Free Response - District Court of Connecticut - Connecticut

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

3:01 CV 2361 (MRK) Trial Date: 09/11/06

DEFENDANTS' TRIAL BRIEF

Dated: June 27, 2006

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

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INTRODUCTION ......................................................................................................................... 1 I. II. NATURE OF THE CASE ................................................................................................. 1 BACKGROUND ON CASH BALANCE PLANS AND TRADITIONAL PLANS........ 5 A. B. III. A. B. Traditional Defined Benefit Plans ......................................................................... 5 Cash Balance Plans ................................................................................................ 7 CIGNA's Part A Traditional Plan And The Creation Of The Part B Cash Balance Plan........................................................................................................... 8 The Terms Of Part B.............................................................................................. 9 1. 2. IV. Benefit Credits And Interest Credits.......................................................... 9 Opening Account Balances, Protected Minimum Benefits, And Retirement................................................................................................ 10

THE CIGNA PENSION PLAN......................................................................................... 8

COMMUNICATIONS REGARDING FREEZING ACCRUALS UNDER PART A, THE CREATION OF PART B, AND THE PRECISE AMOUNTS IN PARTICIPANTS' PART B ACCOUNTS....................................................................... 11 JUDGMENT SHOULD BE ENTERED IN FAVOR OF DEFENDANTS ON COUNT 3 BECAUSE PART B IS NOT AGE DISCRIMINATORY. ........................... 12 A. B. Part B Treats Older Employees At Least As Well As It Treats Younger Employees............................................................................................................ 12 Plaintiffs' Argument That ERISA Section 204(b)(1)(H)(i) Requires Comparisons Of Age-65 Annuity Benefits Is Wrong.......................................... 16 1. 2. 3. The Phrase "Rate Of An Employee's Benefit Accrual" Does Not Refer To The "Accrued Benefit." ............................................................ 17 The Term "Accrued Benefit" Does Not Require That It Be Expressed In The Form Of An Age-65 Annuity...................................... 22 Any Differences In The Age-65 Annuity Benefits Are Attributable To The Time Value Of Money And Differences In The Number Of Years To Payout Of The Benefit, Not "Because Of The Attainment Of Any Age." ........................................................................................... 23

ARGUMENT............................................................................................................................... 12 I.

C. D. II.

The Treasury Department Has Consistently Endorsed Cash Balance Plans As Not Being Age Discriminatory....................................................................... 24 Richards v. FleetBoston Was Wrongly Decided ................................................. 27

JUDGMENT SHOULD BE ENTERED IN FAVOR OF DEFENDANTS ON COUNT 1 BECAUSE PART B DOES NOT VIOLATE ERISA'S NONFORFEITABILITY RULE OR ERISA'S 133% ANTI-BACKLOADING RULE. .............................................................................................................................. 31 -I-

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A. B. III.

The Plan Does Not Cause Any Impermissible Forfeitures.................................. 32 The Plan Does Not Violate ERISA's 133% Rule............................................. 37

JUDGMENT SHOULD BE ENTERED IN FAVOR OF DEFENDANTS ON COUNT 5 BECAUSE PART B DOES NOT VIOLATE ERISA'S ANTICUTBACK RULE AND PROTECTS EMPLOYEES' PREVIOUSLY ACCRUED BENEFITS................................................................................................... 40 JUDGMENT SHOULD BE ENTERED IN FAVOR OF DEFENDANTS ON COUNT 2 BECAUSE PLAINTIFFS LACK EVIDENCE THAT THEY WERE LIKELY OR ACTUALLY HARMED BY ANY DEFICIENCY IN THE SUMMARY PLAN DESCRIPTION. ............................................................................. 48 A. B. The Part B SPD Met The Disclosure Requirements of ERISA Section 102 ....... 49 Even If The SPD Was Technically Deficient, Each Plaintiff And Class Member Must Prove He Or She Was "Likely Harmed" By A Failure To Inform Participants of Material Plan Information Required By ERISA.............. 56 Plaintiffs And The Testifying Class Members Cannot Prove Likely Harm ........ 60 Any Alleged Deficiencies In The SPD Constituted Harmless Error ................... 62 Plaintiffs' SPD Claim Fails Because The Plan Administrator Is Not A Party To This Lawsuit.......................................................................................... 65 Even If The SPD Were Deficient, Plaintiffs' Benefits Must Be Governed Exclusively By The Terms Of The CIGNA Pension Plan, Not The SPD. .......... 67

IV.

C. D. E. F. V.

JUDGMENT SHOULD BE ENTERED IN FAVOR OF DEFENDANTS ON COUNT 4 BECAUSE THE PLAN ADMINISTRATOR PROVIDED ADEQUATE NOTICE UNDER ERISA SECTION 204(H). ......................................... 68 A. B. The Plan Administrator Provided Proper Notice Regarding The Amendment Freezing Accruals Under Part A. .................................................... 69 Even If The Plan Administrator Was Required To Issue A Section 204(h) Notice For The Amendment That Created Part B, Plaintiffs' Section 204(h) Claim Still Fails........................................................................................ 70 The Plan Administrator Was Not Required Under ERISA Section 204(h) To Notify Terminated Part A Participants About The Amended Rehire Rule. ..................................................................................................................... 72 Plaintiffs' Section 204(h) Claim Fails Because The Plan Administrator Is Not A Party To This Lawsuit............................................................................... 75 Plaintiffs' Section 204(h) Claim Is Time-Barred................................................. 76

C.

D. E. VI. VII.

EVEN IF PLAINTIFFS PROVE ERISA VIOLATIONS, THEY ARE NOT ENTITLED TO ANY REMEDY. ................................................................................... 78 PLAINTIFFS AND THOUSANDS OF CLASS MEMBERS SIGNED RELEASES WHICH BAR THEIR CLAIMS. ................................................................ 79 - II -

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VIII.

PLAINTIFFS' REQUEST TO ENFORCE THE DEPENBROCK DECISION IS FRIVOLOUS. .................................................................................................................. 81

CONCLUSION............................................................................................................................ 83 EXHIBIT A ................................................................................... SEE NEXT DOCKET ENTRY TABLE OF AUTHORITIES ......................................................... SEE NEXT DOCKET ENTRY

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INTRODUCTION I. NATURE OF THE CASE Plaintiffs Janice C. Amara, Gisela R. Broderick, and Annette S. Glanz ("Plaintiffs") have brought this action against Defendants CIGNA Corporation ("CIGNA") and the CIGNA Pension Plan (the "Plan") (together "Defendants") alleging violations of the Employee Retirement Income Security Act ("ERISA"). Plaintiffs' Third Amended Complaint (the "Complaint") challenges certain aspects of, and communications about, CIGNA's cash balance pension plan, known as "Part B," which was effective January 1, 1998. The Third Amended Complaint contains five claims:1 · Count 1 alleges that the formula used to calculate "opening account

balances" for the cash balance plan violated the non-forfeitability and accrual rule of ERISA Sections 203(a) and 204(b)(1)(B), 29 U.S.C. §§ 1053(a) and 1054(b)(1)(B). · Count 2 alleges that the summary plan description ("SPD") for Part B did

not satisfy applicable statutory disclosure requirements under ERISA Section 102, 29 U.S.C. § 1022. · Count 3 alleges that Part B (and by definition all cash balance plans) is

inherently age discriminatory and therefore violates ERISA Section 204(b)(1)(H)(i), 29 U.S.C. § 1054(b)(1)(H)(i).

