument that the Rate of "Benefit Accrual" Does Not Refer to the Increase in the "Accrued Benefit" Is Contrary to Congress' and the Federal Agencies' Consistent Use of that Term.

At bottom, CIGNA's difficulty turns out to be not with the words "rate" or "accrual," but with the "benefit" that must be earned.7 CIGNA argues that the "benefit" under Section 204(b)(1)(H) should be the employee's "account balance" because this is how CIGNA decided to define the new plan's "basic promise" effective January 1, 1998. Dfs. Prop. Findings ¶¶93, 96-97. Esden is explicit, however, in its holding that the sponsor of a cash balance plan cannot "contract around" or "draft around" the
6

See H.R. Conf. Rep. 99-1012, 379, 1986 U.S.C.C.A.N. 3868, 4024 (ending the exclusion of older workers from participation in benefit accruals "may have the effect of increasing an employer's minimum funding requirements significantly for employees hired within five years of normal retirement age"). Defendants do not dispute that the "rate" means the annual change and that "accrual" means the growth in the benefit. See Dfs. Prop. Findings ¶¶93-96 and Dfs. Prop. Conclusions ¶13. 9
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"consequences" of the classification of a cash balance plan as a defined benefit plan. 229 F.3d at 159 n. 6 and 173; accord Richards v. FleetBoston, 427 F.Supp.2d at 163, 164 and 167 (following Esden); Hickey v. Chicago Truck Drivers, Helpers and Warehouse Workers Union, 980 F.2d 465, 468 (7th Cir. 1992) (the "labeling" placed on a benefit cannot change the statutory definitions); IRS Notice 96-8, 1996-1 C.B. 359 (the accrual and other requirements in this notice "apply even in the case of a cash balance plan that defines an employee's accrued benefit as an amount equal to the employee's hypothetical account balance). Essentially, CIGNA would transform Section 204(b)(1)(H) into a regulation of lump sum termination pay based on the premise that this is now its plan's "basic promise." Congress' purpose, however, was to ensure continued accruals of retirement benefits at the same rate for older workers as younger workers. Under CIGNA's view, if a younger and older worker earn different retirement benefits, but receive the same $2,000 current "credit" for a year of service, the plan should be considered non-discriminatory, even though the retirement benefits that such credits provide are unequal. CIGNA makes two efforts to support its argument that the term "benefit accrual" refers to the credit or change to a hypothetical account balance, rather than the "accrued benefit" defined in ERISA §3(23)(A). Dfs. Br. at 17-22. First, CIGNA contends that Congress would not have used the word "benefit accrual" if it intended to refer to the "change in the age-65 annual benefit" in §204(b)(1)(H). Dfs. Br. at 17. This is not

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persuasive because Congress repeatedly used the term "benefit accrual" to refer to the change in the "accrued benefit." Section 204(b)(1), which the drafters of the legislation referred to as a "subsection" or a "paragraph," establishes "benefit accrual" rules which regulate the rates at which participants must earn the "accrued benefit." Section 204(b)(1)(H) then provides that "a defined benefit plan shall be treated as not satisfying the requirements of that paragraph if ... the rate of an employee's benefit accrual is reduced because of the attainment of any age." From a legislative drafter's standpoint, it was unnecessary to repeat the term "accrued benefit" because "the requirements of that paragraph" make clear that "benefit accrual" refers to the change in the "accrued benefit." Without grammatical revisions, the latter phrase could not be substituted into the statutory text.8 The revision that CIGNA proposes is not to substitute this longer phrase, but to do exactly what Richards warns against. CIGNA essentially proposes to lift the words from the defined contribution standard in ERISA §204(b)(2) (the "rate of allocations to the

8

If the longer phrase that CIGNA suggests is used, the statute would read:

"Notwithstanding the preceding subparagraphs, a defined benefit plan shall be treated as not satisfying the requirements of this paragraph if, under the plan, an employee's [change in the age-65 annuity benefit] is ceased, or the rate of an employee's [change in the age-65 annuity benefit] is reduced, because of the attainment of any age." As Judge Murphy held in Cooper, Congress used the term "benefit accrual" because it is "grammatically correct." 274 F.Supp.2d at 1016. 11

