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 JOHNNY WELLS, DONALD J. BROOKINS, and RILEY ANDREW SCHAEFFER, on behalf of themselves and all others similarly situated, Plaintiffs, v. GANNETT RETIREMENT PLAN and GANNETT CO., INC., Defendants. ______________________________________________________________________________ DEFENDANTS' REPLY M EMORANDUM IN SUPPORT OF MOTION FOR SUMMARY JUDGMENT AND IN OPPOSITION TO PLAINTIFFS' CROSS-MOTION ______________________________________________________________________________ NIXON PEABODY LLP Margaret A. Clemens, Esq. Robert C. Bernius, Esq. Clinton Square, P.O. Box 31051 1300 Clinton Square Rochester, NY 14603-1051 Tel.: (585) 263-1000/Fax: (585) 263-1600 [email protected] [email protected] HOLLAND & HART LLP Michael S. Beaver, Esq. 8390 E. Crescent Parkway #400 Greenwood Village, CO 80111 Tel.: (303) 290-1600 Fax: (303) 290-1606 [email protected] Attorneys for Gannett Retirement Plan and Gannett Co., Inc.

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TABLE OF CONTENTS Page TABLE OF AUTHORITIES .........................................................................................................(i) PRELIMINARY STATEMENT .....................................................................................................1 POINT I PLAINTIFFS' SECOND CLAIM SHOULD BE DISMISSED BECAUSE THEIR "RATE OF BENEFIT ACCRUAL" IS NOT REDUCED ON ACCOUNT OF THEIR AGE ..........................................................3 "Benefit Accrual" Means the Annual Additions to the Participant's Lump Sum Benefit...................................................................4 Under the Plan's Pension Equity Formula, the Rate of Annual Increases to Plaintiffs' Hypothetical Balances Was Not Reduced Because of Their Age...............................................................................................9 Plaintiffs' Claim that the Basic Retirement Amount Should Be Ignored Lacks Merit ............................................................................................................16 Plaintiffs' Claim that Cooper Does Not Apply Should Be Rejected.....................19 PLAINTIFFS' RATE OF BENEFIT ACCRUAL AFTER CONVERSION DID NOT CEASE BECAUSE OF THEIR AGES ............................................21

A.

B.

C.

D. POINT II

CONCLUSION..............................................................................................................................24

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TABLE OF AUTHORITIES CASES Page American Stores Co. v. American Stores Co. Ret. Plan, 928 F.2d 986 (10th Cir. 1991) ..............19 Beh v. Ostergard, 657 F. Supp. 173 (D. N.M. 1987).......................................................................1 Biester v. Midwest Health Servs., 77 F.3d 1264 (10th Cir. 1996) .................................................20 Branson v. Price River Coal Co., 853 F.2d 768 (10th Cir. 1988) .................................................20 Bryerton v. Verizon Commc'ns Inc., 2007 U.S. Dist. LEXIS 29488 (S.D.N.Y. April 17, 2007) ....2 Celotex Corp. v. Catrett, 477 U.S. 317 (1986) ..............................................................................20 Central Laborers' Pension Fund v. Heinz, 541 U.S. 739 (2004)...................................................18 Chiles v. Ceridan Corp., 95 F.3d 1505 (10th Cir. 1996) ...............................................................18 Cirulis v. UNUM Corp. Severance Plan, 321 F.3d 1010 (10th Cir. 2003)....................................17 Cooper v. IBM Pers. Pension Plan, 457 F.3d 636 (7th Cir. 2006)........................................ passim Drutis v. Quebecor World (USA) Inc., 459 F. Supp. 2d 580 (E.D. Ky. 2006) ............................2, 4 Drutis v. Rand McNally & Co., 2007 U.S. App. LEXIS 20275 (6th Cir. August 27, 2007) .............................................................................................1, 4, 6, 7 Eaton v. Onan Corp., 117 F. Supp. 2d 812 (S.D. Ind. 2000).......................................................2, 5 Engers v. AT&T Corp., 2001 U.S. Dist. LEXIS 25889 (D. N.J. 2001) ...........................................2 Finley v. Dun & Bradstreet Corp., 471 F. Supp. 2d 485 (D. N.J. 2007) .....................................2, 5 Gorman v. Carpenters' & Millwrights' Health Benefit Trust Fund, 410 F.3d 1194 (10th Cir. 2005) ........................................................................................................................................18 Hall v. UNUM Life Ins. Co., 300 F.3d 1197 (10th Cir. 2002) .........................................................2 Halprin v. Equitable Life Assur. Soc'y of the United States, 267 F. Supp. 2d 1030 (D. Colo. 2003) .......................................................................................................................20

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TABLE OF AUTHORITIES CASES Page Hirt v. Equitable Ret. Plan for Employees, Managers and Agents, 441 F. Supp. 2d 516 (S.D.N.Y. 2006)........................................................................................2 Laurent v. PriceWaterhouseCoopers LLP, 448 F. Supp. 2d 537 (S.D.N.Y. 2006).........................2 Lockheed Corp. v. Spink, 517 U.S. 882 (1996)..............................................................................17 McCormick v. City of Lawrence, 253 F. Supp. 2d 1172 (D. Kan. 2003).........................................1 Member Services Life Ins. v. American Nat'l Bank & Trust Co., 130 F.3d 950 (10th Cir. 1997)........................................................................................................................18 Nachman Corp. v. Pension Benefit Guaranty Corp., 446 U.S. 359 (1980)...................................17 Nance v. Sun Life Assurance Co. of Can., 294 F.3d 1263 (10th Cir. 2002) ...................................2 Pratt v. Petroleum Prod. Mgmt., Inc. Employee Savings Plan and Trust, 920 F.2d 651 (10th Cir. 1990)........................................................................................................................18 Register v. PNC Fin. Servs. Group, Inc., 477 F.3d 56 (3d Cir. 2007).............................1, 4, 6, 7, 9 Sunder v. U.S. Bank Pension Plan, 2007 U.S. Dist. LEXIS 11331 (E.D. Mo. February 16, 2007)....................................................................................................2 Tomlinson v. El Paso Corp., 2007 U.S. Dist. LEXIS 20766 (D. Colo. March 22, 2007) ...............2 Tootle v. Arinc, Inc., 222 F.R.D. 88 (D. Md. 2004).........................................................................2 Valdez v. Apfel, 102 F. Supp. 2d 1203 (D. Colo. 2000)...................................................................1 Walker v. Monsanto Co. Pension Plan, 2007 U.S. Dist. LEXIS 67704 (S.D. Ill. September 13, 2007) ...................................................................................................2 Wheeler v. Pension Value Plan for Employees of The Boeing Co., 2007 U.S. Dist. LEXIS 17608 (S.D. Ill. March 13, 2007).........................................................2

