Free Reply to Response to Motion - District Court of Colorado - Colorado

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Civil Action No. 03-cv-02671-RPM-OES JOHNNY WELLS, DONALD J. BROOKINS, and RILEY ANDREW SCHAEFFER, on behalf of themselves and all others similarly situated, Plaintiffs, vs. GANNETT RETIREMENT PLAN and GANNETT CO., INC. Defendants. ________________________________________________________________________ PLAINTIFFS' REPLY MEMORANDUM IN SUPPORT OF PLAINTIFFS' CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT _______________________________________________________________________

Plaintiffs respectfully submit this Reply Memorandum in Support of their CrossMotion for Partial Summary Judgment ("Plaintiffs' Motion"). I. INTRODUCTION The issues raised by Plaintiffs' Motion and Defendant's Motion for Summary Judgment ("Defendant's Motion") involve the application of one of the benefit accrual rules for defined benefit pension plans in the Employee Retirement Income Security Act, 29 U.S.C. § 1000, et seq. ("ERISA), to the Gannett Retirement Plan. The rule in question declares unlawful any defined benefit pension plan under which "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." ERISA §204(b)(1)H), 29 U.S.C. § 1054(b)(1)(H). The parties

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agree that the outcome of the case primarily turns on the Court's interpretation of the words "benefit accrual," as used by Congress in that subsection. This case presents the Court with a clear choice between two very different resolutions of that question of statutory interpretation. The Court could recognize and sustain the express distinctions Congress enacted throughout ERISA between defined benefit pension plans and defined contribution pension plans, by ruling that the words "benefit accrual" in subsection 204(b)(1)(H) pertain to the benefit that a defined benefit plan must provide to an employee at normal retirement age, i.e. the employee's "accrued benefit." Alternatively, the Court could ignore the ststutory distinctions between the teo categories of plans and conclude that, unlike the rest of the section 204 accrual rules for defined benefit plans, subsection 204(b)(1)(H) does not pertain to the benefit at normal retirement age, an employee has earned as of any point in time, and that the meaning of the words benefit accrual vary on an ad hoc basis depending upon the semantics used by the designers of a particular plan to describe the plan's bebefit formula. The facts pertinent to the resolution of that question are undisputed. Gannett does not dispute that the Gannet Plan is a defined benefit plan acknowledges that under the Plan's accrued benefit formula, the rate at which Gannett employees accrue, a portion of their normal retirement benefits for each year of service decreases in direct proportion to the age an employee had attained when he began employment with Gannett. See Reply Declaration of Lawerence Sher in Support of Defendants' Motion for Summary Judgment and in Opposition to Plaintiffs' Cross-Motion for Summary Judgment, at ¶'s 3 and 4. Plaintiffs submit that the Plan therefore on its face violates the prohibition against

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any age-based "decrease in an employee's rate of benefit accrual" contained in subsection 204(b)(1)(H). That subsection is applicable to all defined benefit plans and can have only one meaning with respect to all such plans. The focus of the other benefit accrual rules for defined benefit plans in ERISA section 204, and indeed the touchstone of all of ERISA's rules governing defined benefit plans, is the accrued benefit to which an employee is entitled at normal retirement age. Thus, the words "benefit accrual" in subsection 204(b)(1)(H) necessarily must refer to that same accrued benefit at normal retirement age. Gannett, by contrast, asks the Court to abandon the clear-cut distinctions between defined benefit and defined contribution plans that Congress established in ERISA. Gannett would have the Court reach the conclusion that in testing the compliance of Gannett's defined benefit plan with the statute, subsection 204(b)(1)(H) should be interpreted to mean the same thing as the ERISA anti-discrimination rule for defined contribution plans contained in ERISA subsection 204(b)(2) That subsection prohibits age-based reductions in the rate at which amounts are added to an employee's defined contribution account each year. Under Gannett's erroneous proposed interpretation, the words "rate of an employee's benefit accrual" in subsection 204(b)(1)(H) would be read to have the same meaning as the words "rate at which amounts are allocated to an employee's account" that appear in subsection 204(b)(2). Thus, argues Gannett, Congress used two entirely different phrases to mean the same thing, and the rule for defined benefit plans in subsection 204(b)(1)(H) applies not to the accrued benefit at retirement promised to

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employees under the Plan, but instead to the lump-sum payment that an employee can receive if he elects to leave Gannett before reaching normal retirement age. Neither the words of the statute nor the arguments advanced by Gannett in its Reply Memorandum in Support of Motion for Summary Judgment and in Opposition to Plaintiffs' Cross-Motion ("Gannett Response") support its proposed interpretation. Accordingly, Plaintiffs' Cross-Motion for Partial Summary Judgment should be granted. II. DISCUSSION