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employee's account") and substitute them in §204(b)(1)(H). Dfs. Prop. Findings ¶¶93-96 and Dfs. Prop. Conclusions ¶13. Judge Hall concluded that it was not credible that Congress intended the "completely different" test in ERISA §204(b)(2) to be substituted. 427 F.Supp.2d at 164. CIGNA's construction would, moreover, deny participants even the protections afforded under §204(b)(2) because the "account balance" and "allocations" under a cash balance plan are entirely "hypothetical." There are no actual accounts, individual contributions or allocation of investment returns as in a defined contribution plan. See Berger v. Xerox, 338 F.3d 755, 758 (7 th Cir. 2003). The "hypothetical" nature of the accounts allows a plan designer to place "wear-aways" and other contractual strictures on the credits that would not be permissible under a defined contribution plan. To support its position, CIGNA contends that, to an actuary, the term "benefit accrual" can mean "many different" things "depending on the purpose for which the measurement is taken." Dfs. Br. at 18; Df. Prop. Findings ¶¶87-89. But the only example that CIGNA offers in the Proposed Findings is a red herring. Treas. Reg. 1.401(a)(4)-3 establishes a general test for non-discrimination in favor of highly-compensated employees based on a determination of the "normal accrual rate" and the "most valuable accrual rate." 9 In both instances, the "accrual rate" is the increase in the "accrued

The "non-discrimination" test is an Internal Revenue Code requirement for taxqualification that is not replicated in ERISA. 12

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benefit." The "normal accrual rate" is defined as "the increase in the employee's accrued benefit ... during the measurement period." And the "most valuable accrual rate" is defined as "the increase in the employee's most valuable optional form of payment of the accrued benefit during the measurement period." Treas. Reg. 1.401(a)(4)-3(d)(1)(i) and (ii). CIGNA has cited no instance in which either Congress or the Federal agencies used the term "benefit accrual," in the context of a defined benefit plan, to refer to anything other than retirement benefits. As Judge Hall found, there is no serious debate that the "benefit" that §204(b)(1)(H) regulates is the benefit at normal retirement age, and not a hypothetical credit payable on separation from service. Congress and the federal agencies have since 1974 consistently used the term "benefit accrual" in the context of defined benefit plans to refer to the accrual of retirement benefits. ERISA's 1974 Conference Report consistently uses the term benefit accrual to refer to the change in the accrued benefit. See Pls. Opening Br. at 28. Two years later, the Department of Labor finalized regulations on years of participation for benefit accrual purposes. Those regulations state that "Section 204(b)(1) of the Act ... contain[s] certain requirements relating to benefit accrual under a defined benefit pension plan" and then prescribes rules "relate[d] to service which must be taken into account in determining an employee's period of service for purposes of benefit accrual." 29 C.F.R. 2530.204-1(a) and (b) (emph. added).

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In August 1977, the Treasury Department finalized its regulations implementing §204(b)(1)(B). Those regulations, too, use the term "benefit accrual" or "accrual rate" to refer to the change in the "annual benefit, commencing at age 65." See Treas. Reg. 1.411(b)-1(b)(2)(iii) (Example (1)) (if a "plan provides for an annual benefit (commencing at age 65) of a percentage of an participant's average compensation" of "2 percent for each of the first 20 years of participation and 1 percent per year thereafter" the "plan satisfies the requirements of this subparagraph because the 133 percent rule does not restrict subsequent accrual rate decreases"); 1.411(b)-1(g) (Example (iii) (if a "plan provides an annual benefit, commencing at age 65, equal to $96 per year of service for the first 25 years of service, and $48 per year of service" thereafter, "the rate of benefit accrual is equal in each of the first 25 years and the rate decreases thereafter"). In April 1986, only six months before §204(b)(1)(H) was enacted, Congress enacted §204(h) in order to require advance notice of a reduction in the "future rate of benefit accrual." There is no dispute that Congress again used the term "benefit accrual" to refer to changes in the accrued benefits payable at the normal retirement age. See 63 Fed. Reg. 68678, 68680 (December 14, 1998) ("[t]he statutory phrase "rate of future benefit accrual" implies, on its face, that section 204(h) is limited to changes in the accrued benefits").10

Two years before, Congress enacted the Retirement Equity Act of 1984 ("REA"), which provides a lower minimum entry age for participating in a plan's benefit accruals and reforms the break-in-service rules applicable to both accruals and vesting. 14

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CIGNA advances a cloudy argument about how an extension of Plaintiffs' "approach" would require a Plan that offers a $10 per month per year of service annuity to provide an approximately $11 per month annuity to a participant who worked to age 66. Dfs. Br. at 20-21; Dfs. Prop. Findings ¶¶118-24. Put simply, neither the Plaintiffs nor their actuarial expert espouse this. The 1986 Conference Report plainly states that if a plan provides an "additional benefit of $10 per month," it satisfies the age discrimination requirement if the plan provides the "same" benefit to an employee who works to age 66. H.R. Conf. Rep. No. 99-1012, at 381, 1986 U.S.C.C.A.N. 3868, 4026. An actuarial adjustment to the annuity to reflect the later retirement age is not required to satisfy the age discrimination requirement.11 While CIGNA cites this example, it actually supports Plaintiffs' position because it further shows that Congress sought to ensure that an older worker accrues the same additional retirement benefit (in this example, a $10 per month retirement benefit) as a younger worker.