1

This Court, per Judge Squatrito, certified a plaintiff class by Order of December 20, 2002. Plaintiffs added Counts 4 and 5 of their Complaint after the class was certified. See Motion to File Second Amended Complaint (dkt #112-1); Third Amended Complaint (dkt # 165). Accordingly, the appropriateness of these claims for class treatment has not been considered in this case.

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·

Count 4 challenges whether Defendants satisfied any disclosure

obligations under ERISA Section 204(h), 29 U.S.C. § 1054(h), as that provision existed in 19971998. · Count 5 alleges that Part B violated the anti-cutback rule under ERISA

Section 204(g), 29 U.S.C. § 1054(g). See Third Amended Complaint (dkt # 165). Counts 1, 3, and 5 depend exclusively on the written terms of Part B and the interpretation of applicable law. In that regard, every court to have considered the question presented in Count 1 has rejected Plaintiffs' argument that similar formulas for setting opening account balances for cash balance plans violate ERISA. Campbell v. BankBoston, 327 F.3d 1 (1st Cir. 2003) (cash balance formula for setting opening account balances does not violate ERISA); Richards v. FleetBoston Fin. Corp., 427 F. Supp. 2d 150 (D. Conn. 2006) (same); Register v. PNC Fin. Servs., Group, No. 04-6097, 2005 WL 3120268 (E.D. Pa. Nov. 21, 2005) (same). These courts all reached the right result and, for the reasons explained in detail herein, Defendants respectfully submit that this Court too should reject Plaintiffs' claim in Count 1. As for Count 3, there is a split of legal authority as to whether cash balance plans are inherently age discriminatory. Several courts have found that the relevant statutory provision, ERISA Section 204(b)(1)(H)(i), is ambiguous, i.e., capable of more than one reasonable interpretation. Based on the legislative history, the Treasury Department's view that cash balance plans are legal, and fundamental economic principles, these courts have rejected challenges to the design of cash balance plans. Tootle v. ARINC, Inc., 222 F.R.D. 88 (D. Md. 2004) (rejecting claim that cash balance plan design is age discriminatory); Eaton v. Onan, Corp., 117 F. Supp. 2d 812 (S.D. Ind. 2000) (same); Register, 2005 WL 3120268 (E.D. Pa. Nov. 21, 2005) (same); Engers v. AT&T Corp., No. 98-3660, 2001 U.S. Dist. LEXIS 25889 (D.N.J. -2-

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June 6, 2001) (same); Hurlic v. S. Cal. Gas Co., No. 05-5027 (C.D. Cal. Mar. 24, 2006) (same) (attached hereto as Exhibit A). Two other courts have found that the relevant statutory provision is unambiguous and have essentially held that all cash balance plans are per se age discriminatory and illegal. See Cooper v. IBM Pers. Pension Plan, 274 F. Supp. 2d 1010 (S.D. Ill. 2003) (cash balance plan is age discriminatory based on the unambiguous language in the statute);2 FleetBoston, 427 F. Supp. 2d at 150 (same). Respectfully, the IBM and FleetBoston courts reached their conclusion based on meaningless mathematical comparisons (e.g., comparing the benefit payable to a 60 year-old in 2011 against the benefit payable to a 30-year old in 2041 without reducing the benefits to present value), notwithstanding that from an economic or financial standpoint, it is undisputed that older participants in a cash balance plan are treated the same as, or better than, similarly situated younger participants. For the reasons explained in detail herein, and consistent with Eaton, Tootle, Engers, Register, and Hurlic, Defendants respectfully submit that this Court should find that Part B is not age discriminatory and reject Plaintiffs' claim in Count 3.3 Plaintiffs' claim in Count 5 alleges a violation of the anti-cutback rule under ERISA Section 204(g), which prohibits a plan amendment that reduces a participant's previously accrued benefit. At a fundamental level, this claim fails because the written terms of Part B unequivocally provide that all benefits previously accrued under the prior plan formula ("Part A") are protected, which protection is all that ERISA's anti-cutback rule requires. See, e.g.,
2

Cooper is on appeal to the United States Court of Appeals for the Seventh Circuit, Case No. 05-3588. The American Benefits Council, the ERISA Industry Committee, and several large employers submitted an amicus brief to the Seventh Circuit in Cooper urging reversal of the district court decision because of its implications for the pension plan community as a whole. Oral argument in the case was held on February 16, 2006. Congress presently is considering legislation to clarify that cash balance plans are legal and do not discriminate against older employees. See, e.g., H.R. 2830 (2005).

3

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King v. Pension Trust Fund of the Pension, Hospitalization and Benefit Plan of the Elec. Industry, No. 01-CV-2604, 2003 WL 22071612, at *10 (E.D.N.Y. Sept. 5, 2003) ("[T]he proper inquiry under ERISA § 204(g)(1) is whether plaintiff's monthly benefit was in fact reduced by a plan amendment.") (internal citations and quotations omitted); Langman v. Laub, No. 97 Civ. 6063(MGC), 2002 WL 472033, at *2 (S.D.N.Y. Mar. 28, 2002) (same), aff'd, 328 F.3d 68 (2d Cir. 2003). Counts 2 and 4 challenge particular communications about the Plan, i.e., the SPDs and Section 204(h) notice, and therefore turn on the content of those communications and the precise statutory provisions at issue. See 29 U.S.C. § 1022; 29 U.S.C. § 1054(h). See also Nechis v. Oxford Health Plans, Inc., 421 F.3d 96, 102 (2d Cir. 2005) ("[A fiduciary] has no duty to disclose to plan participants information additional to that required by ERISA."). Even if these communications were deficient ­ which they were not ­ these claims would fail because Plaintiffs were not likely, or actually, harmed by any such deficiencies. See Burke v. Kodak Ret. Income Plan, 336 F.3d 103, 113 (2d Cir. 2003) (To prevail based on a deficient SPD, a plaintiff must prove that he or she "was likely to have been harmed as a result of a deficient SPD. Where a participant makes this initial showing, however, the employer may rebut it through evidence that the deficient SPD was in effect a harmless error."); Weinreb v. Hosp. for Joint Diseases Orthopaedic Inst., 404 F.3d 167, 170-72 (2d Cir. 2005) (same). The evidence at trial will demonstrate that neither Plaintiffs nor the testifying class members were denied information that, if disclosed, would have made a difference in the benefits they received. Indeed, each was provided details regarding how the cash balance plans operated and annual statements reflecting their account balance and how much it had increased from the prior year --more than enough information to permit them to make informed employment, retirement and financial decisions. -4-