Under the express Accrued Benefit formula set forth in Section 2.01 of the Plan, the amount of the accrued benefit earned each year by a plan participant, as a percentage of their annual earnings, is directly dependent upon the age of the participant when he began employment. That annual rate of benefit accrual decreases the older an employee was when he commenced work. This aged-based disparity in the benefit earned for each year of service under the plan exists for all participants whose benefits are computed under the Plan formula, regardless of whether they were participants under the Plan prior to its 1998 adoption of the Pension Equity Formula or became participants after that date. Plaintiffs submit that this undeniable age-based disparity in annual benefit accruals violates the prohibition against reduction in the rate of an employee's benefit accruals contained in ERISA section 204(b)(1)(H). Gannet attempts to respond to these undisputed facts in several mistaken ways. First, Gannett urges the Court to adopt the conclusions reached in several Court of Appeals decisions involving "cash balance" plans and apply them to its Pension Equity Plan, despite the fact that Gannet Plan is not a cash balance plan, and in fact differs markedly from such a plan with respect to how benefits accrue. Second, Gannet argues,

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largely on the basis of those same cash balance plan decisions, that the defined benefit plan accrual rule in section 204(b)(1)(H) does not pertain to the periodic increase in the accrued benefit promised to employees by the Plan upon their retirement. Rather, Gannett claims that the phrase "rate of benefit accrual" refers to the "inputs" it makes to the an employee's "Basic Retirement Amount" in the form of Pension Equity Percentage Points. [Response at 7.] Finally, Gannett contends that the immediate lump-sum benefit available to early retirees under the Plan's Basic Retirement Amount formula, rather than the Accrued Benefit, is the proper focus for measuring the rate of benefit accrual under the Plan.1 None of these arguments withstand analysis. A. The Gannett Plan Accrued Benefit Formula Is Uniquely AgeDiscriminatory. A cornerstone of Gannett's opposition to Plaintiffs' Motion is its reliance on the conclusions reached by the Seventh Circuit Court of Appeals in Cooper v. IBM Personal Pension Plan, 457 F.3d 636 (7th Cir. 2006) and subsequent decisions by other courts adopting its reasoning.2 In those cases, the courts likened the cash balance pension plan formulas under scrutiny to defined contribution pension plans and erroneously concluded that with respect to those plans, section 204(b)(1)(H) means the same thing as the ERISA age discrimination prohibition that applies to defined contribution plans. Applying that standard, which requires that the dollar amounts of the "allocations" to an employee's
1

Indeed, where Gannett's Response discusses benefit accrual or the accrual of benefits under the Plan, it does so with reference to this lump-sum benefit, not to the actual accrued benefit at normal retirement age provided by the Plan. [See, e.g. Response at p. 3 (the statute "requires no more than equal rates of benefit accrual for similarly situated older and younger employees."); p. 9 (employees with the same years of service "regardless of their age, accrue benefits, or `Basic Percentage Points'" at equal rates."). p. 10 (the "pattern of benefit accrual is identical for all similarly situated employees")]. These pronouncements of course beg the question of what "benefit" is relevant for determining the rate of benefit accrual under section 204(b)(1)(H). 2 In addition to the Cooper decision, Gannett cites to and heavily relies upon the subsequent cash balance plan decisions in Register v. PNC Fin. Servs. Group, Inc. 477 F.3d 3d Cir. 2007) and Drutis v. Rand McNally & Co. , 499 F.3d 608 (6th Cir. 2007).

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individual defined contribution account be age neutral, the courts concluded that the cash balance formulas in those plans did not violate ERISA . This Court should not follow Cooper and its progeny here for at least two reasons. For one, as is discussed below in Section II.B., Cooper's outcome- driven conclusions erase the carefully crafted distinctions between defined benefit and defined contribution plans that Congress made throughout ERISA's many compliance requirements. No principled basis exists for the illogical approach to statutory interpretation taken in those decisions to equate the two separate statutory requirements that exist for the two categories of plans. But at an even more basic level for this Court's consideration of the issues here, the cash balance cases Gannett relies upon, and the rationale underlying those decisions, are at best of marginal relevance to the Gannett Plan. Gannett repeatedly seeks to avail itself of the conclusions reached in Cooper, Register, and Drutis by describing both its Pension Equity Plan and the cash balance plans at issue in those cases as "hybrid" plans and intimating that they share the same characteristics and should be subject to the same analysis in connection with section 204(b)(1)(H). However, the cash balance plan formulas that formed the bases for the plaintiffs' claims in Cooper, et al, all were fundamentally different from the Pension Equity formula at issue here. Under a cash balance plan formula, an employee's benefit is stated in reference to a hypothetical cash balance account that is comprised of two components. See, e.g. Register, 477 F.3d at 62.3
3

In its Response, Gannett faults Plaintiffs for failing to provide any "evidentiary support" for the proposition that the pension "plan at issue in Cooper is a `cash balance' formula as opposed to a `pension equity formula'" or "to support their bare assertion that the Plan differs from the cash balance plan in a legally significant way." [Resp. at 19-20]. Plaintiffs would have thought it self-evident from the Cooper opinion itself that it involved a cash balance plan formula, rather than a pension equity formula. It and the numerous other cash balance plan decisions cited by Gannett describe the workings of those cash balance formulas, which should obviate any need for the introduction of "evidence" here about those formulas.