REA's legislative history also states that "present law requires that a participant in a defined benefit pension plan accrue (earn) the normal retirement benefit provided by the plan at certain minimum rates. The accrual rules are designed to limit backloading of benefit accruals...." S. Rep. 98-575 at 8, 1984 U.S.C.C.A.N. 2547, 2554. Internal Revenue Code §401(a)(9) separately requires an actuarial adjustment when an employee works past age 70-1/2. See Treas. Reg. 1.401(a)(9)-6, Q&A 7, 8, and 9. Actuarial adjustments are also required if an employee works past age 65 and is not given a notice of suspension of benefits. ERISA §203(a)(3)(B); 29 C.F.R. §2530.2033(b)(4). 15
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B.

If an "Accrued Benefit" Is Determined in a Form "Other Than an Annual Benefit Commencing at Normal Retirement Age," ERISA §204(c)(3) Requires that It Be the Actuarial Equivalent of "Such Benefit."

CIGNA maintains that even if the term "benefit accrual" refers to the change in the "accrued benefit," the definition of the accrued benefit in ERISA §§3(23)(A) and 204(c)(3) allows the benefit to be determined in a form "other than an annual benefit commencing at normal retirement age." Dfs. Br. at 22-24. As far as it goes, this is true. But CIGNA neglects the latter part of §204(c)(3), which provides that in such cases, "the employee's accrued benefit ... shall be the actuarial equivalent of such benefit," referring to the "annual benefit commencing at normal retirement age." Thus, expression in a different form does not allow the plan sponsor to circumvent the referent, which is the "annual benefit commencing at normal retirement age." See Esden, 229 F.3d at 163 ("regardless of any option as to timing or form of distribution, a vested participant in a defined benefit plan must receive a benefit that is the actuarial equivalent of her normal retirement benefit (that is, the accrued benefit expressed as an annuity beginning at normal retirement age"); Berger v. Xerox, 338 F.3d at 759 ("ERISA requires that any lump-sum substitute for an accrued pension benefit be the actuarial equivalent of that benefit"). CIGNA next contends that if Congress intended for "benefit accrual" to refer to the annual benefit commencing at normal retirement age, ERISA §204(b)(1)(H)(v) would be rendered "superfluous." Dfs. Br. at 22-23. This clause provides that the "subsidized 16

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portion of any early retirement benefit is disregarded in determining benefit accruals." CIGNA's argument is not persuasive because ERISA §204(b)(1)(B), which CIGNA concedes regulates the annual benefit commencing at normal retirement age, see Dfs. Br. at 17, contains a nearly identical special rule to ensure that rule's proper application: ERISA §204(b)(1)(B)(iii) provides that the "fact that benefits payable under the plan may be payable to certain employees before normal retirement age shall be disregarded." Under CIGNA's reasoning, that special rule, too, would be "superfluous." Far from subtracting from Plaintiffs' position, the special rule in §204(b)(1)(H)(v) reinforces that Congress sought to ensure that the accrual of benefits payable at normal retirement age does not discriminate because of age. It is logically fallacious to reason that a special rule that excludes "the subsidized portion of any early retirement benefit" indicates that the term "benefit accrual" does not refer to the "retirement benefit" in the first place. Instead, the special rule reinforces the point that "benefit accrual" refers to the rate at which an employee earns retirement benefits. C. Reductions in the Rate of an Employee's Benefit Accrual Based on Age Cannot Be Erased by Rephrasing the Discrimination as Based on the Number of Years to Retirement.

CIGNA next asserts that any reductions in the rate of benefit accruals under its Plan are not "because of" age, but due to the "time value of money." Dfs. Br. at 23-24. CIGNA elsewhere suggests that it decided to convert its traditional plan to cash balance not for age-related reasons, but to "reflect changes in the workforce of employees," "to