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Moreover, Plaintiffs' claims in Counts 2 and 4 lie only against the Plan Administrator, whom Plaintiffs did not name as a defendant. Plaintiffs' Section 204(h) notice claim also is timebarred. Finally, there are serious questions about the remedies available to Plaintiffs in the unlikely event that they prevail on one or more of their claims. Given Plaintiffs' failure to address this issue with any specificity in their submissions to the Court, Defendants respectfully request that they be given the opportunity to brief this issue if and when it becomes necessary to do so. However, to the extent Plaintiffs seek benefits that exceed those available under the written terms of the Plan, their claims and those of thousands of other class members are barred by the releases they signed in exchange for severance pay at the time they left CIGNA. For the reasons set forth below, and as further supported by Defendants' Proposed Findings of Fact and Defendants' Proposed Conclusions of Law, each filed simultaneously herewith, there simply is no factual or legal basis for Plaintiffs' claims. At the conclusion of trial, judgment should therefore be entered in favor of Defendants on all counts of the Complaint. II. BACKGROUND ON CASH BALANCE PLANS AND TRADITIONAL PLANS A. Traditional Defined Benefit Plans When a person retires, a traditional defined benefit pension plan pays a participating retiree a fixed amount of money each year for life, payable in monthly installments. Typically, the annual pension benefit that an individual receives under a traditional defined benefit plan is a percentage of an employee's final salary multiplied by the employee's years of service. As the Second Circuit explained in Esden v. Bank of Boston, 229 F.3d 154 (2d Cir. 2000): A conventional defined benefit plan, adopting a final-pay formula would credit the employee with a specific percentage of salary for -5-

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each year of employment. For instance, an employee might accrue a pension of 1.5% of "salary" for every year of service. After 30 years of service he would have a pension equivalent to 45% of "salary." Salary may be defined as final salary, or the average of salary in the last five years. 229 F.3d at 158 n.4 (citation omitted). By design, participants in traditional pension plans earn most of their benefits in their last years of service. Defendants' Proposed Findings of Fact ("DFF") ¶ 3. The annual pension benefit for life that the participant is entitled to receive is generally referred to as an annuity, and has an actuarially equivalent present value based on interest rates and the participant's age and life expectancy. DFF ¶ 2. In other words, using certain actuarial assumptions, the value of the annuity can be expressed as a lump sum value today. As explained in more detail below, ERISA governs the interest rate to be used in determining the actuarially equivalent present value of pension benefits. Esden, 229 F.3d at 159. Under a traditional plan, an employee who elects to take his benefit before normal retirement age (typically age 65) generally would have his benefit amount actuarially reduced to account for the earlier payout date. For example, if an employee is entitled to a benefit of $1,000 per month commencing at age 65, he or she might be entitled to receive a benefit of approximately $500 per month if he or she commences his benefit 10 years earlier, at age 55. The present value of these two benefits is the same, taking into account mortality and discounting to present value at the statutory discount rate. DFF ¶ 4. Some plans, however, include subsidized early retirement benefits available as a benefit option. A subsidized early retirement benefit is one that commences before normal retirement age and has a present value that is greater than the present value of the normal retirement benefit. For example, if under the plan the employee in the above example was entitled to an early -6-

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retirement benefit of $700 per month (instead of $500 per month), then the value of that early retirement benefit would be subsidized (enhanced) by $200 per month. DFF ¶ 4. B. Cash Balance Plans

Although cash balance plans differ from traditional plans like those described above, they are a type of defined benefit plan. Esden, 229 F.3d at 158. Cash balance plans use a different formula for calculating the amount of pension benefits that an individual will receive. Specifically, Under a cash balance pension plan, a hypothetical account is established in each participant's name. Benefits are credited to that "account" over time, driven by two variables: (1) the employer's hypothetical "contributions," and (2) hypothetical earnings expressed as interest credits. Employer "contributions" are usually expressed as a percentage of salary, the rate of which may vary with employee tenure. Interest credits may be at a fixed interest rate, but more often they are tied to an extrinsic index ­ for example, U.S. Government securities of a specified maturity ­ and they vary accordingly. Each year an employee receives a statement of her "account" balance, and can therefore see the value of her pension benefit. Id. These plans operate more like defined contribution arrangements (such as 401(k) plans), but they are subject to the legal constraints and rules applicable to defined benefit plans. According to the Pension Benefit Guaranty Corporation, over 1,500 cash balance plans and other similar "hybrid" plans were in existence as of 2003, which provided pension benefits to over 8 million participants, one quarter of the total population covered by defined benefit plans. See Pension Benefit Guaranty Corp., Pension Insurance Data Book 2004, at 59 (2005), at http://www.pbgc.gov/docs/2004databook.pdf (last visited June 22, 2006). This case challenges the fundamental design of all of these plans.

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III.

THE CIGNA PENSION PLAN A. CIGNA's Part A Traditional Plan And The Creation Of The Part B Cash Balance Plan.

Prior to 1998, CIGNA was the plan sponsor of a traditional defined benefit pension plan, now known as "Part A." Depending on an employee's hire date and employment history, the employee would either be entitled to benefits under the Tier 1 or Tier 2 formula in the Plan. The Tier 1 formula provides an age 65 annuity benefit equal to 2% of final three-year average pay for each year of service up to 30 years, less a "social security offset." The Tier 2 formula provides an age-65 annuity benefit equal to 1% of final five-year average pay for each year of service up to 35 years, less the social security offset. Both the Tier 1 and Tier 2 formulas offered subsidized early retirement benefits commencing at age 55. DFF ¶ 25. In November 1997, CIGNA's Chief Executive Officer ("CEO") signed Amendment No. 4 to the Plan, freezing benefit accruals under Part A for many employees. DFF ¶ 24. On December 21, 1998, CIGNA's CEO signed a second plan amendment adopting the Part B cash balance plan design for these employees, and all rehired employees, to be effective retroactively as of January 1, 1998.4 Certain older, longer service employees, however, were grandfathered into the prior plan formula. Specifically, active participants on January 1, 1998 whose age plus service totaled at least 45 and who were not "new formula participants" automatically continued to participate

4

The Plan Administrator had originally determined that employees rehired after January 1, 1998 would be placed into Part B. In Depenbrock v. CIGNA Corp., 389 F.3d 78 (3d Cir. 2004), however, the Third Circuit ruled that an employee (John Depenbrock) should have continued in Part A upon rehire because the amendment creating Part B and modifying the rule applicable to rehires was not valid until signed by the CEO on December 21, 1998. Id. at 83. The Plan Administrator has notified 194 other rehires that it is recalculating their benefits in accordance with the terms of Part A. Plaintiff Amara is one of those rehires and currently is receiving her benefits under Part A. DFF ¶ 223.