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The first is an annual "pay credit" calculated at a stated percentage of the employee's earnings for the year. Id. The second is an annual "interest credit," which involves the addition to the account of hypothetical "interest" on the account balance at an interest crediting rate specified by the plan. Id. As all three Court of Appeals decisions emphasized, the existence of these interest credits, and the need to project them to a participant's normal retirement age to determine the amount of their accrued benefit at any point in time, gave rise to the claims that those plans violated section 204(b)(1)(H). Thus, the Cooper court noted: Much of the plaintiffs' argument rests on the idea that the account of a 25year-old worker does not get 5% plus periodic interest, but instead is immediately credited with 5% of salary plus 40 years' interest. That makes the contributions look discriminatory: the 25-year-old worker's account receives 40 times as much interest credit in the year the contributions accrue as a 65-year-old worker's account. 457 F.3d at 640. The decision in Register also focused on the significance of the interest credits provided by the cash balance formula: Appellants contend that the PNC plan is discriminatory because interest credits used to determine the annuity are based on future interest credits projected through the participant's normal retirement date. As such, they allege in their amended complaint that the interest credits decrease in value as participants move closer to the normal retirement date. 477 F.3d at 64. Finally, the Court in Durtis reiterated the significance of the cash balance plan's projected interest credits with respect to the plaintiffs age-discrimination claims: Because younger employees necessarily have a longer period of time before they reach age 65, the projected interest credits are necessarily larger because the projection includes a longer period of compound interest. As the Seventh Circuit, the first court of appeals to address this issue, explained in Cooper v. IBM Personal Pension Plan, it is the
Evidence of the mechanics of Gannett's Pension Equity Plan formula already is provided by the Plan document, which Gannett already had put into the record. The fact that there are "differences" between the formulas can readily be discerned from those sources. Whether those differences are "legally significant" is a question for the Court, not a question of fact upon which Plaintiffs could submit "evidence."

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difference in the value of the projected interest credits attributable to each employee that can lead to the mistaken belief that cash balance plans discriminate based on age. 499 F.3d at 613. Of even more significance is the fact these courts relied upon the dual crediting of both annual pay credits and annual interest credits to an employee's hypothetical cash balance account as support for their conclusion that the plans should be subject to the same age-discrimination standard as would apply to a defined contribution plan, where the benefit is comprised of the employer's annual contribution to the employee's account and the earnings and/or that have accumulated on those contributions. As the Cooper decision put it: "IBM's plan is economically identical to a defined-contribution plan funded the same way and invested in a bond fund that returns 1% above the Treasury rate." 457 F.3d at 637. Accordingly, the court rationalized that "if the 5%-plus-interest formula is non-discriminatory when used in a defined-contribution plan, why should it become unlawful because the account balances are book entries rather than cash?" Id. at 638. The court in Register was even more emphatic on the point: The effect of the cash balance design that appellants challenge (the accumulation of interest) is identical to the accumulation of interest on employer contributions under defined contribution plans. Accordingly, employer contributions in both instances ultimately are more valuable when those contributions are made to younger employees as the contributions have a longer time to grow. ... [T]he similarities of the antidiscrimination provisions governing defined benefit and defined contribution plans suggest that Congress was not seeking to prohibit the consequences of the time value of money in either circumstance. 477 F.3d at 69. Thus the role of the "interest credits" in the cash balance plans before those courts was of considerable legal significance for the conclusions.they reached.

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In contrast to cash balance plans, where the age-65 accrued benefit is equal to the accumulated pay and interest credits in a cash balance account, the Gannet Plan provides for benefits under an accrued benefit formula that involves no crediting or compounding of "interest." Neither does the Plan's alternative "Basic Retirement Account" formula, which Gannett attempts to equate both with cash balance plan accounts and with the individual accounts of employees under a defined contribution plan. Indeed, the Basic Retirement Amount formula involves only the crediting of "Points," not benefit dollars, to a participant's hypothetical account. The actual dollar value of the points credited in any particular year is dependent upon what the participant's average earnings have been during the 5 years prior to the distribution of the benefit. In contast, under cash balance plans, which are career average rather than final average pay plans, the hypothetical pay credits the employer "contributes" to a participant's hypothetical cash balance account have a specific dollar amount. In even further contrast, under a defined contribution plan the employer allocates real dollars to a participant's real, rather than virtual, individual account Accordingly, unlike the claims in the cash balance cases Gannett relies upon, Plaintiffs' claims here have nothing to do with the "accumulation of interest." Plaintiffs' claims here stem from the inherent, and undisputable, age-based disparity in the Accrued Benefit earned each year by employees under the Pension Equity Plan.4 In its Response, Gannett does its best to downplay the nature of this disparity. The evidence before the Court, however, amply demonstrates and specifically quantifies

4

Plaintiffs are aware of only one reported decision regarding the compliance of a Pension Equity Plan with section 204(b)(1)(h) ­ the District Court decision in Cooper v. IBM, which concluded that the Pension Equity Formula used by the IBM Plan prior to its adoption of its cash balance plan violated the statute. 274 F.Supp.2d 1010 (S.D.Ill. 2003). The portion of the District Court decision invalidating IBM's pension equity plan was not appealed, because IBM settled that claim with the class, and the court's summary judgment ruling in favor of the plaintiffs on that claim still stands.