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STATUTES 29 U.S.C. § 1002(23) .......................................................................................................................5 29 U.S.C. § 1054(b)(1)(H)..................................................................................................... passim TABLE OF AUTHORITIES STATUTES Page ERISA § 1054(b)(2)(A) ...................................................................................................................6 ERISA § 204(b)(1).....................................................................................................................6, 12 ERISA § 204(b)(2)...........................................................................................................................6 ERISA § 204(b)(2)(A) .....................................................................................................................6 ERISA § 204(b)(1)(A)-(G) ..........................................................................................................4, 5 ERISA § 204(b)(1)(H) ........................................................................................................... passim ERISA § 204(g) .......................................................................................................................19, 20 Fed. R. Civ. Proc., Rule 56(c)........................................................................................................19 Fed. R. Civ. Proc., Rule 56(e)........................................................................................................19 Internal Revenue Code § 411(b)(1)(H)..........................................................................................15 Internal Revenue Code Section 204(h) ............................................................................................7

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PRELIMINARY STATEMENT Defendants Gannett Retirement Plan (the "Retirement Plan" or "Plan") and Gannett Co., Inc. ("Gannett") submit this Reply Memorandum in opposition to plaintiffs' cross-motion for summary judgment and in further support of defendants' motion for summary judgment. The critical issue before this Court is the proper interpretation of the term "benefit accrual" or "rate of benefit accrual," as contained in § 204(b)(1)(H) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), 29 U.S.C. § 1054(b)(1)(H). For hybrid plan formulas, such as Gannett's Pension Equity Formula, this statutory phrase is now properly understood to mean the increase to the participant's hypothetical account balance for the plan year. Cooper v. IBM Pers. Pension Plan, 457 F.3d 636, 639 (7th Cir. 2006), cert. denied, 127 S. Ct. 1143 (2007); Register v. PNC Fin. Servs. Group, Inc., 477 F.3d 56, 68-69 (3d Cir. 2007). Since defendants filed this motion, yet another federal circuit court of appeals has endorsed this principle of law: Drutis v. Rand McNally & Co., 2007 U.S. App. LEXIS 20275 (6th Cir. August 27, 2007). 1 Absent controlling Supreme Court or Tenth Circuit precedent on this issue, this Court should look to these other circuit courts as persuasive authority. See McCormick v. City of Lawrence, 253 F. Supp. 2d 1172, 1188 (D. Kan. 2003)("in the absence of Supreme Court or Tenth Circuit authority, the court looks to other circuit court opinions as persuasive authority"); Valdez v. Apfel, 102 F. Supp. 2d 1203, 1205 (D. Colo. 2000)(same); Beh v. Ostergard, 657 F. Supp. 173, 178 (D. N.M. 1987)(same).

1

For the Court's convenience, a copy of this case, and other recent cases available on LEXIS, are contained in the Appendix to this Reply Brief.

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Indeed, when presented with an issue of first impression, the Tenth Circuit itself regularly relies on the law of other circuits as its primary source of persuasive authority. See, e.g., Nance v. Sun Life Assurance Co. of Can., 294 F.3d 1263, 1267-1268 (10th Cir. 2002) (analyzing and relying on the decisions of other circuit courts of appeals in determining the effect of language in an ERISA plan); Hall v. UNUM Life Ins. Co., 300 F.3d 1197, 1201-1202 (10th Cir. 2002) (in an ERISA case, reviewing the decisions from other circuits for persuasive authority). For additional guidance, this Court should also rely upon the many district court decisions cited in defendants' initial Memorandum of Law, including the decision from this District in Tomlinson v. El Paso Corp., 2007 U.S. Dist. LEXIS 20766 (D. Colo. March 22, 2007), which found that the phrase "rate of benefit accrual" does not mean "accrued benefit." 2 Two additional district courts recently rendered decisions on this issue, and both agree with defendants' argument to this Court. Walker v. Monsanto Co. Pension Plan, 2007 U.S. Dist. LEXIS 67704 (S.D. Ill. September 13, 2007); Wheeler v. Pension Value Plan for Employees of The Boeing Co., 2007 U.S. Dist. LEXIS 17608 (S.D. Ill. March 13, 2007). All of the consistent, well-reasoned authority is based upon the statutory language, the legislative history, the mechanics of how benefits are earned under a hybrid pension plan, and fundamental economic principles. Together, they compel granting of defendants' motion and the dismissal of this case.

2

See e.g., Bryerton v. Verizon Commc'ns Inc., 2007 U.S. Dist. LEXIS 29488 (S.D.N.Y. April 17, 2007); Sunder v. U.S. Bank Pension Plan, 2007 U.S. Dist. LEXIS 11331 (E.D. Mo. February 16, 2007); Finley v. Dun & Bradstreet Corp., 471 F. Supp. 2d 485 (D. N.J. 2007); Laurent v. PriceWaterhouseCoopers LLP, 448 F. Supp. 2d 537 (S.D.N.Y. 2006); Hirt v. Equitable Ret. Plan for Employees, Managers and Agents, 441 F. Supp. 2d 516 (S.D.N.Y. 2006); Tootle v. Arinc, Inc., 222 F.R.D. 88 (D. Md. 2004); Engers v. AT&T Corp., 2001 U.S. Dist. LEXIS 25889 (D. N.J. 2001); Eaton v. Onan Corp., 117 F. Supp. 2d 812 (S.D. Ind. 2000).