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under Part A. (New formula participants generally were those who became plan participants on or after January 1, 1989.) That is, these employees were not subject to the freeze (Amendment No. 4) and were not subject to the part B cash balance formula. DFF ¶ 33. Instead, these older, longer service employees continued to earn benefits under the same Part A formula that had applied to them previously. B. The Terms Of Part B 1. Benefit Credits And Interest Credits

Under Part B, participants earn "benefit credits" based on a percentage of the pay they receive during their employment with CIGNA. These benefit credits are added to the participant's account each year. The percentage is age- and service-favored, i.e., an older employee will receive the same or a higher percentage of pay than a similarly situated younger employee and a longer service employee will receive the same or a higher percentage than a similarly situated shorter service employee. DFF ¶ 45. The table below reflects the benefit credit rate under the Plan. Age Plus Service Under 35 35 ­ 44 45 ­ 54 55 ­ 64 65 or over DFF ¶ 45. For example, an employee earning $60,000 who is age 40 with 10 years of service in 2003 (i.e., age plus service is 50) receives a benefit credit in 2003 of $3,247.50 (5% of $43,500
5

Rate Applied to Pay Up to Integration Level5 3% 4% 5% 6% 7%

Rate Applied to Pay Over Integration Level 4.5% 5.5% 6.5% 7.5% 8.5%

The CIGNA Pension Plan provides that the "Integration Level" is one-half of the Social Security taxable wage limit in each year (e.g., $34,200 in 1998 and $43,500 in 2003).

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plus 6.5% of $16,500). Had the same employee been age 60 rather than 40, the pay credit would be $1,200 higher, or $4,447.50 (7% of $43,500 plus 8.5% of $16,500). For any two participants who have the same service and pay history, the older one will receive a benefit credit in any given year that is the same or higher than the younger employee. Similarly, as an employee continues in service, his or her benefit credit rate will either remain the same or increase from one year to the next. DFF ¶ 46. The interest rate is the same for all participants: the interest on five-year Treasury Constant Maturities plus ¼ percent, subject to a 4.5% minimum and a 9% maximum. In addition, all participants in Part B earn interest on their account balances. DFF ¶ 47. 2. Opening Account Balances, Protected Minimum Benefits, And Retirement.

Part B contains certain special protections for participants who were converted to Part B effective January 1, 1998, and some rehired employees. First, these participants were given opening account balances based on the lump sum value of their benefits under the prior plan as of December 31, 1997. For most employees, the opening account balance was based on the lump sum value of their age-65 benefit; for certain older employees (those who were employed on January 1, 1998 and whose age plus service as of that date totaled at least 55), the opening balance was increased to the lump sum value of their more-valuable age 62 subsidized early retirement benefit. DFF ¶ 51. In addition, for these older employees, the benefit was converted into an opening account balance using a lower (and hence more favorable) interest rate. DFF ¶ 52. Part B also provides that if a participant has earned a particular benefit in a particular form under the old plan, e.g., a subsidized early retirement annuity benefit, that benefit will be protected. Specifically, Section 1.1(c) of Part B provides: - 10 -

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In the case of a participant who has a Part A Accrued Benefit which is converted into an Initial Retirement Account, such Participant's Accrued Benefit, expressed in the form of an immediate lump sum distribution, shall in no event be less than the present Actuarial Value (determined using the Applicable Interest Rate and the Applicable Mortality Table), of the Participant's Minimum Benefit. DFF ¶ 58. The Minimum Benefit is defined in Part B as a participant's age-65 annuity benefit under Part A, enhanced by the value of the "Preserved Spouse's Benefit," if applicable. DFF ¶ 59. In addition, Section 7.3 of the Plan protects other benefits, in other benefit forms (e.g., early retirement subsidized benefits), to which an employee was entitled under the prior formula. Accordingly, for any participant ­ regardless of age ­ the participant's previously accrued benefit is protected. DFF ¶¶ 61-62. At retirement, or upon termination of employment, a participant is entitled to his or her account balance if he or she elects to receive benefits in the form of a lump sum. Alternatively, a participant can elect to receive benefits in one of several other forms available, including a single life annuity (stream of monthly payments payable for life) or a joint and survivor annuity (stream of monthly payments for life, with additional payments payable to a spouse for the life of the spouse). DFF ¶ 63. IV. COMMUNICATIONS REGARDING FREEZING ACCRUALS UNDER PART A, THE CREATION OF PART B, AND THE PRECISE AMOUNTS IN PARTICIPANTS' PART B ACCOUNTS. In November 1997, before the cash balance plan was implemented, CIGNA published a newsletter advising participants that benefit accruals under Part A would be frozen for certain participants effective January 1, 1998 pending the adoption of the cash balance plan. DFF ¶¶ 1669. CIGNA also distributed Retirement Information Kits describing in detail how the cash balance plan would work and how opening account balances would be calculated. DFF ¶¶ 170- 11 -

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90. The Plan Administrator for the Plan published an SPD that was provided to employees and put into new hire benefits binders (binders that also contained descriptions of CIGNA's other benefit plans). DFF ¶ 205. On an annual basis, CIGNA also sent (and continues to send) personalized statements to each participant indicating the amount of his or her account balance at the end of the year and how much that account balance changed from the prior year (as well as certain other information). DFF ¶¶ 206-10. Separately, CIGNA provided employees with an annual Total Compensation Report indicating their account balance, the approximate annuity benefit to which the employee was entitled, and other details to assist in retirement planning. DFF ¶¶ 211-18. In more recent years, CIGNA has published its SPD on its intranet and has developed a web-based system for participants to view their account balance and obtain benefit estimates on-line. DFF ¶¶ 220-21. ARGUMENT I. JUDGMENT SHOULD BE ENTERED IN FAVOR OF DEFENDANTS ON COUNT 3 BECAUSE PART B IS NOT AGE DISCRIMINATORY. A. Part B Treats Older Employees At Least As Well As It Treats Younger Employees.

The Court should enter judgment in favor of Defendants on Count 3 because Part B is not age discriminatory. To the contrary, benefits under Part B, and the accrual of those benefits, increase with age. While the interest credit rate under Part B is the same for all participants, regardless of age, the benefit credit rate is the same or higher for older employees than similarly situated younger employees. DFF ¶ 45. As a result, the account balance of an older employee will be the same as or higher than the account balance of a younger employee with the same service and salary at every point in time. In other words, in any given year, the older employee's benefit will equal or exceed the benefit payable to a similarly situated (i.e., same salary history

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and years of service) younger employee. DFF ¶ 48. This result, of course, cannot be described as age discriminatory. Notwithstanding that Part B on its face does not discriminate against older employees, Plaintiffs engage in twisted math and contorted statutory construction to construe this agefavored plan design as if it discriminates against older employees. Specifically, Plaintiffs' entire argument that Part B is age discriminatory is based on the meaningless comparison of the annuity values at normal retirement age (age 65) of an older and younger participant. For example, Plaintiffs argue that Part B is age discriminatory by comparing the annuity payment that a 50-year-old will get in 2021 (when he or she turns 65) against the annuity payment that a 35-year-old will get in 2036 (when he or she turns 65). See Pls' Trial Brief at 19-22. Such a comparison makes no sense because the 50 year-old's benefit is paid out 15 years earlier than the 35-year old's benefit, and therefore has 15 years fewer to accumulate interest. This is not age discrimination; it merely reflects the time value of money.6 The fact that the younger and older participants can elect to receive their benefits at the same time and, if they do so, the older employee will receive the same, or more, money than the younger employee, drives home this point. DFF ¶ 100. An example also illustrates the point. Consider two employees who started work at CIGNA at the beginning of 1998 when the cash balance conversion occurred ­ Employee Y,