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it. The computation of the age-65 retirement benefit an employee has accrued as of any point in time flows from the interplay of four factors: 1) the employee's average earnings over the prior 5 years, 2) the number of years the employee has been employed by Gannett, and the corresponding number of "Pension Equity Percentage Points" the employee has earned during the years, 3) the number of Pension Equity Percentage Points the employee could earn during the future years of "potential" service the employee could complete before reaching his normal retirement age of 65, and 4) the application of an age-65 annuity factor. With respect to any two similarly situated employees who differ only as to age, the relevant variable in this formula is the manner in which the Percentage Points "earned" by the employees each year are used in the computation of the accrued benefit. Although the plan ostensibly provides employees with Basic Percentage Points on an age-neutral basis ­ 5 points per year during the first 10 years of service, 7 points per year during the second 10 years, and 9 points per year in each subsequent year ­ the manner in which the Percentage Points are used in the computation of an employee's accrued benefit is not so straightforward ­ nor is it age-neutral. An employee's accrued benefit at any point is based not on the actual number of Percentage Points earned at that point under the 5/7/9 formula, but on a pro rata portion of the total Percentage Points the employee could accumulate if he were to continue working for Gannett until age 65, which is an amount that depends directly upon how old the participant was when he began working for Gannett. Thus, an employee who began work at age 40 would have the potential to accumulate 165 points if he worked for 25 years to age 65, that is, 50 points during the

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first 10 years, 70 points during the second 20 years, and 45 points during the last 5 years. However, under the Plan's Accrued Benefit formula, the number of Percentage Points that would be used to compute his benefit after 10 years of service would not be the 50 Points he ostensibly had earned during that time. Instead, the formula deems him to have earned 1/25th of his 165 potential Points during each year of service, i.e. 6.6 Points per year, for a total of 66 Points after 10 years of service. His Accrued Benefit at that time is therefore equal to his average salary over the prior 5 years multiplied by .66% and divided by the applicable annuity factor. This methodology may seem harmless in the abstract, it is the source of the agebased disparity in benefit accruals inherent in the Plan. This can be seen by comparing the above employee to one who begins work with Gannett at the same time and at the same salary, but is only 30 years old at the time. The 30 year-old employee has the potential to receive a total of 255 Percentage Points if he remains employed for the 35 years between his commencement under the Plan and the time he reaches age 65, that is, 50 Points during his first 10 years, 70 during his second, and 135 during his last 15, when he receives 9 points per year. However, when his Accrued Benefit is computed after he and his older co-worker both have worked for 10 years, he will be deemed to have earned 1/35th of his 255 potential Points during each of those years, which amounts to 7.3 points per year for a total of 73 Points. His Accrued Benefit at that point is determined by multiplying his average salary during the previous five years by .73% and dividing the result by the same annuity factor. Thus, after 10 years of service together at the same salaries, the 40 year-old will have an Accrued Benefit computed on the basis of .66% of his salary while the 30 year-

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old will have an Accrued Benefit computed on the basis of .73% of his salary, resulting in an Accrued Benefit more than 10% lower for the older employee. That disparity, which continues throughout the two employees' tenures with Gannett, stems solely from the fact that one was older when he began employment. Unlike the discrimination in the cash balance plan cases Gannett invokes, the age-based disparity that exists under the Gannett Pension Equity Plan has nothing to with the crediting of interest to an employee's account or the projection of the future annual interest that will be earned on an employee's account balance. As the following charts show, such an age-based disparity in the number of Basic Percentage Points, and the resulting percent of earnings, used to compute an employee's Accrued Benefit exists to some degree with respect to any differently aged Gannett Plan participants, including those such as Plaintiffs who were participants in the Plan prior to the adoption of the Pension Equity Formula in 1998. The age-based disparity is most stark with respect to two employees who begin their employment with Gannet after adoption of the Pension Equity Formula. Table A shows the total potential Basic Percentage Points that could be earned by two otherwise similarly situated employees who began working at ages 24 and 54 respectively and continued working until normal retirement age, the number of years of potential years of service over which those potential points would be prorated under the Plan's Accrued Benefit formula, and the number of Percentage Points that would provide the basis for determining the annual increase in each employee's Accrued Benefit for each year of their service.5

5

The data in the following tables, other than the arithmetic calculation performed on the data that is shown in the bottom line of each table is contained in a report containing a series of sample benefit calculations performed by Gannett's actuaries in connection with this action and provided to Plaintiffs on December 1,

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Table A Age at Commencement of Employment Number of Basic Percentage Points that Potentially Could be Earned if Employment Continues to Age 65 (a) Potential Years of Service to Age 65 (b) Basic Percentage Points Earned for Each Year of Service (a/b) 24 54

309

57

41

11

7.5

5.2

In short, the benefit accrued for each year of service by the older employee will be computed using a percentage of earnings that is 2.3 percentage points lower than the percentage used to compute the benefit accrued by the younger employee at the same time. A similar disparity exists in the Basic Percentage Points used to compute the annual benefit accruals of employees such as Plaintiff Schaeffer who were participants in the Plan prior to the adoption of the Pension Equity Formula but did not qualify for the Transition Percentage Points provided to some employees under the new formula. Table B shows the same information that is contained in Table A for Schaeffer, who began his participation in the Plan at age 34.5, and an otherwise similarly situated employee who began participation at age 19.5.