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ARGUMENT POINT I PLAINTIFFS' SECOND CLAIM SHOULD BE DISMISSED BECAUSE THEIR "RATE OF BENEFIT ACCRUAL" IS NOT REDUCED ON ACCOUNT OF THEIR AGE

Plaintiffs allege that, under the Plan's Pension Equity Formula ("PEF"), the benefits provided to participants after January 1, 1998, "accrue at rates and/or in amounts that are reduced because of age" (Amended Complaint ¶ 26) in violation of ERISA § 204(b)(1)(H), 29 U.S.C. § 1054(b)(1)(H). 3 Plaintiffs' Brief, however, confirms that the basis of their claim is not because of any provision specific to the Plan itself. Rather, their claim is based solely upon their generic theory that all hybrid pension plans (both cash balance and pension equity plans) necessarily violate § 204(b)(1)(H) of ERISA because the statutory provision's phrase "rate of benefit accrual" must be interpreted to mean the employees' "accrued benefit." (Pl. Brief, 1-3). As discussed below, plaintiffs' global attack on cash balance and pension equity plans is unsound. ERISA § 204(b)(1)(H) requires no more than equal rates of benefit accrual for

similarly situated older and younger employees, as measured on a year to year basis. Gannett's Plan passes this test because it treats older employees the same as or better than younger employees. As a result, plaintiffs' claim lacks merit and should be rejected outright.

3

Section 204(b)(1)(H) provides that a defined benefit plan violates ERISA's age discrimination prohibition "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).

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A.

"Benefit Accrual" Means the Annual Additions to the Participant's Lump Sum Benefit

Plaintiffs concede, as they must, that every circuit court which has considered the issue has rejected the claim that the phrase "rate of benefit accrual," as contained in ERISA § 204(b)(1)(H), must be equated with a participant's "accrued benefit." (Pl. Brief, 18 and 18 n. 8 (citing Cooper v. IBM, 457 F.3d at 636; Register v. PNC Fin. Servs. Group, Inc., 477 F.3d at 56)). The most recent circuit court of appeals to consider this issue is the Sixth Circuit in Drutis. The plaintiffs in Drutis (like plaintiffs in this case) contended that the phrase "rate of benefit accrual," contained in ERISA § 204(b)(1)(H), must be equated with a participant's "accrued benefit." They further claimed (just like plaintiffs here) that since under the hybrid plan's terms, younger participants were entitled to a greater "accrued benefit" or annuity upon reaching their normal retirement age of 65, their plan must necessarily violate the statute. The district court disagreed and held that hybrid plans are not age discriminatory. In affirming that decision, the Sixth Circuit joined the Seventh Circuit in Cooper and Third Circuit in Register, and reiterated that, for a hybrid plan, the "rate of benefit accrual" refers to the yearly increase in a participant's lump sum benefit. Despite the consistent authority to the contrary, plaintiffs continue to claim that the phrase "rate of benefit accrual," as contained in ERISA § 204(b)(1)(H), means the participant's "accrued benefit" - or the annual annuity payable at normal retirement age. (Pl. Brief, 12, 17). To support their position, plaintiffs mistakenly rely upon the fact that several other accrual rules set out in other subsections of ERISA § 204(b) contain express references to a participant's "accrued benefit." They cite, for example, to ERISA § 204(b)(1)(A)-(G), all of which expressly reference the participant's "accrued benefit." (Pl. Brief, 13).

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The Drutis plaintiffs raised the same contention, and the Sixth Circuit, like other courts, rejected it, concluding that had Congress intended to use the term "accrued benefit" in ERISA § 204(b)(1)(H), it could have easily done so. As the Court explained: Congress used different phrases in 29 U.S.C. § 1002(23) [defining "accrued benefit"] and § 1054(b)(1)(H) [the anti-discrimination provision] rather than the same phrase, and thus, "benefit accrual" and "accrued benefit" should be understood to mean different things. Id. (quoting Finley v. Dun & Bradstreet Corp., 471 F. Supp. 2d 485, 491 (D. N.J. 2007)). In fact, when it suits them later in their Brief, plaintiffs themselves concede that "[t]he fact that Congress chose to use different language in each section strongly indicates that Congress intended the two sections to have different meanings." (Pl. Brief, 20). The plain fact is that ERISA § 204(b)(1)(H) was added to ERISA twelve years after the adoption of ERISA § § 204(b)(1)(A)-(G), the subsections referenced by plaintiffs, (See Pl. Brief, 13-14) and it addresses a different issue than these other subsections. ERISA § 204(b)(1)(A)-(G) all address the pattern in which a participant accrues his normal retirement benefit from commencement of participation until normal retirement age. Therefore, for those subsections, the use of the term "accrued benefit" is appropriate and not surprising. In contrast, ERISA § 204(b)(1)(H), which is at issue here, was added to ERISA by amendment in 1986. The legislative history of the 1986 legislation that introduced ERISA § 204(b)(1)(H) indicates that the amendment's primary purpose was to assure that employers could no longer freeze or reduce the rate of benefit accruals after normal retirement age. See Eaton v. Onan Corp., 117 F.Supp. 2d at 826-829. The proper focus of ERISA § 204(b)(1)(H) is,

therefore, on how a participant's benefit increases each year under the plan both before and after normal retirement age. As a result, the language used in this subsection of ERISA is different,