6

See, e.g., Metz v. United Techs. Corp., 754 F.2d 63, 66 (2d Cir. 1985) ("[I]n computing the damages recoverable for the deprivation of future benefits, the principle of limiting the recovery to compensation requires that adequate allowance be made, according to circumstances, for the earning power of money; in short, that when future payments or other pecuniary benefits are to be anticipated, the verdict should be made up on the basis of their present value only.")(citations omitted); Jones & Laughlin Steel Corp. v. Pfeifer, 462 U.S. 523, 536-37 (1983) ("In all cases where it is reasonable to suppose that interest may safely be earned upon the amount that is awarded, the ascertained future benefits ought to be discounted in the making up of the award.") (internal quotations omitted).

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who was age 45 at the time, and Employee O who was age 50. Assume that both employees receive the same salary until the end of 2002 (assumed to be $30,000 in 1998 and growing 4.5% each year) and then leave for other jobs. During the five-year period, both employees will receive the same pay credits (based on 5% of pay since all of their pays will be under the social security integration level), the same interest credits (based on the actual rates in effect those years) and the same account balance. The table below, which applies equally to both employees, shows the development of their pay credits, interest credits and account balances as of the end of each year. 7 Year 1998 1999 2000 2001 2002 2012 2017 DFF ¶ 101. At the end of 2002, both employees have the same account balance of $9,084. Employee Y is then age 50 and Employee O is age 55. Assume that the account balances, if left untouched, will grow at a 4.5% interest-crediting rate (the minimum under Part B) as follows: Year 2002 (both depart) 2012 (Employee O turns 65) Account Balance (rounded) $ 9,100 $14,100 Pay 30,000 31,350 32,761 34,235 35,776 --Pay Credits 1,500 1,568 1,638 1,712 1,789 --Interest Credits 0 72 195 296 314 5,023 3,473 Account at End of Yr. 1,500 3,140 4,973 6,981 9,084 14,107 17,580

7

For simplicity of illustration, the table adds interest credits at the end of the year.

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2017 (Employee Y turns 65) DFF ¶ 101.

$17,600

Plaintiffs' methodology compares the $14,100 "age 65 benefit" that the older employee will have in 2012 with the $17,600 "age 65 benefit" that the younger employee will have in 2017. Pls' Trial Brief at 29-31. Because $17,600 is nominally larger than $14,100 (although not more valuable given the time value of money), Plaintiffs suggest that age discrimination results and that the younger employee had a higher rate of benefit accrual than the older employee from 1998 through 2002.8 This analysis is nonsensical and not consistent with, let alone compelled by, the terms of the statute upon which Plaintiffs rely. Specifically, the statute that Plaintiffs claim Part B violates is ERISA Section 204(b)(1)(H)(i), which provides in relevant part that: a defined benefit plan shall be treated as not satisfying the requirements of this paragraph if, under the plan, an employee's benefit accrual is ceased, or the rate of an employee's benefit accrual is reduced, because of the attainment of any age. 29 U.S.C. § 1054(b)(1)(H)(i). Plaintiffs root their entire analysis in the premise that this provision unambiguously requires that age discrimination be tested based exclusively on a comparison of age-65 annuity benefits. Admittedly, two courts have agreed with this premise and have found that cash balance plans are per se age discriminatory and illegal. See Cooper v. IBM Pers. Pension Plan, 274 F.

8

For ease of illustration, the example speaks of a 45-year-old and a 50-year old who are two different people. While ERISA Section 204(b)(1)(H)(i) does not seem to require a comparison of an employee's rates of benefit accrual to those of any other employee, the same principles apply if one analyzes a single individual at different ages. Unless one discounts the benefits accrued by an individual at various ages to present value in the year the benefit is earned, comparisons are distorted by the time value of money. Indeed, one might see a declining accrual pattern simply because a dollar invested in 2000 is worth more than a dollar invested in 2010. DFF ¶ 102.

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Supp. 2d 1010 (S.D. Ill. 2003); FleetBoston, F. Supp. 2d at 150. Several other courts, however, have disagreed, and have correctly rejected claims that cash balance plans are age discriminatory. See Eaton v. Onan, Corp., 117 F. Supp. 2d 812 (S.D. Ind. 2000) (rejecting claim that cash balance plan design is age discriminatory); Tootle v. ARINC, Inc., 222 F.R.D. 88 (D. Md. 2004) (same); Register v. PNC Fin. Servs., Group, No. 04-6097, 2005 WL 3120268 (E.D. Pa. Nov. 21, 2005) (same); Engers v. AT&T Corp., No. 98-3660, 2001 U.S. Dist. LEXIS 25889 (D.N.J. June 6, 2001) (same); Hurlic v. S. Cal. Gas Co., No. 05-5027 (C.D. Cal. Mar. 24, 2006) (attached as Exhibit A). With due respect to the Cooper and FleetBoston judges, and as explained below, ERISA Section 204 does not compel the analysis and absurd results that Plaintiffs advocate. B. Plaintiffs' Argument That ERISA Section 204(b)(1)(H)(i) Requires Comparisons Of Age-65 Annuity Benefits Is Wrong.

Plaintiffs' interpretation of ERISA Section 204(b)(1)(H)(i) requires stringing together three leaps of faith and strained statutory construction. More specifically, Plaintiffs' argument requires: · that the phrase "rate of an employee's benefit accrual" in ERISA Section 204(b)(1)(H)(i) must mean the exact same thing as the term "accrued benefit," a specifically defined term under ERISA Section 3(23), 29 U.S.C. § 1002(23); · that the term "accrued benefit" be limited to a benefit expressed as an age-65 annuity; and · that age-65 annuity benefit differences are attributable to age discrimination, as opposed to the number of years until the benefit will be paid and the time value of money. Plaintiffs argue that if the Court agrees with these premises, then it must find that Part B (and effectively all other cash balance plans) are illegal. See Pls' Trial Brief at 17-31. Each of these premises, however, is wrong as a matter of law. - 16 -

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1.

The Phrase "Rate Of An Employee's Benefit Accrual" Does Not Refer To The "Accrued Benefit."