2006. A copy of the report is attached as Exhibit C to the Declaration of Margaret A. Clemens in Support of Defendants' Motion for Summary Judgment filed on July 20, 2007.

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Table B Age at Commencement of Employment Number of Basic Percentage Points that Potentially Could be Earned if Employment Continues to Age 65 (a) Potential Years of Service to Age 65 (b) Basic Percentage Points Earned for Each Year of Service (a/b) 34.5 19.5

170

305

30.5

45.5

5.6

6.7

Schaeffer's annual benefit accrual is computed on the basis of only .56% of his earnings, while the younger employee's accrual is based upon .67% of his salary.6 Finally, even employees such as Plaintiffs Wells and Brookins, who were entitled to Transition Percentages under the new Plan formula, were credited with fewer Basic Percentage Points each year in the computation of their annual benefit accruals than were younger employees. Table C presents the same information contained in Tables A and B for Plaintiff Wells, who began participation in the Plan at age 35.75 and an otherwise similarly situated participant who began participation at age 29.75.

6

Schaeffer and the younger employee also will have a pro-rata portion of their Starting Percentages provided by the new Plan used in the computation of their annual benefit accrual. However, these Starting Percentages were provided to represent the value, as of January 1, 1998, of the benefit that had been accrued by employees under the prior Plan formula. The pro-rata portion of those Points earned back by employees for service after that date thus does not represent any new benefit that is being earned for such service. Even if those pro-rata Points are taken into account, though, the Points used to compute Schaeffer's annual benefit accrual work out to 6.9 each year and are still lower than the total of 7.1 Points per year that would be used to compute the younger employee's annual accrual.

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Table C Age at Commencement of Employment Number of Basic Percentage Points that Potentially Could be Earned if Employment Continues to Age 65 (a) Potential Years of Service to Age 65 (b) Basic Percentage Points Earned for Each Year of Service (a/b) 35.75 29.75

116.5

170.5

29.25

35.25

3

4.8

Here again, the Plans provides the older employee fewer Basic Percentage Points each year to be used in the computation of their benefit accrual for the year.7 The foregoing demonstrates that the rate at which a partcipant accrues his normal retirement benefits under the Gannett Plan decreases in direct proportion to the age at which he began employment. This systemic Plan characteristic bears no similarity to the benefit accrual patterns that existed in the cash balance plans considered in Cooper, et al.. Accordingly, no reason exists for the Court to apply the conclusions reached in those cases here. B. The Gannett Plan's Compliance with ERISA Section 204(b)(1)(H) Should be Determined on the Basis of the Accrued Benefit Provided under the Plan. The undisputed fact remains that under ERISA the Gannett Plan is a defined benefit pension plan. As such it is subject to the benefit accrual requirements established
7

As was the case with Schaeffer, Wells also will have Starting Percentage Points added to his potential Basic Percentage Points and will have a pro-rata portion of their Starting Percentages used in the computation of their annual benefit accrual. Because these Starting Percentages were provided to represent the value, as of January 1, 1998, of the benefit that had been accrued by employees under the prior Plan formula, the pro-rata portion of those Points earned back by employees for service after that date does not represent any new benefit that is being earned for such service.

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by statute for all defined benefit plans. As Plaintiffs discussed in their Motion, the salient characteristic of a defined benefit plan is that it entails a promise by the employer to pay qualified employees a specific, non-forfeitable benefit at normal retirement age on the basis of their years of service for the employer. See, e.g. Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, 440 (1999) (participants in a defined benefit plan "have a right to a certain defined level of benefits, known as `accrued benefits.'"). Because a defined benefit plan promises to provide this specific accrued benefit, the ERISA accrual rules for defined benefit plans naturally focus on that accrued benefit. Plaintiffs base their Motion on the proposition that, consistent with the array requirements for defined benefit plans Congress has established in ERISA, the "benefit" that is referred to in the phrase "rate of an employee's benefit accrual" in section 2049B)(1)(H) must be the employee's accrued benefit under the Plan. Because the rate at which employees accrue their accrued benefit under the Gannett Plan demonstrably decreases in relation to an employee's age, the Plan violates ERISA. In its Response, Gannett argues that Plaintiffs are wrong in asserting that section 204(b)(1)(H) applies to an employee's accrued benefit because the words "accrued benefit" and "rate of benefit accrual" do not mean the same thing.8 Of course they do not, and Plaintiffs have never contended that they do. The relevant inquiry is not whether the two phrases have the same meaning - it is whether the "benefit" referred to in the phrase "rate of an employee's benefit accrual" is the employee's accrued benefit at normal
8

Gannett attempts to support this argument by citation to one of the Drutis court's conclusions that Congress's use of the words "accrued benefit" in ERISA Section 102(23), which is the definition of the term "accrued benefit," and the different words "benefit accrual in 204(b)(1)(H) provided evidence that 204(b)(1)(H) was not intended to apply to an employee's accrued benefit. Apparently, under that strained analysis, 204(b)(1)(H) could only be interpreted to apply to the accrued benefit if Congress had used language expressly prohibiting age-based reductions in "the rate at which an employee's accrued benefit accrues." Reasoned statutory interpretation would not attribute such significance to Congressional use of less awkward phraseology.