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and necessarily different, from the other subsections of ERISA § 204(b)(1). Moreover, for hybrid plans, the most appropriate measurement for determining the yearly rate at which a participant's benefit increases is by reference to a participant's account balance. In the context of Gannett's Plan, it is the employee's Basic Retirement Amount. Equally unpersuasive is plaintiffs' claim that Cooper was wrongly decided because, in reaching its decision, the Court had relied, in part, on the parallel statutory provisions prohibiting age discrimination for defined contribution plans. Notably, ERISA § 204(b)(1)(H) was added at the same time as ERISA § 204(b)(2), the corresponding anti-discrimination rule that Congress adopted for defined contribution plans. Therefore, it is entirely appropriate to consider ERISA § 204(b)(2) when interpreting ERISA § 204(b)(1)(H). The Sixth Circuit, like the Third Circuit in Register and Seventh Circuit in Cooper, recognized the fact that hybrid plans are structured to function like defined contribution plans. Both define an employee's benefit in terms of a stated account balance (albeit in the case of a hybrid plan, a hypothetical one). Like the statute's provision for defined benefit plans, ERISA § 204(b)(2)(A) provides that a defined contribution plan is not age discriminatory if "the rate at which amounts are allocated to the employee's account is not reduced, because of the attainment of any age." 29 U.S.C. § 1054(b)(2)(A). The Drutis Court reasoned this statutory provision prohibiting age discrimination in benefit accruals for defined contribution plans basically says the same thing as the age discrimination provision relating to defined benefit plans. Drutis, at *18. Both rules prohibit an employer from stopping allocations or accruals made to a plan or reducing their rate of accrual because of age. The Sixth Circuit, like the many courts before it, recognized that a hybrid plan does neither of these things.

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Thus, when the phrase "rate of benefit accrual" is read in context, and in comparison to, the parallel provision prohibiting age discrimination in defined contribution plans, "the phrase `benefit accrual' reads most naturally as a reference to what the employer put in (either in absolute terms or as a rate of change), while the defined phrase `accrued benefit' refers to outputs after compounding." Drutis, 2007 U.S. App. LEXIS 20275 * 17-18 (citing Cooper, 457 F.3d at 639). Drutis, like Cooper and Register, concluded that there was no evidence that Congress, by prohibiting discriminatory "allocations" in one section and "accruals" in another section, intended to create vastly different metrics for detecting discrimination. Plaintiffs' contention that the courts in Cooper and its progeny erred in comparing the discrimination rules for defined contribution and defined benefit plans should be rejected. Plaintiffs, however, offer no logical explanation as to why the fact that benefits are guaranteed under a defined benefit plan should, as a matter of law, mean that a different test for age discrimination should apply to hybrid plans versus defined contribution plans. Circuit's analysis in Register is instructive in this regard: Contrary to appellants' assertions, ...we are not reclassifying cash balance plans as defined contribution plans nor are we ignoring the language of the statute, but instead, we are looking to the parallel anti-discrimination provisions because "the plain meaning of statutory language is often illuminated by considering not only the particular statutory language at issue, but also the structure of the section in which the language is found, the design of the statute as a whole and its object. (Quotations omitted). This is a fundament of statutory interpretation." Register, 477 F.3d at 69. Plaintiffs' reliance on the preamble of Treasury Department regulations under Internal Revenue Code Section 204(h) as support for their position is also misplaced. While the The Third

preamble provides that the expression "rate of future benefit accrual" refers to the benefit in the

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form of a single life annuity commencing at normal retirement age, plaintiffs readily concede (in a footnote) that the same preamble expressly disavows any applicability to § 204(b)(1)(H) because the Treasury Department and the IRS were still considering regulations that would govern that provision. (Pl. Brief, p.16 n.7). But, the language of the preamble is even more pointed, stating that it does "not indicate any possible outcomes" regarding previously proposed regulations. In view of the IRS's own unwillingness to equate "accrued benefit" and "benefit accrual" (and, in fact, its bias to the contrary for purposes of ERISA § 204(b)(1)(H)), this Court should reject outright plaintiffs' claim in their Brief that "there is no logical or policy reason why the test for a reduction in the rate of benefit accrual and the notice of such a reduction by plan amendment would differ in the form of benefit used as the benchmark." Plaintiffs' reliance on an early critique of the Cooper decision by Edward Zelinsky is flawed and if anything, demonstrates the dearth of persuasive legal authority in support of their position in this case. Plaintiffs did not identify Zelinsky as an expert, and he has not opined on the PEF at issue in this case. Nor have they submitted a shred of evidence demonstrating that Zelinsky's article was reviewed by experts in the field and recognized as authoritative. Moreover, a close reading of his article demonstrates that Zelinsky himself touts the advantages hybrid plans have for employees as compared to defined contribution plans, and he identifies himself as an advocate for hybrid plans as a matter of public policy. Zelinsky at p. 21-224 . Even more significantly, Zelinsky conceded that there is "no convincing reason why an employer contributing five percent (5%) to each employee's salary to a 401(k) plan should pass age discrimination muster while an employer committing to fund five percent (5%) of each
4

A copy of Zelinsky's article is Exhibit 1 to Plaintiffs' Brief.

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employee's salary under a cash balance formula should be deemed to be discriminating on the basis of age." Id. at 29. Indeed, "[s]uch a result would lead to a result that is not sensible." Register at 68-69. Zelinsky grudgingly concludes his article by admitting that "Cooper argues convincingly that, as a matter of policy, [hybrid] plans should not be deemed to be age discriminatory when defined contribution plans using similar formulas pass age discrimination muster." Zalinsky at 30. B. Under the Plan's Pension Equity Formula, the Rate of Annual Increases to Plaintiffs' Hypothetical Balances Was Not Reduced Because of Their Age