First, the phrase "rate of an employee's benefit accrual" in ERISA Section 204(b)(1)(H)(i) is not the same thing as the defined term "accrued benefit" under ERISA Section 3(23), 29 U.S.C. 1002(23). To the contrary, when Congress intended to refer to the accrued benefit in ERISA, it used the words "accrued benefit" in the statute. See, e.g., 29 U.S.C. §§ 1053, 1054, 1055. Similarly, when Congress intended to refer to the annual rate of change in an age-65 annuity benefit, it explicitly said so. For example, ERISA Section 204(b)(1)(B) ­ another part of the same statutory provision at issue here ­ explicitly refers to the "accrued benefit payable at the normal retirement age" and requires testing of "the annual rate at which any individual . . . can accrue the retirement benefits payable at normal retirement age . . . ." 29 U.S.C. § 1054(b)(1)(B) (emphasis added). The fact that Congress did not use the phrase "accrued benefit" or benefits "payable at normal retirement age" in Section 204(b)(1)(H)(i), but instead chose to use different words ­ "benefit accrual" ­ reflects that Congress intended a different meaning.9 See Barnhart v. Sigmon Coal Co., Inc., 534 U.S. 438, 452 (2002) ("[I]t is a general principle of statutory construction that when Congress includes particular language in one section of a statute but omits it in another section of the same Act, it is generally presumed that Congress acts intentionally and purposely in the disparate inclusion or exclusion.") (internal quotations omitted); United States v. Gaggi, 811 F.2d 47, 56 (2d Cir. 1987) ("We presume that

9

The above-quoted statute is instructive specifically because it differs so markedly from the language in Section 204(b)(1)(H)(i), the provision at issue in this case. Had Congress intended Section 204(b)(1)(H)(i), to be tested the same way the backloading rules are tested, Congress could have used the same language, or could at least have added the phrase "payable at normal retirement age" to Section 204(b)(1)(H)(i), as it did with the backloading rules. That different language was used ­ "rate of benefit accrual" and without any reference to when the benefit was payable ­ confirms that a different meaning was intended.

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the use of different terminology within a body of legislation evidences a Congressional purpose to differentiate."). Unlike the term "accrued benefit," the phrase "rate of an employee's benefit accrual" has no specific definition under ERISA. Thus, the Register, Eaton and Tootle courts relied on the consequences of different interpretations, economic principles and applicable legislative history, and rejected the argument that "accrued benefit" under ERISA unambiguously and necessarily means the same thing as "benefit accrual." See Register, 2005 WL 3120268, at *6 ("ERISA does not define the `rate of an employee's benefit accrual' for purposes of applying the ERISA age discrimination provisions."); Eaton, 117 F. Supp. 2d at 829-30 ("[T]hese provisions [Section 204(b)(1)(H)(i)] do not require a measure of a participant's rate of benefit accrual that is based solely on the value of the participant's annuity payable at normal retirement age."); Tootle, 222 F.R.D. at 93-94 (same). As will be explained at trial, there are many different ways to measure the rate at which benefits are accrued under a plan, depending on the purpose for which the measurement is taken and the type of plan at issue. The Eaton court held: The concept of the "benefit accrual rate" does not have a single, self-evident meaning, especially in the world of pension plan regulation. The term is used and defined in different ways and for different purposes under ERISA and the Internal Revenue Code. 117 F. Supp. 2d at 830 (also collecting examples); see also Register, 2005 WL 3120268, at *7 (same).10

10

The Eaton court further held: The argument distinguishing between "accrued benefit" and "rate of benefit accrual" may seem like pretty fine hair splitting. Nevertheless, pension law is a highly technical field where hairs are split with ever finer razors. continued . . .

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Because of the nature of cash balance plans, the Register, Eaton, and Tootle courts held that age discrimination claims involving a cash balance plan must be examined by looking at changes to the account balance from year to year. See, e.g., Register, 2005 WL 3120268, at *7 ("Cash balance plans are not defined in terms of an age-65 annuity, rather they are defined in terms of an account balance that grows with pay credits and interest. Therefore, it follows logically that the rate of benefit accrual is determined by the change in the account balance."); Eaton, 117 F. Supp. 2d at 832-33 ("[T]he rate of benefit accrual [in a cash balance plan] should be defined as the change in the employee's cash balance account from one year to the next."); Tootle, 222 F.R.D. at 94 (same). Such a comparison reflects the actual economic benefit provided to older and younger participants and demonstrates whether an older participant is better or worse off than a similarly situated younger participant. Applying this test to Part B confirms that there is no age discrimination. See supra at 12-16. The legislative history behind Section 204(b)(1)(H)(i) demonstrates that Congress's principal, if not, exclusive, purpose in enacting the statute was to protect employees who continued to work after normal retirement age. See Eaton, 117 F. Supp. 2d at 826-29 ("[The legislative history] provides considerable support for defendants' argument that Congress did not intend for the pension age discrimination provisions to apply to the rate of benefit accrual for participants under the age of 65.").11 If Congress was concerned about protecting employees who work after normal retirement age, it would make no sense to interpret the provision to
117 F. Supp. 2d at 830 n.8 (internal parenthetical omitted).
11

See also Tootle, 222 F.R.D. at 93 ("[L]egislative history and statutory language provide strong evidence that [ERISA's age discrimination provisions are] not intended to protect workers until after they have attained normal retirement age."); Engers, 2001 U.S. Dist. LEXIS 25889, at *10 ("[I]t is clear to this court that . . . Congress intended both the ADEA and ERISA provisions [ ] to apply only to those employees who continue to work after the normal retirement age of sixty-five.").

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require testing based exclusively on benefits payable at normal retirement age, as Plaintiffs suggest. Moreover, when Congress enacted Section 204(b)(1)(H)(i), it provided an example in the Conference Report of how the statute should work to ensure that plans were not discriminating. See Eaton, 117 F. Supp. 2d at 830, citing H.R. Conf. Rep. 99-1012, 1986 U.S.C.C.A.N. 3868, 4026. The Conference Report is "the most authoritative source[] on the meaning of legislation." Chen v. U.S. Dep't of Justice, 434 F.3d 144, 153 (2d Cir. 2006).12 Yet if Plaintiffs' interpretation of Section 204(b)(1)(H)(i) were correct, the example in the Conference Report would itself be illegal because the accrual formula described ­ when measured in terms of an age-65 annuity ­ actually decreases with age and would be illegal. Specifically, the first accrual described in the example is $10 per month at age 65. See H.R. Conf. Rep. 99-1012, 1986 U.S.C.C.A.N. 3868, 4026. The second accrual also is $10 per month, but to an age-66 annuity. See id. When this latter amount is converted to an age-65 annuity (as Plaintiffs' interpretation of Section 204(b)(1)(H)(i) would require), the amount is less than $10 per month, because $10 per month starting at age 66 is worth less than $10 per month starting at age 65. This is due to the additional year of payout of the benefit from age 65 to age 66. See Eaton, 117 F. Supp. 2d at 830. The same is true with the third accrual of $10 per month at age 67, because that is less than $10 per month at age 66 (and even less per month at age 65). See id. As the Eaton court explained:

12

See also Thornburg v. Gingles, 478 U.S. 30, 43 n.7 (1986) ("We have repeatedly recognized that the authoritative source for legislative intent lies in the Committee Reports on the bill."); United States v. Awadallah, 349 F.3d 42, 54 (2d Cir. 2003) ("[T]he authoritative source for finding the Legislature's intent lies in the Committee Reports on the bill, which represen[t] the considered and collective understanding of those Congressmen involved in drafting and studying proposed legislation.") (citations and internal quotation marks omitted).