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allow employees to earn their retirement benefits more evenly over their careers" and for other reasons consistent with "fundamental economic principles." Dfs.Br. at 2, 13, 23-24, 30; Dfs. Prop. Findings at ¶¶5, 9, 12-13, 21; Dfs. Prop. Conclusions at 9. CIGNA's internal documents show that these are post hoc explanations. CIGNA was well aware that the benefits of older workers would be reduced and it intended that result. ¶¶94-105, 114-115. CIGNA took limited steps to lessen its vulnerability to age discrimination claims, such as adopting a graded schedule of pay credits and providing higher opening accounts for certain employees, but it did not seek to eliminate the agebased impact of the change. CIGNA objects to the admission of evidence concerning its intent, but Plaintiffs are entitled to rebut pretextual reasons and show that age discrimination was the expected and realized result. CIGNA's reframing of the discrimination as a product of the "time value of money" can also be addressed as Richards does: Older workers naturally have fewer years to retirement than younger workers. Hence, practically any age discrimination in retirement benefits can be reframed as based on time to retirement, rather than age per se. But the Court must ask: Is CIGNA's time-based distinction independent of age, or is it "perfectly correlated" with it? 427 F.Supp.2d at 168. If age is the limiting criterion, there is age discrimination. See 67 Fed. Reg. 76123, 76124 and 76133 (2002 proposed Treasury regulations, now withdrawn); 52 Fed. Reg. 45360, 45362, and 53 Fed. Reg. 11876, 11880 (1987 and 1998 proposed regulations by the EEOC and Treasury Department stating that

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age discrimination exists if age is a limiting factor); Arnett v. CalPERS, 179 F.3d 690, 695 (9 th Cir. 1999), vacated and remanded on other grounds, 528 U.S. 1111 (2000); EEOC Compliance Manual, Section 3, Employee Benefits (issued October 27, 2000) (formula that bases benefits on "potential years" to retirement is a proxy for age because it gives younger workers more "constructive years" than older workers).12 D. The Treasury Department Has Never Adopted the "Consistent View" that CIGNA Suggests.

CIGNA finally relies on an assemblage of a withdrawn proposed regulation, a conclusory statement in revenue proposals, and a sentence in a 1991 preamble to regulations about a safe harbor to the Code's "non-discrimination" rule to form a "consistent view" of the Treasury Department that cash balance plans are not age discriminatory. Dfs. Br. at 24-26. All but one of the sources on which CIGNA relies ignores the fundamental point that Congress directed that the interpretation of ERISA §204(b)(1)(H) be coordinated with the Department of Labor and the EEOC. P.L. 99-509, Section 9204(d) ("The Secretary of Labor, Secretary of the Treasury, and the Equal Employment Opportunity Commission are to issue rulings and regulations that are consistent and are to consult and coordinate with one another in issuing such rulings and regulations").

Accord Rousey v. Jacoway, 544 U.S. 320, 329 (2005) (Bankruptcy Code's references to pension and like plans where rights to payment are "because of age" or "on account of age" do not require that the payment be "solely on account of this factor"). 19

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One of the items in Defendants' collection is the testimony of the IRS's Chief Counsel, Stuart Brown, before the Senate Health Education Labor & Pension Committee on September 22, 1999. See Dfs. Br. at 26. Defendants' Exhibit shows that the IRS's Chief Counsel testified to something different than what CIGNA represents. Mr. Brown testified that: "The Service has not to date asserted that cash balance plan benefit formulas result in per se violations of the age discrimination requirements of section 411(b)(1)(H)." He then testified that: "The application of the age discrimination requirements of section 411(b)(1)(H) involves a difficult analysis that may differ depending on the factual context of the plan being considered.... [W]e are now reviewing the issue of age discrimination in the context of these conversions in active coordination with the Equal Employment Opportunity Commission (EEOC) and Department of Labor (DOL). In this analysis, we are considering the whole range of factors that might indicate a cash balance plan conversion has resulted in age discrimination. For example, we will consider the impact of the wearaway period, as it affects employees of different ages." Dfs. Ex. 532 at 4-5. This is not the endorsement that CIGNA's trial brief represents. The on-going "review" and "analysis" suggest, furthermore, that CIGNA is drawing more from the statements that the IRS made in 1991 and 1996 than was actually intended. The only Treasury views after Mr. Brown's testimony were in 2002 proposed Treasury regulations and a sentence included in the Treasury Department's 2004-2006 revenue proposals. The proposed regulations, which were coordinated with the EEOC and DOL, were withdrawn in 2004. See IRS Announcement 2004-57. The sentence in the