It is undisputed that, under the Gannett PEF, an employee is entitled to receive a total current lump sum ("Basic Retirement Amount") at termination regardless of whether he or she has attained early or normal retirement age. following: 1) An employee's starting percentage, plus his or her total basic percentage, plus the applicable transitional percentage (if any), multiplied by the employee's final average earnings, plus 2) total supplemental percentage (2% for each year of final average earnings for the first ten years of service and 3% for subsequent years), multiplied by final average earnings in excess of the Social Security wage base. (Horning Decl. ¶ 16; Exhibit A, Plan at Article VIA; Exhibit B, Summary Plan Description at 56). It is also undisputed that, when benefits become payable to a participant, the participant receives the greater of his Basic Retirement Amount or the actuarial equivalent value of his "accrued benefit." (Horning Decl. Exhibit A, Plan § 6A.05). Contrary to what plaintiffs would have the Court believe, the PEF itself is age neutral. Employees, regardless of their age, accrue benefits, or "Basic Percentages," at the rate of 5% for each year of credited service for their first ten years, 7% for their next ten years of service, and The Basic Retirement Amount includes the

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9% for every year of credited service in excess of twenty. 5 The value of these percentages increases as an employee's final average earnings increase. A participant's aggregate percentage is multiplied by his or her final average earnings to determine the participant's pension benefit. It is also undisputed that this pattern of benefit accrual is identical for all similarly situated employees. (See Pl. Brief, 8). Thus, under the Plan, in any given year, the "rate of benefit accrual" for similarly situated employees regardless of age will always be the same. This is not a situation in which older employees receive lower pension benefits than younger employees. Nor do older employees, at any time, cease accruing benefits altogether because of their age. The Basic Percentages afforded employees are independent of age; two employees with the same service and different ages will receive the same basic percentages in any given year. (Sher Decl., Exhibit A, Expert Report, pp. 10, 11). Notably, plaintiffs also do not dispute (for they cannot) that the Plan's method for determining an employee's "Starting Percentage" favors older employees. As set forth in the Declaration of Lawrence Sher, for employees who were participants in the Plan prior to the January 1, 1998 effective date of the adoption of the PEF, their prior benefit under the Plan was converted to a "Starting Percentage." However, if two employees had the same accrued benefit (payable as a life annuity at age 65) and the same final average earnings, but one was older, the older employee would have a higher starting percentage. This result occurs because the starting percentage is determined by calculating the lump sum present value of the accrued benefit. The

5

The Plan also provides for supplemental percentages on pay over the Social Security wage base.

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older the employee, the higher the present value of each dollar of an age 65 annuity. (See Sher Decl., Exhibit A, Expert Report, p. 11). Plaintiffs also overlook, but certainly cannot dispute, that certain older employees were given "Transitional Percentages" in excess of what was provided to younger employees with less service. (Horning Decl. ¶ 25). Transitional percentages were either age neutral or favored older employees. (Sher Decl., Exhibit A, Expert Report, p. 12). Plaintiffs Wells and Brookins both received transitional percentages; Schaefer was not eligible to receive any transitional percentages as he did not have enough credited service. Despite the fact that the Plan provides for non-age discriminatory accruals of benefits, plaintiffs contend that the Plan violates ERISA § 204(b)(1)(H) because when they divide a participant's potential Basic Retirement Amount by an age-65 annuity factor commencing at normal retirement age, and pro-rate such amount by a fraction equal to the participant's completed years of service divided by the total years of service the employee would have if he or she continues employment to age 65, the older employee's benefit appears to be lower than the younger employee. 6 Notably absent from plaintiffs' Brief is any evidentiary support whatsoever to show, even when using their definition of the term "rate of benefit accrual," that the "accrued benefit" for all class members is less than their younger counterparts. As is evident in the information provided to plaintiffs (Exhibit C to the Clemens Decl.) and in the Sher Report at p. 18, that is not the case. For plaintiffs Wells and Brookins, for example, both of whom received transitional percentages, their "accrued benefit" exceeds the "accrued benefit" of their younger counterparts.
6

They provide some examples of these age-65 annuities at pages 8-10 of their Brief.

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Plaintiffs also completely ignore the fact that generally older workers are not economically disadvantaged under the Plan. In their own example, the employee who

commences employment at age 25 and works for ten years will have to wait thirty years following his termination of employment to obtain his age-65 annuity whereas only a ten year wait as required for the employee who commences employment at age 45 and who works for ten years. Because of the fundamental economic principle of the "time value of money," the monthly annuity that would be paid to the younger employee is actually worth much less than the monthly annuity paid to the older employee years earlier. (Sher Decl. p. 4). This can be easily seen by converting the annuities paid to both hypothetical employees in plaintiffs' example to their present equivalent lump sum value. The lump sum actuarial equivalent value of the "accrued benefit" is determined by discounting for interest from age 65 to the current age using statutory lump sum interest rates. (Sher Decl., Exhibit A, Expert Report, p. 11). In the plaintiffs' example, the lump sum equivalent of the age-65 monthly annuity for the employee hired at age 25 and who works for 10 years is $8,676, while the lump sum equivalent of the monthly age 65 annuity for the employee hired at age 45 is $17,845, nearly double the amount of the younger employee's age-65 annuity. (Sher. Reply Decl. ¶¶ 3-4). Annual Age-65 Annuity $3,096 $2,477 Present Lump Sum Value of Annuity $8,676 $17,845

Employee Hired at Age 25 Employee Hired at Age 45

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Thus, as this chart readily indicates, the economic value of the annuity paid to the older worker is much greater than that paid to the younger one. There is another reason why the Court should reject plaintiffs' claim that the proper focus of a § 204(b)(1)(H) claim is on an employee's "accrued benefit." Plaintiffs' calculations of the employee's "accrued benefit" do not fully represent the value of a participant's benefit. Rather, their calculations merely represent one step in determining the actual benefit payable to an employee under the Plan. This interim calculation is necessary to demonstrate that the Plan satisfies one of the "anti-backloading" rules of ERISA § 204(b)(1) ­ in this instance, subsection (C), the so-called "fractional rule." A plan may provide more than the minimum required under the fractional rule, and here, the Gannett Plan almost always does. Upon separation of service, a vested employee is entitled to the greater of the employee's Basic Retirement Amount or the present value of his or her "accrued benefit." Because the value of the employee's Basic Retirement Amount always equals or exceeds the present value of the employee's "accrued benefit," the employee's "accrued benefit" has little practical relevance. Plaintiffs' insistence that ERISA's non-discrimination rules should be measured by an employee's "accrued benefit" would elevate form over substance to create absurd results. Indeed, it would violate ERISA § 204(b)(1)(H) which expressly requires the analysis of the rate of an employee's benefit accrual "under the plan," as opposed to analyzing only one step in calculating a participant's benefits as plaintiffs suggest. The fact pattern cited in plaintiffs' Brief demonstrates this point. After ten years of service, the Basic Retirement Amount in the case of both the employee hired at ages 25 and the

