Free Motion for Partial Summary Judgment - 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' BRIEF IN OPPOSITION TO SUMMARY JUDGMENT MOTION AND PLAINTIFFS' REQUEST FOR PARTIAL SUMMARY JUDGMENT ____________________________________________________________________________

Plaintiffs, through their undersigned counsel, pursuant to Fed. R. Civ. P. 56 and D.C.COLO.L.Civ.R. 56.1, hereby submits this Brief in opposition to the Motion for Summary Judgment ("Motion") of Defendants. Plaintiffs also, in accordance with the Court's Order granting Plaintiffs' Motion for an Extension of Time to File this Response, request that the Court enter summary judgment for Plaintiffs with respect to the issue of liability and order further proceedings to arrive at an appropriate remedy. I. INTRODUCTION This case presents a relatively simple and straightforward question: Do employees' benefit accruals cease and/or do the rate of employees' benefit accruals decrease on account of age under the "pension equity" benefit formula in the Gannett Pension Plan, in violation of

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ERISA Sec. 204(b)(1)(H)? Answering that question does not require any interpretation of Plan provisions. The Parties do not disagree about their meanings. Nor is there any dispute that under ERISA the Plan is a defined benefit plan and is subject to the same rules that apply to the accrual of benefits for all defined benefit plans. Moreover, the case does not involve any need to resolve factual disputes regarding the computation of the benefit amounts earned by employees of varying ages and/or with varying service history. The Parties are in agreement as to the computation of the benefits provided by the Plan. In fact, Gannett admits that under the Plan's Accrued Benefit formula, in the case of two employees with equal years of service and earning equal salaries, the younger employee will earn a higher Accrued Benefit, i.e., the benefit payable at normal retirement age, than the older employee for an otherwise equivalent year of service. Since the salient characteristic of a defined benefit plan is the employer's promise to pay plan participants a specified, defined benefit amount when the participant reaches retirement age, the benefit accrual rules for defined benefit plans set forth in Section 204(b)(1) of ERISA, establish various requirements regarding the manner in which, for each year of service, an employee earns, or accrues, the right to a specified benefit upon retirement. The defined benefit accrual rule at issue here, Section 204(b)(1)(H), provides that: a defined benefit plan shall be treated as not satisfying the requirements of this paragraph if, under the plan, an employee's benefit accrual is ceased, or the rate of an employee's benefit accrual is reduced, because of the attainment of any age. 29 U.S.C.§1054(b)(1)(H). The sole dispute before the Court is the meaning of the phrase "rate of an employee's benefit accrual" as Congress used it in the statute. In Section 204(b)(1) of ERISA, Congress established a very detailed set of defined benefit plan accrual rules pertaining to the value at

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normal retirement age of the benefit being accrued each year by plan participants.1 Consistent with Section 204(b)(1)'s overall focus on this benefit at normal retirement age, Plaintiffs assert that the "benefit" referenced by the phrase "rate of an employee's benefit accrual" in subsection 204(b)(1)(H) is the employee's "accrued benefit," which is statutorily defined as the benefit payable under the plan expressed in the form of an annual annuity beginning at normal retirement age. See 29 U.S.C. §1002(23)(A). Accordingly, Congress clearly intended the disputed phrase to refer to the rate at which a participant's accrued benefit increases. For the reasons set forth below, the Court should deny Gannett's Motion and grant Plaintiffs' summary judgment on the question of liability. II. BACKGROUND Gannett bases its Motion on the contention that the "rate of an employee's benefit accrual" under subsection (b)(1)(H) should not be measured by reference to increases in the "accrued benefit" an employee will receive at normal retirement age. Instead, Gannett argues that subsection (b)(1)(H), alone among the Section 204(b)(1) defined benefit accrual rules, has nothing to do with what it describes as the eventual "outputs" of the benefit accrual process, i.e., the amount of the benefit at normal retirement age being earned by an employee for a current year of service, or with the Plan formula for computing that accrued benefit. According to Gannett, the (b)(1)(H) prohibition against age-based reductions in the rate of benefit accrual for defined benefit plans should focus solely on the hypothetical "inputs" that Gannett "contributes" each year to the lump-sum benefit that an employee who chooses to stop working before normal retirement age can receive from the Plan.

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Congress also established a very different, and much less rigorous, set of rules governing the accrual of benefits under defined contribution plans in ERISA Section 204(b)(2).

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Gannett's principal support for this argument comes from the decision by the Seventh Circuit Court of Appeals in Cooper v. IBM, 457 F.3d 636 (7th Cir. 2006) and subsequent decisions from other courts that have adopted the conclusions reached in Cooper. However, the very outcome driven result in Cooper should not be applied by the Court here. For one thing, the pension plan at issue in Cooper involved a "cash balance" benefit formula under which benefits accrued quite differently than they do under the Plan's pension equity formula. More importantly, as other courts and commentators have recognized, the decision rests on the "unconvincing" premise that "the differing statutory standards for pension age discrimination are best read as a single rule for both defined contribution and defined benefit plans [and] that `benefit accrual' means plan contributions." Zelinsky, Cooper v. IBM Personal Pension Plan: A Critique, New York University Review of Employee Benefits (2007)(available online at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=926560 ; copy attached hereto as Exhibit 1). A. The Statutory Framework. Nothing in ERISA's carefully crafted framework for the regulation of pension plans supports replacing the language Congress used in the subsection (b)(1)(H) defined benefit plan rule with the expressly different rule Congress created for defined contribution plans. ERISA provides employers with a choice between two fundamentally different types of pension plans. The first is a defined contribution plan, in which the employer makes annual contributions, based on a percentage of the employee's salary, but makes no promise to provide any retirement benefit beyond those contributions and any earnings from them. The alternative is a defined benefit format in which the employer makes no specific "contribution" to any employee account but instead promises to pay the employee a specific benefit at normal retirement age, pursuant to a formula based on the employee's compensation and years of service.