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retirement age provided by a plan, as Plaintiffs assert, or can be any alternative benefit a plan might provide, which is the interpretation espoused by Gannett. Gannett argues that, with respect to its "hybrid" Pension Equity Plan, Congress intended the phrase to have the same meaning as the prohibition against age-based decreases in the "rate at which amounts are allocated to an employee's account" that imposed upon defined contribution plans by ERISA section 204(b)(2). Thus, contends Gannett, the prohibition contained in 204(b)(1)(H) applies to the immediate lump-sum benefit available to early retirees under the Plan rather the Accrued Benefit defined by the Plan. To support its contention that Plaintiffs are incorrectly interpreting the statute, Gannett points to the decisions in Cooper and cases that have followed Cooper that because cash balance plans are the functional equivalent of defined contribution plans they should be subject to the same "metrics" in assessing whether they discriminate on the basis of age. This line of argument contains several serious flaws. Most importantly, neither the Gannett Plan nor the referenced cash balance plans in fact "function" like defined contribution plans. Under a defined contribution plan an employer makes an actual annual allocation of funds to the employee's individual account, those funds can be invested and generate earnings, and the employee's "benefit" under the plan is the sum of those allocations and their earnings. See, e. g.,
Hughes Aircraft Co.

No such allocations

are made under the Gannett Plan, with the result thatthe "balances" in an employee's Basic Retirement Account do not generate any earnings for the employee. Employers fund defined benefit plans like the Gannett Plan based on the plan's projected benefit obligations and are subject to detailed and exacting funding rules under ERISA and the Internal Revenue Code. See ERISA § 4022. In contrast, employers fund

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defined contribution plans on the basis of annual allocations to employees' individual accounts, and accordingly, these plans are not subject to ERISA's complex minimum funding rules. 29 U.S.C.A. § 1081(a)(8). Finally, in the event of a defined contribution plan involuntary termination, , employees can immediately receive their existing account balances because the benefits provided by a defined contribution plan have been funded by the employer on a current basis. When a defined benefit plan, including a hybrid plan like Gannett's, involuntarily terminates with insufficient assets to pay the non-forfeitable benefits that have accrued under the plan, and is taken over by the Pension Benefit Guaranty Corporation, the employee's recovery is limited to an annuity based upon the employee's accrued age-65 benefit, not to any immediate lump-sum benefit that might have been available under an ongoing plan. See 29 C.F.R. PART 4022. Additionally, neither Gannett's Response nor the cases upon which it relies squarely address the numerous questions that arise regarding the scope of their conclusion that Congress intended the words "rate of an employee's benefit accrual" set forth in subsection 204(b)(1)(H) with respect to defined benefit plans to have the same meaning as the words "rate at which amounts are allocated to an employee's" defined contribution account used in subsection 204(b)(2) with respect to defined contribution plans. Did Congress intend the phrases to have the same meaning with respect to all defined benefit plans? If so, how does it apply to the thousands of defined benefit plans that do not provide a lump-sum benefit or any other benefit that even vaguely resembles the individual accounts established under a defined contribution plan? If not, did Congress merely intend the two phrases to have the same meaning with respect to defined benefit plans that a court decides are the functional equivalent of a defined contribution

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plan? If that indeed was the intent of Congress when it enacted the two subsections it could easily have made subsection 204(b)(2) applicable to "defined contribution plans and to defined benefit plans that are the functional equivalent of a defined contribution plan. The violence that Gannett's proposed interpretation does to the statute is highlighted by the fact that, in the absence of any express guidelines in the statute, a court (or an employer, or an employee) has no basis to determine what characteristics a defined benefit plan must have for it to be the functional equivalent of a defined contribution under Gannett's proffered interpretation of 204(b)(1)(H). To conclude that Gannett's interpretation is correct, this Court would have to conclude that Congress intended this complex determination be made by the courts on an ad hoc, plan by plan, basis, without guidance of any kind in the statute. Neither Gannett nor the courts that have adopted the "functional equivalence" approach for the interpretation of section 204(b)(1)(H) even acknowledge the utter implausiblity of this scenario. In fact, several district courts ruling on the compliance of a cash balance plan with 204(b)(1)(H) have reached similar conclusions about the flaws in the Cooper analysis and have declined to follow it. Parsons v. AT&T Pension Ben. Plan, Not Reported in F.Supp.2d, 2006 WL 3826694 (D.Conn. 2006); In re Citigroup Pension Plan ERISA Litigation, 470 F.Supp.2d 323 (S.D.N.Y. 2006); In re J.P. Morgan Chase Cash Balance Litigation, 460 F.Supp.2d 479 (S.D.N.Y. 2006).. There now is a significant split amongst district courts in the Second Circuit regarding the interpretation and application of section 204(b)(1)(H) in the cash balance plan context. The appeal in one of those cases, Hirt v. Equitable Ret. Plan for Employees, Managers & Agents, 441 F.Supp.2d 516