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employee hired at age 45 are identical: $25,000. Moreover, in both cases, the employees' Basic Retirement Amount exceeds the lump sum present value of their "accrued benefit." Present Lump Sum Value of Annuity $8,676 $17,845 Basic Retirement Amount $25,000 $25,000

Employee Hired at Age 25 Employee Hired at Age 45

Annual Age 65 Annuity $3,096 $2,477

Accordingly, it is the Basic Retirement Amount which is relevant and the best measure of the rates of benefit accrual under ERISA § 204(b)(1)(H). Using the Basic Retirement Amount as the measure, there is no age discrimination in the amounts that similarly-situated younger and older employees actually are entitled to receive in their pockets from the Plan. This conclusion can be further illustrated by reference to the chart plaintiffs cited in their Brief, which they claim is "derived from benefit calculations done by Gannett's actuaries." (Pl. Brief 10). Plaintiffs selectively cite portions of information defendants provided, comparing the "accrued benefits" earned by three hypothetical employees, who all earn $42,000 a year, but who begin work at Gannett at ages 44, 34 and 24 respectively. Plaintiffs neglect to point out that the information they were provided also shows that all three participants would be eligible to receive upon their separation from employment after seven years of participation, the identical $14,700 lump sum payment of their Basic Retirement Amount from the Plan which, again, is in all cases greater than the present value of the annuity. (Sher Reply Decl. ¶ 6-7).

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Employee Hired at Age 44 Employee Hired at Age 34 Employee Hired at Age 24

Age-65 Annual Annuity $1,496 $1,721 $1,836

Present Lump SumValue of Annuity $8,809 $6,297 $4,202

Basic Retirement Amount $14,700 $14,700 $14,700

(Id. See also Clemens Decl., Ex. C., Charts for employees X age 44, Y age 34, and Z age 24). As this chart illustrates, in terms of actual pension dollars going into his or her pocket, the older employee would not be worse off than the younger employees. Similarly, plaintiffs' example regarding plaintiff Andrew Schaefer, cited on page 11 of their Brief, is misleading because Schaefer's "accrued benefit" does not come into play in determining his actual pension benefit when he separates from employment. Schaefer's Basic Retirement Amount always exceeds, by considerable margin, the lump sum equivalent value of his "accrued benefit." Schaefer Present Lump Sum Value of Annuity $39,090 $31,029 $24,811 $19,901 Basic Retirement Amount $63,674 $57,754 $53,164 $49,592

Actual 5 Years Younger 10 Years Younger 15 Years Younger

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(See Clemens Decl., Exhibit C, Charts for Schaefer). As this chart reveals, the Basic Retirement Amounts for Schaefer exceeds the corresponding amounts his counterparts would receive at earlier ages. As discussed in detail in defendants' initial motion papers, and which plaintiffs did not refute, using the Plan's definition of "accrued benefit" as the basis for analyzing age discrimination, as plaintiffs suggest, is also directly contrary to the long-standing position of the Internal Revenue Service. (Sher Reply Decl. ¶ 9; Sher Initial Decl., Exhibit A, Report, at pp. 1617). C. Plaintiffs' Claim that the Basic Retirement Amount Should Be Ignored Lacks Merit

Without offering a shred of legal, factual or logical support for their position, plaintiffs urge the Court to ignore the annual increases to the employees' Basic Retirement Amounts because those benefit amounts are "contingent" upon employees terminating employment with Gannett. This argument is nonsense. Viewed in the manner plaintiffs suggest, an employee's right to receive his or her "accrued benefit" is also contingent; it is contingent upon their retiring at normal retirement age. That such purported "contingencies" exist is not surprising since employees generally are not entitled to receive pension benefits until they retire at normal retirement age or otherwise terminate employment and, indeed, ERISA generally prohibits the receipt of pension benefits before normal retirement age while the employee is employed by the same employer sponsoring the plan from which such benefits are paid. See Treas. Reg. § 1.4011(b)(1)(i). Plaintiffs' next urge the Court not to use the Basic Retirement Amount as the appropriate measure of the Plan's on-going compliance with § 204(b)(1)(H) because allegedly only a portion

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of the immediate lump sum amount in a participant's Basic Retirement Amount is nonforfeitable and, allegedly, any excess amount can be retroactively reduced or eliminated at Gannett's whim. (Pl. Brief, 24). Plaintiffs again are wrong as a matter of law. As long-recognized by the Supreme Court, nothing in ERISA requires employers to establish benefit plans, nor does ERISA mandate what kind of benefits employers must provide if they choose to have a plan. Lockheed Corp. v. Spink, 517 U.S. 882 (1996); Cirulis v. UNUM Corp. Severance Plan, 321 F.3d 1010, 1013 (10th Cir. 2003). ERISA does, however, seek to ensure that employees not be left empty-handed once employers have guaranteed them certain benefits. Nachman Corp. v. Pension Benefit Guaranty Corp., 446 U.S. 359, 375 (1980) (when Congress enacted ERISA it "wanted to . . . mak[e] sure that if a worker had been promised a defined pension benefit upon retirement--and if he fulfilled whatever conditions are required to obtain a vested benefit--he actually receives it"). As is evidenced in the Summary Plan Description ("SPD") provided to employees, Gannett has promised eligible employees that they will receive pension benefits calculated by using the new pension equity formula. (See Horning Aff., Ex. B, p. 3 ("Under the new benefit formula, your benefit amount is determined as a lump sum amount equal to a percentage of your average earnings at the time you terminate from the Company")). The SPD sets out in detail the percentages earned each year on final average earnings and shows how an employee's starting and transition percentages are calculated. (Id. at pp. 4-5). The SPD promises employees that they can take their pension benefits calculated in this manner in the form of a lump sum amount at termination. It also tells employees that once they have completed five years of service their pension benefits have "vested," and it explains to them that vesting refers "to your nonforfeitable