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These fundamental differences between defined contribution and defined benefit plans were aptly described by the Supreme Court in Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, 439-440 & n. 3 (1999) (citations omitted): A defined contribution plan is one where employees and employers may contribute to the plan, and "`the employer's contribution is fixed and the employee receives whatever level of benefits the amount contributed on his behalf will provide.'" . . . A defined contribution plan "provides for an individual account for each participant and for benefits based solely upon the amount contributed to the participant's account." ERISA § 3(34); 29 U.S.C. § 1002(34). . . . A defined benefit plan, on the other hand, consists of a general pool of assets rather than individual dedicated accounts. Such a plan, "as its name implies, is one where the employee, upon retirement, is entitled to a fixed periodic payment." . . . [T]he employer typically bears the entire investment risk and -- short of the consequences of plan termination -- must cover any underfunding as the result of a shortfall that may occur from the plan's investments. . . . . . . [Defined benefit plan] members have a right to a certain defined level of benefits, known as "accrued benefits." That term, for purposes of a defined benefit plan, is defined as "the individual's accrued benefit determined under the plan [and ordinarily is] expressed in the form of an annual benefit commencing at normal retirement age." ERISA § 3(23)(A), 29 U.S.C. § 1002(23)(A). ... By contrast, an "accrued benefit" for purposes of defined contribution plans means "the balance of the individual's account." ERISA's contrasting standards for age discrimination in defined contribution and defined benefit plans follow from Congress's radically different definitions of "accrued benefit" in defined contribution and defined benefit plans. As Hughes Aircraft explained , "accrued benefit" in a defined contribution plan is simply "the balance of the individual's account." ERISA § 3(23)(B); 29 U.S.C. § 1002(23)(B). Consequently, age discrimination occurs in defined contribution plans if "the rate at which amounts are allocated to employee's account is . . . reduced, because of the attainment of any age." ERISA Section 204(b)(2)(A), 29 U.S.C. § 1054(b)((2)(A). If the employer contributes the same percentage of each employee's salary to each employee's separate account, there is no age discrimination. That result follows from the

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fact that employees own their retirement accounts, choose the level of risk for their accounts' investments, and bear the investment risk. If employees' benefits differ in amount at retirement age, that difference is the result of the investment choices they made and investment risks they assumed for which the employer has no responsibility. In defined benefit plans, in contrast, the "accrued benefit" is ordinarily "expressed in the form of an annual benefit commencing at normal retirement age." ERISA § 3(23)(A), 29 U.S.C. § 1002(23)(A). Consequently, the focal point of the rules governing defined benefit plans is the "accrued benefit" at "normal retirement age" promised to the employee under the plan. ERISA requires that the accrued benefit must be provided in the form of an annuity at normal retirement age (which the plan selects but which cannot be later than age 65). The plan can offer optional benefit forms, such as a lump sum upon terminating employment with the employer, but such optional benefit forms must be actuarially equivalent to the accrued benefit at normal retirement age. Consistent with ERISA's focus on the amount of benefits the employer has promised that the employee will receive beginning at normal retirement age under a defined benefit plan, the test for age discrimination in ERISA Section 204(b)(1)(H)(i) for a defined benefit plan is whether an "employee's rate of benefit accrual" ceases or is reduced as a result of age. Gannett describes its Plan as a "hybrid" pension plan, which it characterizes as "a cross between a defined contribution plan and a defined benefit plan." Motion at 5. ERISA, however, makes no provision for such a "hybrid." Under the statute, a plan is either a defined contribution plan or a defined benefit plan. So called hybrid plans, under which benefits are computed under formulas like the pension equity formula used by the Gannett Plan or under a more commonly used "cash balance" formula are, by statute, defined benefit plans and are subject to all ERISA

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requirements that apply to any defined benefit plan. Edsen v. Bank of Boston, 229 F.3d 154, __ (2nd Cir. 2001). Gannett, like other proponents of pension equity and cash balance plans, attempts to distinguish its Plan from "more traditional defined benefit plans" with the claim that "unlike traditional plans which define an employee's benefit as a monthly annuity to begin at normal retirement age (e.g., $1000 a month for life commencing at age 65), hybrid plans define a benefit in terms of a hypothetical account or balance (e.g., a $30,000 lump sum amount paid at termination of employment)."2 Motion at 5. This purported distinction notwithstanding, pension equity and cash balance plans, like all other defined benefit plans, are subject to the benefit accrual requirement contained in ERISA Section 204(c)(3) that: in the case of any defined benefit plan, if an employee's accrued benefit is to be determined as an amount other than an annual benefit commencing at normal retirement age ... the employee's accrued benefit, or the accrued benefits derived from contributions made by an employee, as the case may be, shall be the actuarial equivalent of such benefit or amount.... 29 U.S.C. §1054(c)(3). B. The Gannett Plan Gannett amended its defined benefit plan effective January 1, 1998, to adopt new Pension Equity provisions to be used for the determination of benefits for most Plan participants.3 Under the new pension equity formula, participants earned Basic Percentage points for each year of credited service, at the rate of 5 points per year for the first 10 years of service, 7 points per year

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In fact, and as is discussed below, the Gannett Plan definition of a participant's Accrued Benefit at any point in time under the Pension Equity Formula provides that the benefit is to be "expressed as a single life annuity beginning on the participant's Normal Retirement Date." Plan par. 2.01. In addition, the Plan provides that under the Pension Equity Formula the "normal form of payment for a Participant's retirement benefits" shall be in the "form of a single life annuity, which is the Actuarial Equivalent of the Participant's vested basic Retirement Amount. Plan par. 6A.04(a) 3 Existing Plan participants who would be at least 55 years old with 5 years of service, or whose combined age plus years of service totaled at least 75 as of June 30, 1998, did not become subject to the pension equity provisions and continued to accrue benefits in accordance with the existing defined benefit formula.