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revenue proposals states that "cash balance plans and cash balance conversions are not inherently age discriminatory." Emph. added. This sentence was not coordinated with the EEOC and the DOL. But, even if accepted, it is consistent with both Mr. Brown's testimony and Plaintiffs' position. Neither Plaintiffs nor the Class' actuarial expert have taken the position that "all" cash balance transition rules or benefit formulas are "per se" or "inherently" age discriminatory. See Pls. Opening Brief at 20 and Pls. Ex. 3 (Poulin Rpt.) at ¶16 and Ex. 4 ¶¶18-19. Plaintiffs contend that a cash balance plan is discriminatory if it is designed to provide: (1) a rate of benefit accrual that decreases because of age when the annual pay credits and future interest credits are converted to accrued benefits, or (2) an age-based "wear-away" of previously earned benefits rather than cumulative benefit accruals in which the cash balance accruals are an addition to the previously-earned benefits, without regard to age. As Mr. Poulin's analysis shows, CIGNA's cash balance conversion and formula discriminate based on age. Pls. Ex. 3 and 4. The extent to which other cash balance conversions discriminate will depend on similar analysis of the factual context. As described below, those results are not preordained. Many cash balance plans have graded pay credit schedules sufficient to ensure non-decreasing rates of benefit accrual and many, perhaps most, cash balance plans do not have "wear-aways." Plaintiffs do not contest that the approach that the Federal agencies should take in applying §204(b)(1)(H) has been the subject of controversy and that the IRS has not "to

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date" asserted "per se" violations. But only one of the statements on which CIGNA relies favors its position. This was the 2002 proposed regulations, which would have set up a "special definition" for cash balance plans. 67 F.R. at 76128. But the Treasury Department withdrew those regulations because of Congressional criticism and the comments of interested parties. IRS Announcement 2004-57. It is well-established that proposed regulations are not entitled to Chevron deference. See Depenbrock v. CIGNA, 389 F.3d at 85 (a "proposed regulation does not represent an agency's considered opinion"). A fortiori, a withdrawn regulatory proposal has even less credence. CIGNA relies on Auer v. Robbins, 519 U.S. 452 (1997), for the proposition that agency views, even in an amicus brief, are entitled to Chevron deference, indirectly suggesting that this might extend to a withdrawn proposed regulation. Dfs. Br. at 24-25. But this is certainly not the law. See Eastman Kodak v. STWB, __ F.3d __, 2006 WL 1835245 *6 n.8 (2d Cir. June 26, 2006) (Christensen v. Harris "seemingly undercut" Auer and "held that many forms of agency interpretations that lack the force of law do not merit Chevron deference" but are instead accepted based on their persuasiveness under Skidmore v. Swift & Co.). Even in the withdrawn regulatory proposal, the Treasury Department offered no explanation of how the statutory language could be construed to justify the discriminatory results, but bypassed the statutory interpretation issue with a

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"special definition." 13 The statute did not delegate substantive rule-making authority to the Treasury Department, as is necessary to promulgate a "special definition" at odds with the general statutory language. Examining the other views which CIGNA cites, all of them are, like Mr. Brown's actual testimony, more limited than CIGNA represents. For example, CIGNA has never complied with the "safe harbor" described in the 1991 preamble to the non-discrimination regulations because CIGNA does not accrue interest adjustments through normal retirement in the year of the related hypothetical allocation. Compare 1.401(a)(4)8(c)(3)(iv) and (vi) and Dfs. Prop. Findings ¶¶55-56 and 96-97. Nor has CIGNA complied with other rules necessary to qualify for that safe harbor. See generally Treas. Reg. 1.401(a)(4)-8(c)(3). Accordingly, the sentence in the preamble is not referring to CIGNA's Plan. CIGNA also tries to draw a negative inference from IRS Notice 96-8, 1996-1 C.B. 359, that "[t]he Treasury Department would not have issued rules describing how to calculate lump sums in a cash balance plan if its interpretation of ERISA would render all

Even the "special definition" in the 2002 proposed regulations was subject to a restriction that CIGNA neglects to mention: An employer could not satisfy §204(b)(1)(H) on the basis of pay credits if it used retirement benefits to satisfy the non-discrimination tests. 67 F.R. at 76128. CIGNA's Application for Determination shows that it satisfied the non-discrimination tests based on "normal" and "most valuable" "accrual rates," which are both based on benefits. See Pls. Ex. 37 at AMARA-00730-44. Therefore, CIGNA would not have been able to qualify for the special definition offered under the proposed regulations.

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cash balance plans inherently illegal." Dfs. Br. at 25-26. Again, the IRS's Chief Counsel testified that the IRS was still reviewing and analyzing these issues in coordination with the EEOC and DOL and had not "to date" made a determination, so CIGNA's inference must be misplaced. To the extent Notice 96-8 addresses "accrual" issues, the Notice finds that cash balance plans of the "type" that CIGNA adopted "typically" violate the accrual requirements in ERISA §204(b)(1)(A), (B) and (C). The Notice finds tha