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Under plaintiffs' interpretation of the statutes, however, if benefit accruals after normal retirement age must be measured in terms of annuities payable at normal retirement age, i.e., in a year before the benefit accruals are earned, then the example in the Conference Report itself would become illegal! . . . Yet the OBRA 1986 Conference Report included this example to describe the intended effect of compliance with the new law. Plaintiffs' interpretation would transform that example of compliance into an example of a violation. That is a strong sign that there is a problem with plaintiffs' interpretation. Id. (emphasis added, internal citation omitted). These same mathematical principles, under Plaintiffs' interpretation of ERISA Section 2004(b)(1)(H)(i), would cause the accrual pattern for many common and traditional defined benefit plans to be age discriminatory with respect to benefits earned by employees who work after normal retirement age. Indeed, even traditional career pay plans and final average pay plans (the most common plan designs for non-union employees in the United States) would be age discriminatory under Plaintiffs' approach for accruals after age 65. Likewise, Plaintiffs' construction of Section 204(b)(1)(H)(i) would render certain types of contributory defined benefit plans (plans that are specifically authorized in ERISA Section 204(c)(2), 29 U.S.C. § 1054(c)(2)) illegal because the age-65 annuity benefit in such plans is affected by the number of years to payout of the benefit. DFF ¶ 125. These absurd results demonstrate that Plaintiffs' interpretation of Section 204(b)(1)(H)(i) cannot stand.13

13

See United States v. Am.Trucking Ass'ns, 310 U.S. 534, 542-44 (1940) ("When [a literal interpretation of a statute] has led to absurd or futile results, however, this Court has looked beyond the words to the purpose of the act. Frequently, however, even when the plain meaning did not produce absurd results but merely an unreasonable one plainly at variance with the policy of the legislation as a whole this Court has followed that purpose, rather than the literal words.").

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2.

The Term "Accrued Benefit" Does Not Require That It Be Expressed In The Form Of An Age-65 Annuity.

Second, contrary to the premise of Plaintiffs' argument, even if the term "benefit accrual" was the same as the term "accrued benefit," there is no reason that such a benefit must be expressed in the form of an age-65 annuity. ERISA Section 3(23) defines "accrued benefit" as "the individual's accrued benefit determined under the plan and, except as provided in section 1054(c)(3) of this title, expressed in the form of an annual benefit commencing at normal retirement age." 29 U.S.C. § 1002(23)(A) (emphasis added). 29 U.S.C. § 1054(c)(3), in turn, provides: For purposes of this Section, in the case of any defined benefit plan, if an employee's accrued benefit is to be determined as an amount other than an annual benefit commencing at normal retirement age. . . the employee's accrued benefit . . . shall be the actuarial equivalent of such benefit. 29 U.S.C. § 1054(c)(3) (emphasis added). Thus, ERISA specifically permits an accrued benefit "to be determined as an amount other than an annual benefit commencing at" age 65. Id. Moreover, "[i]t is a cardinal principle of statutory construction that a statute ought, upon the whole, to be so construed that, if it can be prevented, no clause, sentence, or word shall be superfluous, void, or insignificant." TRW Inc. v. Andrews, 534 U.S. 19, 31 (2001) (internal quotations omitted); Duncan v. Walker, 533 U.S. 167, 174 (2001) (same). Yet, Plaintiffs' assertion that the "rate of an employee's benefit accrual" in ERISA Section 204(b)(1)(H)(i) unambiguously refers to the normal (age-65) annuity benefit would render superfluous another provision of the same statute, ERISA Section 204(b)(1)(H)(v). That section provides that "the subsidized portion of any early retirement benefit [should be] disregarded in determining benefit accruals." 29 U.S.C. § 1054(b)(1)(H)(v) (emphasis added). If, however, the only way to measure benefit accruals is with reference to benefits payable at normal retirement age, as - 22 -

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Plaintiffs claim, then any reference to early retirement benefits is nonsensical and ERISA Section 204(b)(1)(H)(v) would be meaningless. In other words, there is no subsidized early retirement benefit to "disregard" if "benefit accruals" must, as Plaintiffs argue, be measured exclusively with respect to the annuity payable at normal retirement age. Such a contorted interpretation of the statute cannot stand. Indeed, when Congress intended to require parties to compare benefits payable at normal retirement age, it specifically said so in the statute. For example, ERISA's 133% "backloading" rules provide in relevant part that "[a] defined benefit plan satisfies the requirements of this paragraph of a particular plan year if under the plan the accrued benefit payable at the normal retirement age is equal to the normal retirement benefit." 29 U.S.C. § 1054(b)(1)(B) (emphasis added). If the term "accrued benefit" itself automatically requires that the benefit only be measured at normal retirement age, as Plaintiffs allege, the emphasized language in the statute ­ "payable at normal retirement age" ­ would be superfluous. Such a tortured interpretation is contrary to the canons of statutory construction. See TRW Inc., 534 U.S. at 31; Duncan, 533 U.S. at 174 (same). 3. Any Differences In The Age-65 Annuity Benefits Are Attributable To The Time Value Of Money And Differences In The Number Of Years To Payout Of The Benefit, Not "Because Of The Attainment Of Any Age."

Lastly, as explained previously, any unfavorable differential in the age-65 annuity benefit of an older participant compared to a younger participant is due exclusively to differences in the number of years to payout of the benefit and the time value of money. See supra at 13-16. Such differences are not "because of age." See Eaton, 117 F. Supp. 2d at 831 ("[T]he effects of the time value of money [are what] plaintiffs attack [in their 204(b)(1)(H) claim]." Indeed, as an economics matter, the interest earned in cash balance plans over time is no different than the - 23 -

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effects of interest on defined contribution plans, or of cost of living increases under the Social Security system. See id. Such economic realities are perfectly lawful in these contexts. The Eaton court explained that "[i]t is difficult to fathom why Congress might have wanted to outlaw similar effects under defined benefit plans." Id. Even the Cooper court ­ the court that found that cash balance plans were per se discriminatory ­ acknowledged that from an economic standpoint, its analysis made no sense: According to Defendants, it is economically nonsensical to compare a 25 year old employee's rate of benefit accrual with a 64 year old employee's rate of benefit accrual by reference to the age 65 benefit that each has accumulated, because the 64 year old employee is set to receive his benefit much sooner. Accordingly, § 204(b)(1)(H)'s phrase "rate of benefit accrual" should be interpreted to refer to benefits payable immediately upon termination of employment. From an economist's perspective, Defendants have a good argument. A dollar today is worth more than the promise of a dollar a year from now. 274 F. Supp. 2d at 1016. In short, regardless of how the rate of accrual is measured, Part B is not age discriminatory. Plaintiffs' claim in Count 3 therefore fails as a matter of law. C. The Treasury Department Has Consistently Endorsed Cash Balance Plans As Not Being Age Discriminatory.