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for the second 10 years of service, and 9 points per year for each year of service beyond 20 years.4 These Basic Percentage points provide the starting point for determining a participant's benefits under two differing benefit formulas used in the Plan. Plan Paragraph 2.01 defines the term "Accrued Benefit" as used in the Plan. It provides the formula for determining the amount of the benefit payable at normal retirement age that has been accrued by a participant at any point in time, which involves a four step process. The first step is to determine the total number of percentage points the participant would earn if he worked until normal retirement age.5 Thus, a participant who began work at age 25 would have 40 years (65-25) of potential service, during which time they could earn 50 points for their first 10 years of service (5 per year times 10 years), 70 points for their second 10 years, and 180 points for their last 20 years, for a total of 300 potential percentage points. Under the same formula, a participant who began work at age 45 would have 20 years of potential service (65-45) and could potentially earn a total 120 points (10 years at 5 points per year plus 10 years at 7 points per year. Notably, this first step both requires one to know the age of the employee to determine his or her total potential percentage points and results in point totals that differ amongst employees solely on account of their age.

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The formula also provided Supplemental Percentage points with respect to earnings above the Social Security wage base for a particular year. 5 The ensuing discussion is based upon the Basic Percentage Point benefit calculation formula that would apply to an employee first beginning participation in the Plan subsequent to the adoption of the pension equity design on January 1, 1998. This focus on how the formula works for a new participant provides the clearest picture of the benefits pattern for differently aged participants under the Plan. For employee's such as Plaintiffs who were participants in the Plan prior to the 1998 conversion, the pension equity formula bases their benefit calculations partly on points that can be earned under this Basic Percentage Point formula, partly on Starting Percentage Points calculated to recognize the value of the Accrued Benefit the employee had earned prior to the conversion, and, for some qualifying employees, partly on a Transition Percentage based on the number of years of service prior to conversion. While the inclusion of these additional elements in the benefit calculation formulas may have altered the impacts of the discriminatory Basic Percentage Point formula for some such participants, as is discussed further below, the fact remains that the Accrued Benefit increases attributable to post-conversion years of service for them has been lower for older employees.

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The second step in the formula involves multiplying the potential point total from step 1 times the participant's average earnings during the previous 5 years to arrive at what the Plan denominates the participant's Basic Retirement Amount. If both of the hypothetical employees referred to above had average earnings as of the determination date of $50,000, their potential Basic Retirement Amounts would be $150,000 ($50,000 times 300%) for the younger employee and $60,000 ($50,000 times 120%) for the older employee. The third step involves dividing the potential Basic Retirement Amount by an age-65 annuity factor to convert the lump-sum amount into an annuity commencing at normal retirement age. The annuity factor to be used as of any particular determination date will vary depending upon the discounting rate applicable at the time, but if, for example, the factor were 10, the potential age 65 annuity computed for the younger employee would be $15,000 per year and for the older employee would be $6,000. The final step, to determine how much of this potential benefit a participant has actually accrued as of any particular time involves multiplying the potential annuity by the ratio between the participant's actual years of service to date and their total potential years of service through age 65. Thus, after both hypothetical employees have worked 10 years the service ratio for the younger employee would be 10 years of actual service over 40 years of potential service, or ¼. The ratio for the older employee would be 10 years of actual over 20 years of potential service, or ½. Applying these ratios to the employees' respective potential annuities results in the younger employee, after 10 years of service, having accrued an age-65 annuity benefit of $3,750 ($15,000 times ¼) and the older employee, after working for the same 10 years at the same salary, having accrued an age-65 annuity of $3,000 ($6,000 times ½). Looking at these results on an annualized basis reveals that, for each year these two employees worked side-by-side

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doing the same job for the same pay, the younger employee accrued an age-65 annuity benefit of $375, which amounts to .75% of his annual salary, and the older employee accrued an age-65 annuity benefit of only $300, which is only .6% of his annual salary. This type of disparity in the annual benefit accrual rate occurs across the entire spectrum of Gannett Plan participants ­ in any case of employees who differ in age but are otherwise similarly situated as to salary and years of service the older employees will accrue a smaller age65 pension benefit for each year of service than will a younger employee. Gannett grudgingly admits that "the `Accrued Benefit,' as defined by the Plan ... shows a tendency to be higher for the otherwise similarly situated younger employees." Motion at 25-26. In fact, the range of this "tendency" is that, at an annuity factor of 10, an employee who begins work at age 21 receives an annual accrual of .766% of his salary, while an employee who begins work at age 56 or later accrues only .5% of his salary each year. The following chart, derived from benefit calculations done by Gannett's actuaries, demonstrates the disparity amongst three hypothetical employees who begin work at ages 44, 34, and 24 and all earn a salary of $42,000 per year over a period of seven years.6

Employee X
Begins at age 44 Accrued Benefit (as annual age 65 annuity under Plan Section 2.01) after 7 years of service Annual Benefit Accrual (Accrued Benefit/ 7) Annual Benefit Accrual Rate (Annual Accrual / $42,000)
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Employee Y
Begins at age 34 $1,721

Employee Z
Begins at age 24 $1,836

$1,496

$214

$246

$262

.51%

.59%

.62%

The illustrations in this brief are derived from report containing a series of sample benefit calculations performed by Gannett in connection with this action and provided to Plaintiffs on December 1, 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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A similar disparity exists for employees such as Plaintiffs who were participants in the Plan prior to the pension equity conversion. For example, Plaintiff Andrew Schaeffer, who was age 38, had 8 2/3 years of credited service at the time of conversion, and had earned an accrued benefit of $5,696 as of December 31, 1997. After 5 years under the new Plan formula, his Accrued benefit was only $5,158. In contrast, similarly situated employees who were ages 33 and 28 at the time of conversion would have had Accrued Benefits of $5,201 and $5,266, respectively after 5 years of service under the new Plan formula. Thus, the Plan's Accrued Benefit formula produces the same result as would a "traditional" defined benefit plan that expressly provided employees an accrued benefit equal to a percentage of pay for each year of service times their final average earnings, but specified that the annual percentage would be progressively lower the older an employee happened to be when he began employment. Such a blatantly discriminatory plan would clearly violate subsection 204(b)(1)(H). The age-based differences in the rate at which a participant earns his Accrued Benefit for each year of service under the Gannett Plan are equally discriminatory, and this discrimination is the basis for Plaintiffs' claims. III. ARGUMENT A. MEASUREMENT OF THE "RATE OF BENEFIT ACCRUAL" UNDER ERISA SECTION 204(b)(1)(H)(i) SHOULD BE BASED UPON A PARTICIPANT'S "ACCRUED BENEFIT." As noted above, ERISA section 204(b)(1)(H) makes unlawful any defined benefit plan provision that results in a decrease in the "rate of an employee's benefit accrual" on account of age. Gannett bases its contention that its Plan does not violate this rule primarily on the argument that the rate of an employee's benefit accrual should be measured with respect to some