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(S.D.N.Y.2006), is pending before the Second Circuit Court of Appeals. No. 06 Civ. 4757 (filed Oct. 13, 2006). Clearly, not all courts consider Cooper to be "persuasive authority." C. THE IMMEDIATE LUMP SUM AVAILIBLE TO EARLY RETIREES UNDER THE GANNETT PLAN CANNOT PROPERLY BE USED AS THE MEASURE FOR THE RATE OF BENEFIT ACCRUAL UNDER SECTION 204(b)(1)(H). As a corollary to its argument that section 204(b)(1)(H) does not apply to the Accrued Benefit provided by the Plan, Gannett reiterates its contention that the Plan's compliance with the statute should be measured on the basis of the benefit received by employees who leave Gannett before reaching normal retirement age ­ an immediate lump-sum distribution of their balance under the Plan's Basic Retirement Amount ("BRA") formula. This BRA is determined by multiplying the the employee's average earnings by the PEP Percentage Points the employee has earned. Gannett argues that, prior to the time an employee reaches normal retirement age, this amount is always larger than the present value of the employee's Accrued Benefit. Therefore, argues Gannett, since this immediate lump-sum is the benefit that will be received by most employees, it should be the benefit considered under 204(b)(1)(H). The Court should reject this argument for several compelling reasons. First, Gannet's argument fails because it presupposes that the Court has concluded that 204(b)(1)(H) does not apply to the employee's accrued benefit. If the language of the statute establishes that Congress intended to prohibit age-based disparity with respect to the rate of benefit accrual and the accrued benefit promised to an employee by a defined benefit plan, the fact that the plan may offer some optional form of benefit that could be larger than the present value of the accrued benefit is of no consequence. Nor

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should the existence of such a benefit be a factor in determining the meaning of the phrase "rate of an employee's benefit accrual." The answer to the question of whether or not the phrase was intended to apply to an employee's accrued benefit cannot depend upon the existence or non-existence of an optional form of benefit offered by a particular plan. Nowhere in the statute does Congress even hint, let alone state, the prohibition would have differing meanings for plans with differing optional benefit provisions. Given that all defined benefit plans are required to provide an accrued benefit, and only some choose to offer optional lump-sum benefit distributions prior to normal retirement age, it would be anomalous to conclude that compliance with the 204(b)(1)(H) accrual requirements should be measured in reference to an optional lump-sum benefit rather than the required accrued benefit itself. Gannett also argues that the BRA benefit rather than the Accrued Benefit should be the focus for 204(b)(1)(H) because the Accrued Benefit formula was included in the plan merely as a device by which the Plan could feign compliance with the accrual requirements of subsections 204(b)(1)(A)-(C), the accrual rules designed to prevent the backloading of a plan's accrued benefits.9 In effect, then, Gannett asks the Court to conclude that a benefit formula adopted to enable the Plan to satisfy the benefit accrual requirements of subsections (b)(1)(A), (B), and (C), is irrelevant with respect to the Plan's compliance with the benefit accrual requirements of in subsection (b)(1)(H), while simultaneously concluding that an alternative benefit formula that could not satisfy the accrual requirements of the backloading rules should be determinative with respect to the accrual requirements of (b)(1)(H).

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The "benefit accrual" pattern for the BRA would not appear to satisfy any of the three methods set forth in those subsections by which a plan's accrued benefit formula can comply with the statute.

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Finally, Gannett argues that the BRA benefit should be the focus for 204(b)(1)(H) because it represents the true "value" of the benefits provided by the Plan. This argument has two prongs. The first is that the fact that a younger employee accrues a larger age-65 benefit than a similarly situated older employee for the same year of work is of no consequence because the younger employee must wait a longer period of time to start receiving his retirement benefit. According to Gannett, the difference in the amount of the Accrued Benefit earned by the two employees is merely a reflection of the "time value of money" rather than age-discrimination. One obvious problem with this proposition is that it could be used to justify virtually any age-based disparity in the accrued benefits provided under a defined benefit plan. A younger employee will always wait longer than an older employee to begin receiving the age-65 benefit they accrue during the same year of work, but that fact cannot justify overt age-based discrimination in the rate of benefit accrual. A second fallacy in Gannett's argument is that when Congress intended for ERISA's defined benefit rules to take into account the "time value" associated with the timing of the receipt of a particular benefit, it has expressly said so, and specified the methodology by which that factor is to be taken into account. Thus, for example, ERISA contains specific rules for the valuation of early distributions of an employee's age-65 benefit. See, e.g., ERISA §205(g). Gannett's effort to establish other, court-created, ad hoc time value qualifiers for various accrual rules would wreak havoc on the regulatory system Congress has created for defined benefit plans. The second prong of Gannett's argument is that the BRA benefit an employee can receive by leaving Gannett early is a better reflection of the value of the benefits provided