Plaintiffs' interpretation of ERISA Section 204 (b)(1)(H)(i) also ignores the Treasury Department's repeated and consistent determination that cash balance plans are not inherently age discriminatory. The Second Circuit in Esden explained that a "consistent and reasonable interpretation by the responsible agency is entitled to deference, regardless of its form of publication." 229 F.3d at 169. See also Auer v. Robbins, 519 U.S. 452, 462 (1997) (agency's interpretation set forth in amicus brief was entitled to deference where "[t]here is simply no

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reason to suspect that the interpretation does not reflect the agency's fair and considered judgment on the matter in question"); Marcella v. Capital Dist. Physicians' Health Plan, Inc., 293 F.3d 42, 48 (2d Cir. 2002) ("Even though not formally promulgated as regulations, these opinion letters, as the views of the agency charged with implementing ERISA, are at least a body of experience and informed judgment to which courts and litigants may properly resort for guidance, and we have often relied on them for guidance.") (internal quotations and citations omitted). Here, the Treasury Department's endorsement of cash balance plans is clear: · In 1991, the Treasury Department published safe harbor regulations for

cash balance plans.14 See Treas. Reg. § 1.401(a)(4)-8(c)(3)(iii)(B). In the preamble to the regulations, the Treasury Department stated that "[t]he fact that interest adjustments through normal retirement age are accrued in the year of the related hypothetical allocation [i.e., the pay credit] will not cause a cash balance plan to fail to satisfy the requirements of section 411(b)(1)(H), relating to age-based reductions in the rate at which benefits accrue under a plan." 56 Fed. Reg. 47,524 (Sept. 19, 1991)(codified at 26.C.F.R. pt. 1). This is an explicit rejection of Plaintiffs' theory that cash balance plans are inherently age discriminatory because of the increased time that younger participants have to earn interest. · In 1996, the Treasury Department published IRS Notice 96-8, approving

cash balance plan designs with interest credits that accrue up-front (like Part B) and describing how lump sum benefits in a cash balance plan should be determined. See IRS Notice 96-8, Part III.A. The Treasury Department would not have issued rules describing how to calculate lump

14

The Second Circuit in Esden cited approvingly to these safe harbor regulations. 229 F.3d at 169-70.

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sums in a cash balance plan if its interpretation of ERISA would render all cash balance plans inherently illegal. · In 1999, IRS Chief Counsel Stuart Brown testified that interest credits

under cash balance plans do not cause these plans to violate Code Section 411(b)(1)(H), the Code's counterpart to ERISA Section 204(b)(1)(H). See Testimony before the Senate Committee on Health, Education, Labor and Pensions, 1999 TNT 183-11 (Sept. 21, 1999). · In 2002, the Treasury Department proposed regulations that squarely

rejected the notion that cash balance plans are inherently age discriminatory. See 67 Fed. Reg. 76,123-01 (Dec. 11, 2002)(codified at 26 C.F.R. pt. 1).15 · In its revenue proposals for 2005, 2006, and 2007, the Treasury

Department confirmed that "cash balance plans and cash balance plan conversions are not inherently age discriminatory."16 In short, as the Register court held, "[t]he Department of Treasury has consistently stated that cash balance plans are not age discriminatory." 2005 WL 3120268, at *7. That determination, which is consistent with the legislative history and the economic reality of the cash balance plan design, is entitled to deference.17

15

These proposed regulations have since been withdrawn and were replaced by the Treasury Department's legislative proposals, which also endorse cash balance plans, and which are noted in the following footnote. See Department of Treasury, General Explanation of the Administration's Fiscal Year 2005 Revenue Proposals 104 (2004); Department of Treasury, General Explanation of the Administration's Fiscal Year 2006 Revenue Proposals 82 (2005); Department of Treasury, General Explanation of the Administration's Fiscal Year 2007 Revenue Proposals 66 (2006). Plaintiffs mistakenly rely on the Treasury Department's interpretation of ERISA Section 204(h) (regarding certain disclosure requirements) to support their interpretation of the age discrimination prohibition in ERISA Section 204(b)(1)(H). See Pls' Trial Brief at 17-18. As explained previously, however, there are numerous ways to determine a rate of benefit accrual, depending on the purpose for which the rate is being measured. Obviously, ERISA's age discrimination provision has a different purpose than ERISA's Section 204(h) notice provision, so it is reasonable for the Treasury Department to interpret these two provisions differently, continued . . .

16

17

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D.

Richards v. FleetBoston Was Wrongly Decided.

Plaintiffs rely heavily on Judge Hall's recent decision in FleetBoston, in which she agreed with the holding of the district court in Cooper v. IBM that all cash balance plans are inherently age discriminatory. See FleetBoston, F. Supp. 2d at 163-64 (citing Cooper, 274 F. Supp. 2d 1010). Judge Hall explained the basis of her decision as follows: In light of the great similarity that this phrase [rate of benefit accrual] bears to the statutorily defined term "accrued benefit," and the fact that ERISA requires accrued benefit to be measured as an annual benefit commencing at normal retirement age for defined benefit plans, but requires accrued benefit to be measured as the balance of an individual's account for defined contribution plans, the term "rate of benefit accrual," as used in section 204(b)(1)(H)(i), refers to rate measured as a change in the annual benefit commencing at normal retirement age. The statute is unambiguous in this respect, and the court need not inquire further into its meaning. FleetBoston, F. Supp. 2d at 164. Defendants submit that Judge Hall's decision in FleetBoston was wrong for at least five reasons. First, Judge Hall offers no legal basis for her conclusion that "rate of benefit accrual" must mean the same thing as the specifically defined term "accrued benefit." As explained previously, Congress could have used the term "accrued benefit" in Section 204(b)(1)(H)(i) but did not do so. See supra at 17. Congress also could have required that ERISA's age

consistent with their respective (and different) purposes. Thus, although the Treasury Department may have determined that it was appropriate to measure rates of benefit accrual one way for purposes of ERISA Section 204(h) notice requirements, the Treasury Department has determined that a different interpretation is appropriate for purposes of ERISA's age discrimination provision. As the Eaton court held: The concept of the "benefit accrual rate" does not have a single, self-evident meaning, especially in the world of pension plan regulation. The term is used and defined in different ways and for different purposes under ERISA and the Internal Revenue Code. Eaton, 117 F. Supp. 2d at 830 (also collecting examples).

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discrimination provision be tested in the same manner as ERISA's anti-backloading rules by using the same language as in those rules, 29 U.S.C. § 1054(b)(1)(B). See supra at 17. It did not, and as discussed above, the agency charged with interpreting these different statutory phrases has declined to adopt the reading that was adopted in FleetBoston. See supra at 24-26. Second, Judge Hall's conclusion that, for purposes of testing compliance with ERISA, an "accrued benefit" must be "measured as an annual benefit commencing at normal retirement age," FleetBoston, F. Supp. 2d at 164 is wrong. As explained previously, 29 U.S.C. § 1002(23) (A) and 29 U.S.C. § 1054(c)(3) specifically authorize plans to measure an