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"benefit" other than the accrued benefit provided for under the Plan. As the rationale for this argument, Gannett contends that: 1) the term "benefit accrual" in section 204(b)(1)(H) should be interpreted to mean something other than an increase in the amount of the retirement benefit to which an employee will be entitled at retirement, and 2) the "Accrued Benefit" provided in the Plan is merely an artifice inserted in the Plan to be able to demonstrate its compliance with other ERISA accrual rules and does not represent a participant's actual benefit entitlement under the Plan. Neither of these arguments can prevail. 1. The Term "Rate of an Employee's Benefit Accrual" Refers to the "Accrued Benefit," as ERISA Defines That Term for Defined Benefit Plans.

Gannett contends that phrase "rate of an employee's benefit accrual" in Section 204(b)(1)(H)(i) does not refer to the participants "accrued benefit," the annuity at normal retirement age that is the one form of benefit which ERISA requires a defined benefit plan to provide. Instead, borrowing from conclusions about cash balance plans reached by some other courts, it argues that "rate of an employee's benefit accrual" actually refers to the rate of an employer's "inputs," in the form of hypothetical annual contributions to a participant's hypothetical pension equity account. Gannett bases its argument solely on an abridged, facile comparison of subsection 204(b)(1)(H) with the age discrimination prohibition for defined contribution plans contained subsection 204(b)(2) of ERISA. A full analysis of the Section 204 accrual rules for defined benefit plans, however, shows that the terms "accrued benefit" and "rate of accrual" are used multiple times throughout the section and on each occasion the "rate of accrual" refers to either to the "accrued benefit" or the benefit at normal retirement age provided by the plan.

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a. The "Accrued Benefit" Under a Plan Is the Focus of ERISA's Other Section 204(b) Accrual Rules for Defined Benefit Plans. Section 204 of ERISA is entitled "Benefit Accrual Requirements." Section 204(a) sets out an overall requirement: "(a) Each pension plan shall satisfy the requirements of subsection (b)(3), and ... in the case of a defined benefit plan, shall satisfy the requirements of subsection (b)(1)." Subsection (b) is, consequently, entitled "Enumeration of plan requirements." Subsection (b)(1) starts out with specific affirmative "instructions" about how a plan meets the (b) requirements (emphasis added): (b)(1)(A): A defined benefit plan satisfies the requirements of this paragraph if the accrued benefit to which each participant is entitled upon his separation is not less than [specified amounts] ... (b)(1)(B): A defined benefit plan satisfies the requirements of this paragraph of a particular plan year if under the plan the accrued benefit payable at normal retirement age is equal to the normal retirement benefit and the annual rate at which any individual ... can accrue the retirement benefits payable at normal retirement age ... (b)(1)(C): A defined benefit plan satisfies the requirements of this paragraph if the accrued benefit to which any participant is entitled upon his separation from the service is not less than a fraction of the annual benefit commencing at normal retirement age to which he would be entitled under the plan as in effect on the date of his separation if he continued to earn annually until normal retirement age the same rate of compensation upon which his normal retirement benefit would be computed under the plan .... Thus, there are three affirmative ways for a plan to satisfy the accrual requirements, all three of which are based on the age-65 accrued benefit, and one of which specifically involves the "annual rate" at which participants "accrue the retirement benefits." Then Section (b)(1) sets out a number of qualifications concerning these requirements. The first three are in effect exemptions from the (A), (B), and (C) requirements: (b)(1)(D): Subparagraphs (A),(B), and (C) shall not apply [to years of participation before they went into effect, if certain requirements are met with respect to the "accrued benefits" for those years].

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(b)(1)(E): Notwithstanding subparagraphs (A), (B), and (C) of this paragraph, a plan shall not be treated as not satisfying the requirements of this paragraph solely because the accrual of benefits under the plan does not become effective until the employee has two continuous years of service. (b)(1)(F): Notwithstanding subparagraphs (A), (B), and (C), a defined benefit plan satisfies the requirements of this paragraph ...[if it meets certain requirements with respect an employee's "accrued benefit"]. The availability of each of these three exceptions depends upon some aspect of the "accrued benefit" provided under the plan. Section 204(b)(1) then sets out 2 negative provisions regarding satisfaction of the basic accrued benefit requirements: (b)(1)(G): Notwithstanding the preceding paragraphs, a defined benefit plan shall be treated as not satisfying the requirements of this paragraph if the participant's accrued benefit is reduced on account of any increase in his age or service. (b)(1)(H)(i): Notwithstanding the preceding subparagraphs, a defined benefit plan shall be treated as not satisfying the requirements of this paragraph if, under the plan, an employee's benefit accrual is ceased, or the rate of an employee's benefit accrual is reduced, because of the attainment of any age. In short, Section 204(b)(1) sets out three requirements for a defined benefit plan with respect to the "accrued benefit," then provides three exceptions to those requirements that also depend upon the "accrued benefit," and then prohibits violations of those accrued benefit requirements for a plan that reduces the "accrued benefit," ceases benefit accrual, or reduces the rate of benefit accrual on account of age. Congress clearly was referring only to the "accrued benefit" in these interrelated provisions. Indeed, without one common benchmark, these requirements become incoherent. The introductory phrase in Subparagraph (H)(i) (which is the same phrase used in adjacent subparagraph (G))­"Notwithstanding the preceding subparagraphs"­means that even if all the preceding requirements with respect to the "accrued