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right to receive a benefit under the Plan." (Id. at p. 5). The SPD also informs employees that it intends to continue the Plan indefinitely, but that it reserves the right to change, amend or terminate it if necessary. In those circumstances, however, the SPD, in pertinent part, promises employees that "no change will affect your earned benefits." (Id. at p. 9). Under ERISA, vested benefits are non-forfeitable. Chiles v. Ceridan Corp., 95 F.3d 1505, 1510 (10th Cir. 1996). Moreover, because the SPD best reflects the expectations of the parties to the plan, the terms of the SPD control the terms of the Plan. Id. at 1515. Having promised eligible employees that their right to receive their Basic Retirement Amount was "non-forfeitable" means that Gannett cannot renege on that promise and reduce plaintiffs' pension benefits retroactively. Plaintiffs have earned a vested right to their Basic Retirement Amount when they terminate from employment. Contrary to plaintiffs' theory, under well-settled law, courts do not permit employers to cut back or change the terms of a promised pension benefit upon which the employee reasonably relied in planning his or her retirement. See e.g., Central Laborers' Pension Fund v. Heinz, 541 U.S. 739, 750 (2004) (ERISA does not permit an employer to apply an amended plan term imposing a condition on the receipt of pension benefits that have already accrued); Pratt v. Petroleum Prod. Mgmt., Inc. Employee Savings Plan and Trust, 920 F.2d 651, 660-661 (10th Cir. 1990) (" `a pension plan is a unilateral contract which creates a vested right in those employees who accept the offer it contains by continuing to work in employment for the requisite years,' " and hence, the adoption of any subsequent amendment which is used to defeat or diminish this right is ineffective (citations omitted)). See also Gorman v. Carpenters' & Millwrights' Health Benefit Trust Fund, 410 F.3d 1194, 1198 (10th Cir. 2005) (quoting Member Services Life Ins. v. American Nat'l Bank & Trust

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Co., 130 F.3d 950 (10th Cir. 1997) ("Because the plan administrators have an obligation imposed by ERISA to operate the plan according to the current plan documents, a post hoc amendment clearly cannot alter a plan provision in effect at the time performance under the plan became due")). Despite plaintiffs' unsupported claim to the contrary, any purported "excess" in the Basic Retirement Amount is a protected, non-forfeitable pension benefit which Gannett cannot retroactively eliminate or reduce, and undoubtedly plaintiffs themselves would be among the first to complain if Gannett ever attempted to do so. American Stores v. American Stores Co. Ret. Plan, 928 F.2d 986 (10th Cir. 1991) upon which plaintiffs rely, is readily distinguishable, and its rationale does not apply here. While American Stores did find that an early retirement subsidy could be reduced without violating ERISA § 204(g), the Court expressly held it was applying ERISA § 204(g) before its 1984 amendments. American Stores Co. v. American Stores Co. Ret. Plan, 928 F.2d 986, 989-994 (10th Cir. 1991). American Stores is inapplicable in a situation, like this one, where an employer unequivocally and irrevocably promises to pay participants their Basic Retirement Amount at termination from employment. D. Plaintiffs' Claim that Cooper Does Not Apply Should Be Rejected

In a desperate, last-ditch attempt to avoid dismissal of their Complaint, and without providing any factual or legal support whatsoever for their position, plaintiffs claimed that Cooper and its progeny should not apply in this case because the plan at issue in Cooper is a "cash balance" formula as opposed to a "pension equity formula." (Pl. Brief, 4). Notably absent from plaintiffs' Brief is any evidentiary support, by way of affidavits or documents in admissible form, explaining how or why this is so.

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Rule 56(c) requires a party opposing a motion for summary judgment to submit "opposing affidavits . . . made on personal knowledge, [setting] forth such facts as would be admissible in evidence, and [showing] affirmatively that the affiant is competent to testify as to the matters stated therein." Fed. R. Civ. Proc., Rule 56(e). Once the moving party demonstrates that there is no evidence to support the non-moving party's case, the non-moving party must come forward, by affidavits or by depositions or answers to interrogatories and admissions on file, and identify specific facts demonstrating the existence of an issue for trial. Halprin v. Equitable Life Assur. Soc'y of the United States, 267 F. Supp. 2d 1030, 1034 (D. Colo. 2003), (citing Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986)). Accord, Biester v. Midwest Health Servs., 77 F.3d 1264, 1266 (10th Cir. 1996); Branson v. Price River Coal Co., 853 F.2d 768, 771772 (10th Cir. 1988). Plaintiffs have not met their burden to support their bare assertion that the Plan differs from the cash balance plan in a legally significant way. The only attempt plaintiffs make in that direction is contained on page 25 of the Brief where they claim that the IBM plan provided the Cooper plaintiffs with non-forfeitable pension benefits while the Plan here does not. As

discussed above, plaintiffs are wrong as a matter of law. Further, the IRS has recently issued a Notice regarding "cash balance and other hybrid defined benefit pension plans," and the Notice indicates that IRS will be issuing new regulations and guidance to address statutory hybrid plans, including both cash balance and pension equity plans. See Notice 2007-6, 2007 IRB LEXIS 6 (2007). Accordingly, for the reasons discussed above and in defendants' initial motion papers, this Court should reject plaintiffs' interpretation of ERISA § 204(b)(1)(H), grant defendants'