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by the Plan because it consistently is larger than the present value of an employee's accrued benefit. Gannett provides several tables to support this argument, showing for example that after 10 years of service at a salary of $25,000 by two employees who began work at ages 25 and 45 respectively, while the present value of the 45 year-old's accrued benefit would amount to only $17,845, he would be entitled to an immediate lump sum benefit under the BRA of $25,000. What Gannett does not discuss or consider in its argument, however, is that this employee could only receive that $25,000 if he were to quit work at that point in time. Far from showing that the BRA approach complies with the law, therefore, these charts instead establish that Gannett's BRA approach offers older employees the pyrrhic option of mitigating Gannett's age-based discrimination on the rate of benefit accrual by resigning from Gannett entirely. Thus, the charts demonstrate that Gannett has institutionalized exactly the sort of inequity that Congress sought to prohibit by outlawing discrimination in the rate of benefit accrual based on age. The tables provided by Gannett also show, tellingly, the dramatic extent to which the BRA is a benefit enhancement mechanism for younger employees. In the previous example, the 45 year old whose accrued benefit has a present value of $17, 845 is entitled to a BRA benefit of $25,000, which is $7,155, or 40% larger than that present value. The 25 year old, on the other hand, whose accrued benefit has a present value of $8,676, is also entitled to a $25,000 BRA benefit, which is $16,324, or almost 200% larger than that present value. The BRA thus bears no rational relationship to the accrued benefits promised to employees under the Plan and it provides benefits with markedly different values to differently aged employees. For those reasons, it is an exceedingly poor "metric" by

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which to judge the Gannett Plan's compliance with ERISA's prohibition against agebased disparities in the rate of benefit accruals. D. GANNET ADMITS THAT THE BENEFIT ACRUALS OF SOME PLAN PARTICIPANTS CEASED ON ACCOUNT OF THEIR AGE FOR A PERIOD OF TIME AFTER CONVCERSION TO THE PENSION EQUITY PLAN. Plaintiffs' Motion also requests partial summary judgment on Plaintiffs' claim that after Gannett January 1, 1998 when Gannett put the Pension Equity plan in place for some plan participants varying periods of time elapsed before the their benefits under Gannett's Accrued Benefit formula matched the protected benefit to which they were entitled under the Plan's prior plan formula. For those participants who accrued no additional benefits during that time the accrual of theur benefits was in effect ceased. Plaintiffs claim that the length of that period of cessation varied depending on the participants age. In its Response, Gannett admits that for Plaintiff Schaeffer "the period of time needed for Schaeffer's accrued benefit under the PCF to exceed his protected benefit was very slightly longer than the time for period for his younger counterparts." [Resp. at 22]. This admission establishes Plaintiff's claim that the plan violated the section 204(b)(1)(H) prohibition against the cessation of benefit accruals on account of age. Gannett's only argument in response to these facts is to repeat their contention that section 204(b)(1)(H) applies only to the immediate lump sum benefit available under the Plan's BAR formula. This argument has no more validity with respect to the cessation of benefit accruals than it does with respect to reductions in the rate of benefit accrual. Additionally, Gannett contends that because the only evidence of cessation before the Court pertains to Schaefffer the claims asserted on

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behalf of the class of Plan participants should be dismissed. However, questions concerning the extent to which any of Gannett's actions that are found to have been unlawful affected particular class members is an issue tha should be reserved for the remedies stage of this proceedings. No basis exists for dismissing the class claims regarding the cessation of accruals and partial summary judgment should be entered for Plaintiffs on that claim. III. Conclusion

For the reasons set forth herein, the Court should grant Plaintiffs' Cross-Motion for Partial Summary Judgment on their claims with respect to the issue of liability. Dated: December 17, 2007

HILL & ROBBINS, P.C. By: s/ John H. Evans Robert F. Hill John H. Evans Hill & Robbins, P.C. 100 Blake Street Building 1441 Eighteenth Street Denver, CO 80202 Telephone: (303) 296-8100 [email protected] [email protected]

Douglas R. Sprong Korein Tillery LLC 701 Market Street, Suite 300 St. Louis, MO 63101-1820 Telephone: (314) 241-4844 [email protected] Attorneys for Plaintiffs

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CERTIFICATE OF SERVICE I hereby certify that on December 17, 2007, I electronically filed the foregoing with the Clerk of Court using the CM/ECF system which will send notification of such filing to the following e-mail addresses: Michael S. Beaver Greg Eurich Parker W. Dragovich Kerri J. Atencio Holland & Hart LLP 8390 East Crescent Parkway Suite 400 Greenwood Village CO 80111 [email protected] [email protected] [email protected] [email protected]

Margaret A. Clemens Nixon Peabody LLP Clinton Square, P.O. Box 31051 1300 Clinton Square Rochester, NY 14603-1051 [email protected] s/John H Evans_______________________ Attorneys for Johnny Wells, et. al. John H. Evans John F. Walsh Hill & Robbins, P.C. 100 Blake Street Building 1441 Eighteenth Street Denver, CO 80202 Telephone: (303) 296-8100

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FAX: (303) 296-2388 Email: [email protected] [email protected] [email protected]

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