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benefit" and its accrual rate are satisfied, a defined benefit plan will still be illegal if the rate at which that benefit accrues is reduced because of age. Under Gannett's reading of these provisions, a defined benefit plan that has satisfied all of Section 204(b)'s other rigorous requirements relating to the "accrued benefit" can, in applying Subparagraph (H)(i), completely ignore the rate by which an employee's accrued benefit increases for each year of service and instead measure the rate of increase of any other benefit the plan offers to determine whether the plan meets the final test for age discrimination. That reading violates common sense as well as standard rules of statutory construction. "Interpretation is a contextual enterprise. Statutory words take color from their many contexts-often neighboring sentences and sections, and frequently the economic transactions the words are designed to affect." NBD Bank, N.A. v. Bennett, 67 F.3d 629, 631 (7th Cir,1995). See also United States v. Nordbrock, 38 F.3d 44-,444 (9th Cir. 1994) (adhering to "the maxim of statutory construction that similar terms appearing in different sections of a statute should receive the same interpretation"). b. Other Provisions in ERISA Strongly Support Construing "Rate of an Employee's Benefit Accrual" To Refer to the Defined Benefit "Accrued Benefit." Other sections of ERISA similarly use terms such as "accrual rate" or "rate of accrual" in ways that refer to the "accrued benefit" or benefit payable at normal retirement age under a defined benefit plan. For example, Section 204(h) requires a plan to provide notice to participants if a plan amendment will significantly reduce the "rate of future benefit accrual." In issuing regulations under this provision, the Treasury Department explained that "[t]he statutory phrase `rate of future benefit accrual' implies, on its face, that Section 204(h) is limited to changes in the accrued benefits." 63 F.R. 68678, 68680(Dec. 13, 1998). In April 2003, the

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Treasury Department issued regulations to implement amendments to Section 204(h) which again provided that "rate of future benefit accrual" refers to the benefit in the form of a single life annuity commencing at normal retirement age. 68 F.R. 17277, 17282-83, Q&A-6(b) and Q&A8(b) (Apr. 9, 2003).7 Thus, for the crucial purpose of warning participants that their rate of future benefit accrual is being reduced, the notice must explain the impact on the benefit to be received at normal retirement age, not on some other benefit that might be provided by the plan. The phrase "rate of future benefit accruals" is used in other sections of ERISA in a manner that clearly indicates the "benefit" being referred to is the "accrued benefit." For example Section 4244A, 29 U.S.C. §1425, which pertains to "adjustments to accrued benefits" in multiemployer plans, provides: (d) Amendment of plan to increase or restore accrued benefits previously reduced or rate of future benefit accruals; conditions, applicable factors, etc. (1)(A) A plan which has been amended to reduce accrued benefits under this section may be amended to increase or restore accrued benefits, or the rate of future benefit accruals, only if the plan is amended to restore levels of previously reduced accrued benefits of inactive participants and of participants who are within 5 years of attaining normal retirement age to at least the same extent as any such increase in accrued benefits or in the rate of future benefit accruals. (B) For purposes of this subsection, in the case of a plan which has been amended under this section to reduce accrued benefits-(i) an increase in a benefit, or in the rate of future benefit accruals, shall be considered a benefit increase to the extent that the benefit, or the accrual rate, is thereby increased above the highest benefit level, or accrual rate, which was in effect under the terms of the plan before the effective date of the amendment reducing accrued benefits, and (ii) an increase in a benefit, or in the rate of future benefit accruals, shall be considered a benefit restoration to the extent that the benefit, or the accrual rate, is not thereby increased above the highest benefit level, or accrual rate, which was

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This regulation states that it does not apply to Subparagraph (b)(1)(H) because the Treasury Department and the IRS were still considering cash balance regulations that would govern that provision. Nevertheless, 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.

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in effect under the terms of the plan immediately before the effective date of the amendment reducing accrued benefits. In addition, the term "rate of benefit accrual" is used frequently in IRS regulations regarding ERISA in contexts where it is obviously referring to the accrued benefit. See e.g., Treas, Reg. §1.412(c)(3)-1 (reasonable funding standards); Treas. Reg. § 1.401(j)-3. There is no reason to think that when Congress used the term in subsection 204(b)(1)(H) it intended that it refer to some "benefit" other than the statutorily defined "accrued benefit." c. Plaintiffs Do Not Contend that Terms "Rate of Benefit Accrual" and "Accrued Benefit" are "Interchangeable." Gannett argues that the term "accrued benefit" has no bearing on the "rate of benefit accrual" because the two terms are "not equivalent." Motion at 24. Gannett bolsters this contention by relying on statements from several other courts to the effect that the two terms do not mean "the same thing." This strawman approach should carry no weight. Plaintiffs' claims are not based on the proposition that the two terms mean the same thing or are "interchangeable." Obviously they are not. Plaintiffs do assert though, and every aspect of ERISA confirms, that Congress must have intended that the "benefit" which is referred to in the phrase "rate of an employee's benefit accrual' means the employee's benefit at normal retirement age. i.e., the "accrued benefit," as ERISA defines that term for defined benefit plans. The obvious interconnectedness of the two terms was well described in Richards v. FleetBoston Financial Corp., 427 F.Supp.2d 150, 164 (D.Conn. 2006): In light of the great similarity that this phrase bears to the statutorily defined term "accrued benefit," and the fact that ERISA requires accrued benefit to be measured as an annual benefit commencing at normal retirement age for defined benefit plans, but requires accrued benefit to be measured as the balance of an individual's account for defined contribution plans, the term "rate of benefit accrual," as used in section 204(b)(1)(H)(i), refers to rate measured as a change in the *165 annual benefit commencing at normal retirement age. The statute is

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unambiguous in this respect, and the court need not inquire further into its meaning. B. COMPLIANCE WITH SUBSECTION (b)(1)(H) CANNOT BE MEASURED IN RELATION TO THE IMMEDIATE LUMP-SUM BENEFIT AVAILABLE UNDER THE PLAN. Gannett's argument relies heavily on an erroneous interpretation of subsection 204(b)(1)(H) first employed by the Seventh Circuit Court of Appeals in Cooper v. IBM, 457 F.3d 636 (7th Cir. 2006).8 In Cooper, the court decided that the meaning of the phrase "rate of an employee's benefit accrual" could best be discerned by ignoring other ERISA provisions regarding the accrual of benefits for defined benefit plans. Instead, the court chose to compare ERISA's age discrimination rule for defined benefit plans contained in subsection 204(b)(1)(H) with the age discrimination rule for defined contribution plans contained in subsection 204(b)(2), which prohibits a defined contribution plan from decreasing, on account of age, "the rate at which amounts are allocated to an employee's account." Despite the obvious differences in the language of the two provisions, the court reached the conclusion that the term "rate of an employee's benefit accrual" in the defined benefit rule means the same thing as the term "rate at which amounts are allocated to an employee's account" used in the defined contribution rule. Then, to measure compliance with what it interpreted to be the meaning of the statute, the Court then fashioned a test based on what it viewed to be the "inputs" and "outputs" of the benefit accrual process. No support for this conclusion exists anywhere in ERISA's extensive regulatory framework and this Court should decline to follow the Seventh Circuit's very outcome driven interpretation of the statute.