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motion for summary judgment dismissing the Second Claim in the Amended Complaint as a matter of law, and deny plaintiffs' cross-motion. POINT II PLAINTIFFS' RATE OF BENEFIT ACCRUAL AFTER CONVERSION DID NOT CEASE BECAUSE OF THEIR AGES Defendants have also moved for summary judgment dismissing the First Claim in the Amended Complaint, in which plaintiffs allege that upon the adoption of the PEF, plaintiffs' accrual of additional benefits ceased because of their age in violation of ERISA § 204(b)(1)(H). (Complaint ¶ 23). Plaintiffs have submitted no affidavits or evidentiary support in opposition to this aspect of defendants' motion or in support of their cross-motion, and they now concede that the methodology Gannett chose to convert an employee's prior "accrued benefit" under the old formula to the new PEF "did comply with ERISA § 204(g)." (Pl. Brief, 27) (emphasis added). Equally significantly, a review of plaintiffs' Brief demonstrates that plaintiffs no longer assert the claim that their benefit accruals ceased because of their ages with regard to plaintiffs Wells, Brookins and the defined class of employees; the only issue they attempt to raise is in regard to a single plaintiff, Andrew Schaefer. Accordingly, the First Claim must be dismissed as a matter of law with regard to plaintiffs Wells, Brookins and the class. With regard to Andrew Schaefer, plaintiffs concede, as they must, that even if there were a cessation of benefits for Schaefer for a six year period, sometimes referred to as "wear-away," such wear-away "does not in and of itself constitute a violation of ERISA." (Id.) (emphasis added). Nonetheless, plaintiffs claim that, with respect to Schaefer, the wear-away period is allegedly longer for him than for some younger workers. (Pl. Memo, 27). They have submitted

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no evidence, expert or otherwise, analyzing the demographics of participants in the Plan or examining the wear-away periods for Schaefer as compared to younger workers. As discussed in detail in the Declaration and expert report of Lawrence Sher, the period of time needed for Schaefer's accrued benefit under the PEF to exceed his protected benefit was not longer than the time period for younger employees. Sher conducted an analysis of the wearaway period for all the named plaintiffs, including Schaefer, as compared to hypothetical younger participants. In every instance the actual plaintiffs did not experience any wear-away periods when measured by the true value of their benefits, expressed as the Basic Retirement Amounts. In every instance the plaintiffs' Basic Retirement Amounts also exceeded the lump sum value of their protected benefit and grew steadily each year thereafter. (Sher Initial Decl., Exhibit A, Expert Report, p. 19). As discussed in the Reply Declaration of Lawrence Sher, the period of time needed for Schaefer's accrued benefit under the PEF to exceed his protected benefit was very slightly longer than the time period for his younger counterparts. However, as Sher points out, his actual Plan benefits are higher than those of his younger counterparts. (Sher Reply Decl. ¶¶ 12-13). Schaefer's initial Basic Retirement Amount also exceeded the lump sum value of his protected benefit throughout the period January 1, 1998 through January 1, 2006.

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Schaefer

Jauuary 1, 1998 January 1, 1999 January 1, 2000 January 1, 2001 January 1, 2002 January 1, 2003 January 1, 2004 January 1, 2005 January 1, 2006

Lump Sum Value of Protected Benefit $15,028 $20,235 $16,790 $19,616 $24,494 $27,783 $28,134 $31,199 $33,944

Basic Retirement Amount

$20,637 $24,506 $29,345 $34,809 $40,513 $46,248 $51,707 $57,496 $63,674

Plaintiffs acknowledge that with regard to Schaefer, they once again rely solely on their assertion that the proper measurement for determining whether participants' "benefit accrual" ceased in violation of ERISA § 204(b)(1)(H) is not by reference to their annual "benefit accrual," but is instead by reference to their "accrued benefit" (the benefit commencing at age 65). For the reasons discussed above and in defendants' initial motion papers, plaintiffs are wrong. The proper measure is to examine whether the percentages that comprise the Basic Retirement Amount are reduced because of the attainment of any age; in this case, they were not. In reality, as demonstrated in the above chart, immediately upon conversion, Schaefer's Basic Retirement Amount grew steadily. When compared to an employee six years younger than he was, the amount of Schaefer's Basic Retirement Amount exceeded the younger employee at all points in time. (See Sher Decl., Exhibit A, Expert Report, p. 20). Accordingly, summary judgment dismissing the First Claim in the Amended Complaint is warranted.

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CONCLUSION For the reasons stated herein, defendants respectfully request the Court grant their motion for summary judgment and dismiss this action in its entirety. Dated: November 1, 2007 /s/Margaret A. Clemens Margaret A. Clemens NIXON PEABODY LLP Clinton Square, P.O. Box 31051 1300 Clinton Square Rochester, NY 14603-1051 Telephone: (585) 263-1000 Fax: (585) 263-1600 [email protected] /s/Michael S. Beaver Michael S. Beaver HOLLAND & HART LLP 8390 E. Crescent Parkway #400 Greenwood Village, CO 80111 Telephone: (303) 290-1600 Fax: (303) 290-1606 [email protected] Attorneys for Defendants

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C ERTIFICATE O F S ERVICE
I hereby certify that on November 1, 2007, I electronically filed the foregoing with the Clerk of Court using CM/ECF system which will send notification of such filing to the following e-mail addresses: Robert F. Hill [email protected] John H. Evans [email protected] Douglas R. Sprong [email protected] and I hereby certify that I have mailed or served the document or paper to the following non CM/ECF participants in the manner (mail, hand-delivery, etc.) indicated by the non-participants name: N/A

s/ Michael S. Beaver _____________________ Michael S. Beaver Attorney for Defendants Holland & Hart LLP 8390 East Crescent Parkway, Suite 400 Greenwood Village, CO 80111-2800 Telephone: (303) 290-1600 Fax: (303) 290-1606 [email protected]

3785478_1.DOC

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