8

Two Circuit Courts of Appeals and several district courts, including a court in this district, have, with little independent analysis, adopted the conclusions reached in Cooper and held that the cash balance plans at issue did not violate 204(b)(1)(H). See Register v. PNC Financial Services Group, Inc., 477 F.3d 56 (3rd Cir. 2007); Drutis v. Rand McNally & Co., --- F.3d ----, 2007 WL 2409762 (6th Cir. 2007); Tomlinson v. El Paso Corp., Slip Copy, 2007 WL 891378 (D.Colo. 2007).

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In addition, the cash balance plan at issue in Cooper involved a benefit accrual formula markedly different from the pension equity formula used in the Gannett Plan. Therefore, the analysis used and the conclusions reached by the court in Cooper are not directly applicable in this case. Finally, numerous differences in the rights and obligations of both employers and employees with respect to the contributions an employer makes to a defined contribution plan and the benefits promised by a defined benefit plan exist under ERISA, none of which were considered by the court in Cooper, that make equating the two under 204(b)(1)(H) inappropriate. For example, while participants in a defined contribution plan have a non-forfeitable right to whatever an employer has contributed to their individual accounts, Gannett Plan participants have no such right to receive the entire immediate lump-sum value of their Basic Retirement Amount prior to reaching normal retirement age. Thus, neither that lump-sum amount, nor Gannett's hypothetical inputs, can serve as an appropriate reference for measuring the Plan's compliance with ERISA's accrual rules. 1. No Statutory Authority Exists for Equating the "Rate of an Employee's Benefit Accrual" Under a Defined Benefit Plan with the "Rate at Which Amounts are Allocated to an Employee's Account" Under a Defined Contribution Plan. Gannett argues that the term "rate of an employee's benefit accrual" in subsection 204(b)(1)(H) does not refer to the annual increases in the employee's accrued benefit, but instead should be interpreted to apply to the amount of the pension equity percentage points that Gannett hypothetically "contributes" each year to the employee's retirement "account." Gannett's support for this proposed interpretation rests almost entirely upon the opinion in Cooper and the decisions of several other courts that have followed its lead. In Cooper, the first circuit court decision to interpret 204(b)(1)(H), the court began its analysis by comparing the age-

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discrimination provision for defined benefit plans in 204(b)(1)(H), which prohibits the "rate of an employee's benefit accrual" being reduced on account of age with the age discrimination rule for defined contribution plans contained in 204(b)(2), which prohibits age based reductions in the "rate at which amounts are allocated to the employee's account." After comparing the dissimilar language of the two provisions - and despite the fact that there are no actual employer "allocations" to an individual employee "account" under a defined benefit plan - the Court concluded that the defined benefit plan rule, when read "most naturally," means the same thing as the rule for defined contribution plans. While several court's have chosen to follow Cooper, other courts and commentators have rightly rejected the court's approach to interpreting the statute. Describing the decision as "an unconvincing reading" of ERISA, noted pension scholar Edward Zelinsky catalogued the errors made by the court in each part of the analysis that Gannett relies upon here. First, the court "erred when it declared cash balance and defined contribution plans to be `functionally' and `economically identical.'" A major difference is that, as a defined benefit plan, the cash balance plan had a "guaranteed final benefit" at normal retirement age. A defined contribution plan has no such guaranteed future benefit. Second, Zelinsky found the court's "assertion of equivalence" between the subsections of ERISA "equally unpersuasive." The fact that Congress chose to use different language in each section strongly indicates that Congress intended the two sections to have different meanings. Throughout ERISA, when Congress intended that both defined contribution plan and defined benefit plans be subject to the same rule it has said so; when it intends that they be governed by different rules, it drafts rules that contain differing language for the two types of plans. Finally, Zelinsky concludes that Cooper's decision that age-discrimination in a defined benefit plan

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should be measured in terms of "contributions" is "neither credible nor a workable reading of the statute." Whenever ERISA in fact regulates some aspect of "contribution" in the context of a defined benefit plan it expressly uses the word "contribution." Several courts that have declined to follow Cooper have reached that conclusion for quite similar reasons. For example: It is difficult to imagine that in this case, where Congress has set forth one standard applicable to defined-benefit plans and another standard applicable to defined-contribution plans, they meant both provisions to mean the same thing. In other places in the statutory scheme when Congress intended the same rule to apply to both defined-benefit plans and defined-contribution plans, they, unsurprisingly, used a single provision. Compare 29 U.S.C. § 1052(a)(1)(A) (explaining in one statutory provision participation standards that apply to both defined-benefit and defined-contribution plans) with 29 U.S.C. § 1054(b)(1) (antidiscrimination provision for defined-benefit plans) and 1054(b)(2) (antidiscrimination provision for defined-contribution plan). In re J.P. Morgan Chase Cash Balance Litigation, 460 F.Supp.2d 479, 489 (S.D.N.Y, 2006). As to Cooper's equivalency conclisions, one court has observed that a duality exists because defined contribution plans and defined benefit plans make categorically *2038 different promises to employees. As a result, the respective anti-discrimination provisions prescribe distinct metrics for detecting discrimination. Specifically, because employees with defined contribution plans are guaranteed employer contributions to retirement accounts but are not guaranteed a retirement benefit, discrimination is better discerned by looking at "the rate at which amounts are allocated to the employee's account." By contrast, because employees with defined benefit plans are guaranteed a retirement benefit ("output"), the sheer "importof the statutory language" connotes that "'rate of benefit accrual' refers to the outputs from the Plan." A binary regulatory approach was also required because by their very nature, "' projections' and 'guesswork' are at the heart of defined benefit plans." Effective regulation of such plans necessarily involves monitoring the future value of the overall pension benefit that will be payable at normal retirement age. This focus on the value of accrued benefits is apparent throughout the statutory scheme. For example, for purposes of testing compliance with ERISA's three accrual rules, the rate at which participants earn their accrued benefit is examined. Similarly, "the rules governing distributions from defined benefit plans are framed in terms of the normal retirement benefit," which explains why distributions in optional forms, such as lump-sum payments, are required to be equal or greater than the actuarial equivalent of such benefit. 21

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In re Citigroup Pension Plan Erisa Litigation, 2006 WL 3912227, *2037 (S.D.N.Y. 2006). This Court should be equally reluctant to abandon any consideration of the overall framework of ERISA, as the court did in Cooper, or to adopt Cooper's ill-considered interpretation of the statute, as Gannett urges it to do here. 2. The "Rate of an Emplyee's Benefit Accrual" Cannot be Measured by the Current Value of the Basic Percentage Points Added to the Basic Retirement Amount Each Year. Gannett argues that in determining the Plan's compliance with subsection 204(b)(1)(H) the Court should ignore the Accrued Benefit expressly provided by the Plan and should instead base its analysis on the percentage points added to a participant's Basic Retirement Amount, which is available under the Plan as an immediate lump-sum to participants who leave work before age 65. Gannett advances two premises for this argument. First, it argues that the Plan's "Accrued Benefit," as defined in paragraph 2.01 should be ignored because it "is included in the Plan solely for technical reasons to demonstrate how the PEF satisfies ERISA's anti-backloading requirements." Motion at 15. Gannett offers no legal support for the proposition that the Plan's express Accrued Benefit should be determinative with respect to compliance with the antibackloading accrual rules in subsections 204(b)(1)(A), (B), and (C) and at the same time be irrelevant with respect to the anti-discrimination accrual rule contained in subsection 204(b)(1)(H). None exists. Second, Gannett argues that the immediate lump-sum amount of the Basic Retirement Amount that a participant is entitled to receive upon termination, rather than the Plan's Accrued benefit, is the operative retirement benefit under the Plan. Gannett maintains that, `in virtually all cases" under the Plan, the Basic Retirement Amount immediate lump-sum available to a participant `will exceed the amount of their accrued benefit and is the amount they would receive 22

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upon termination or retirement. Motion at 25. Accordingly, Gannet contends, the Basic Retirement Amount lump-sum is the "best yardstick for measuring rates of benefit accrual under ERISA §204(b)(1)(H) since this is the amount which the employee would actually receive upon termination." Motion at 26. While Gannett's argument might be superficially beguiling, the immediate lump-sum value of the Basic Retirement Amount does not provide an appropriate reference point for measuring a defined benefit plan's compliance with subsection 204(b)(1)(H) for several reasons. Gannett argues that because the current lump-sum amount of a participant's Basic Retirement Amount, which the participant can receive immediately if he terminates before normal retirement age will almost always exceed the present value of the participant's accrued benefit at any time before normal retirement age, it is "the amount the employee would receive upon termination," and is therefore the better reference point. However, a Plan's compliance with a fundamental benefit accrual rule should not be measured in reference to a benefit amount is contingent upon the employee terminating employment prior to his normal retirement age. The immediate lump-sum available from the Basic Retirement Amount is only larger that the present value of a participant's accrued benefit prior to the time the employee reaches normal retirement age. An employee can only access that "higher value" if he elects to retire before he reaches age 65. At age 65, the lump-sum values of a participant's Basic Retirement Amount and his Accrued Benefit are equal. In fact, this age-65 equivalence between a participant's Basic Retirement Amount and Accrued Benefit highlights the age-based discrimination inherent in the Plan's Accrued Benefit formula. When the older of two otherwise similarly situated employees reaches normal retirement age, the values of his Basic Retirement Amount and his Accrued Benefit will be equal. At that point, while the value of the younger employee's Basic Retirement

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Amount will still be equal to the older employee's, the younger employee, for the same service at the same salary, will have an larger accrued benefit, giving him the guaranteed right to receive a higher benefit amount at his normal retirement age. This difference in the amount of the two employee's guaranteed age-65 benefits points to an even more significant reason for rejecting Gannett's approach. Under ERISA, a vested participant in a defined benefit plan has a non-forfeitable right to his Accrued Benefit, i.e., the amount of the annuity payable at normal retirement age that the participant has accrued as of any point in time. 29 U.S.C. §1053(a)(2)(A)(ii). However, only a portion of the immediate lumpsum amount in a participant's Basic Retirement Amount in non-forfeitable. To the extent that the immediate lump-sum amount exceeds the statutory present value of the participant's accrued benefit, which Gannett says is almost always, that excess amount is not part of an employee's non-forfeitable accrued benefit. American Stores Co. v. American Stores Co. Retirement Plan, 928 F.2d 986, 990 (10th Cir. 1991). Nor is that excess amount an early retirement benefit or retirement-type subsidy that would be protected by ERISA Section 204(g), which prohibits the reduction of accrued benefits. Thus, an employee has no guarantee that the entire Basic Retirement Amount lump-sum will be available to him if he leaves employment before his normal retirement age.9 A forfeitable benefit amount, which could at any time be retroactively reduced or eliminated, can hardly serve as an appropriate measure of the Plan's on-going compliance with the subsection 204(b)(1)(H) accrual rule. While Section 204(g) of ERISA prohibits a plan from being amended to reduce the amount of a participant's accrued benefit, the benefits protected by this provision only include the accrued benefit provided under the plan and any early retirement benefit or retirement-type
9

A lump-sum value in excess of the present value of the accrued benefit also is unprotected in the event a plan becomes insolvent and is involuntarily terminated. The benefit protection insurance provided by the Pension Benefit Guarantee Corporation only extends to "non-forfeitable" benefits. 29. U.S.C. §1322.

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subsidy with respect to benefits attributable to service before the amendment. 29 U.S.C. §1054(g). Any amount by which the immediate lump-sum value of a participant's Basic Retirement Amount exceeds the present value of the participant's accrued benefit is not part of the Accrued benefit provided under the Plan. Nor is it an early retirement benefit or retirementtype subsidy that could be considered a part of the protected accrued benefit under section 204(g). A forfeitable benefit amount, which could at any time be retroactively reduced or eliminated, can hardly serve as an appropriate measure of the Plan's on-going compliance with the subsection 204(b)(1)(H) accrual rule. The forfeitable and contingent nature of the immediate lump-sum value of the Basic Retirement Amount also differentiates the Gannett Plan from the cash balance plan that was at issue in Cooper. Under that plan the employer "contributed" hypothetical pay credits each year to a participant's hypothetical cash balance account and the amount in the account earned "interest" credits up until the employee reached normal retirement age. 457 F.3d at 637. The plan specified that the "accrued benefit" at any point in time would equal the existing account balance. Thus, since the entire amount of each year's hypothetical pay credit contributions was included within the accrued benefit, the entire amount of the contributions, to which the Cooper court looked for measuring compliance with 204(b)(1)(H), at least was non-forfeitable. That is not the case here and there is even less rationale here for measuring compliance with 204(b)(1)(H) by reference to Gannett's annual percentage point contributions to a participant's Basic Retirement Amount. C. AFTER CONVERSION OF THE PLAN TO THE PENSION EQUITY FORMULA, BENEFIT ACCRUALS FOR SOME PARTICIPANTS WERE CEASED ON ACCOUNT OF THEIR AGE.

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In addition to prohibiting reductions in the rate of an employee's benefit accrual on account of age, subsection 204(b)(1)(H) also makes it unlawful for "an employee's benefit accrual [to be] ceased" on account of age. Many Gannett employees who were participants in the Plan prior to the January 1, 1998 pension equity formula conversion worked for years after the conversion without any accrual of additional normal retirement benefit during those years. This cessation of benefit accruals came about as a result of the manner in which the Plan treated the accrued benefits those employees had earned under the Plan formula in use prior to January 1, 1998. Once accrued, those benefits became non-forfeitable and, even with the Plan being amended to reduce the rate of future benefit accruals, the participant was entitled to the value of those protected pre-conversion accruals as a minimum benefit. 29 U.S.C. §1054(g). Gannett could have treated those protected prior-plan benefits as a separate, preserved part of a participant's benefit and added benefits earned under the new plan formula for years of service after the conversion to that total benefit. Instead, Gannett chose a different conversion formula under which it calculated a present value as of December 31, 1997 for a participant's existing accrued benefit and converted that present value amount into a "Starting Percentage" that was included in the calculation of the participant's Basic Retirement Amount under the Pension Equity Formula.10 The Plan further specified that the participant would be entitled to a Minimum Benefit equal to the value of his protected accrued benefit under the prior plan formula. This methodology did comply with ERISA Section 204(g) by guaranteeing that after the conversion a participant would have an accrued benefit at least equal to the benefit he had accrued prior to the conversion. However, because of the formula used to calculate a participant's Accrued Benefit under the new plan formula, the entire value of the participant's

10

Under the Plan's Accrued Benefit formula, these Starting Percentage points, along with the potential Basic Percentage points that a participant could earn

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prior plan benefit was not included in the new Accrued Benefit computed under the Pension Equity Plan. For example, on December 31, 1997, Plaintiff Andrew Schaeffer had an accrued benefit, payable as an annuity at normal retirement age, of $5,696, which had a present value as of that date of $15, 028. However, as of January 1, 1998, Mr. Schaeffer's Accrued Benefit under the new plan formula was only $2,996, with a present value of $7,903. After working for a year, on January 1, 1999, Mr. Schaeffer's Accrued Benefit under the new Plan formula had increased to $3,284, with a present value of $11, 667. However as of that date, the value of his Accrued Benefit under the new formula was still less than the present value of his protected prior plan benefit, which had risen to $20,235.11 Thus, Mr. Schaeffer received no increase in his accrued benefit from the year of service he performed ­ his accrual of new benefits had ceased. For Mr. Schaeffer, this cessation in the accrual of any6 new benefit over and above the value of his protected prior plan benefit continued for six years. It was not until January 1, 2004 that his Accrued Benefit under the new Plan - $5,712 - exceeded his protected prior plan benefit, and the present value of that new Plan Accrued benefit exceeded the present value of of his prior plan benefit. This extended period without any accrual of additional benefits, while deplorable, does not in and of itself constitute a violation of subsection 204(b)(1)(H). The violation arises from the fact that if Mr. Schaeffer has been younger the period during which his accrual of new benefits was ceased would have been shorter. Gannett does not dispute this fact. Gannett's defense to Plaintiffs' cessation claim is essentially the same as its defense to the rate of benefit accrual claim ­ there was no cessation of accruals because the immediate lump-sum value of Mr. Schaeffer's Basic Retirement Amount exceeded the value of his
11

The increase in the present value of the protected benefit from one year to the next can arise from either or both a change in the discount interest rate being used in a particular year and the fact that the age 65 annuity amount is subject to one less year of discounting. Mr. Schaeffer was entitled to a minimum benefit as of January 1, 1999, based on that increased present value regardless of whether he had remained employed that year. Thus that "increase" was not the result of an additional benefit accrual from a year of service.

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protected benefit and the Plan's compliance with 204(b)(1)(H) should be measured with respect to this immediate lump-sum rather than the Accrued Benefit provided under the terms of the Plan. For the same reasons that Gannett's argument should be rejected in the rate of benefit accrual context, it should be rejected here. IV. CONCLUSION For the reasons set forth herein, the Court should deny Gannett's Motion for Summary judgment and should grant Plaintiffs summary judgment on their claims with respect to the issue of liability. Dated: September 12, 2007

HILL & ROBBINS, P.C. By: s/ Robert F. Hill 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 ________________, 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 email 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/Robert F. Hill_______________________ 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 FAX: (303) 296-2388 Email: [email protected]

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[email protected] [email protected]

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