Free Lodged Proposed Document - District Court of Arizona - Arizona

ALLEN v. HONEYWELL RET. EARNINGS PLAN NO. CV04-0424 PHX ROS

LODGED: PROPOSED REPLY IN OPPOSITION TO PLAINTIFFS' NOTICE OF SUPPLEMENTAL AUTHORITY

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David B. Rosenbaum, Atty. No. 009819 Dawn L. Dauphine, Atty. No. 010833 OSBORN MALEDON, P.A. 2929 North Central Avenue, Suite 2100 Phoenix, AZ 85012-2794 Telephone: (602) 640-9000 [email protected] [email protected] Michael L. Banks, Pro Hac Vice Azeez Hayne, Pro Hac Vice MORGAN, LEWIS & BOCKIUS LLP 1701 Market Street Philadelphia, PA 19103 Telephone: (215) 963-5000 [email protected] [email protected] Christopher Landau, P.C., Pro Hac Vice Craig S. Primis, P.C., Pro Hac Vice Eleanor R. Barrett, Pro Hac Vice KIRKLAND & ELLIS LLP 655 Fifteenth Street, N.W. Washington, D.C. 20005-5793 Telephone: (202) 879-5000 [email protected] [email protected] [email protected] Amy Covert, Pro Hac Vice PROSKAUER ROSE LLP One Newark Center, 18th Floor Newark, NJ 07102 Telephone: (973) 274-3258 [email protected]

Howard Shapiro, Pro Hac Vice PROSKAUER ROSE LLP 909 Poydras Street, Suite 1100 New Orleans, LA 70112-4017 Telephone: (504) 310-4088 [email protected] Attorneys for Defendants

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA Barbara Allen, Richard Dippold, Melvin Jones, Donald McCarty, Richard Scates and Walter G. West, individually and on behalf of all others similarly situated, Plaintiffs, No. CV04-0424 PHX ROS

21 vs. 22 23 24 25 Defendants. 26 27 28 Honeywell Retirement Earnings Plan, Honeywell Secured Benefit Plan, Plan Administrator of Honeywell Retirement Earnings Plan, and Plan Administrator of Honeywell Secured Benefit Plan,

REPLY IN OPPOSITION TO PLAINTIFFS' NOTICE OF SUPPLEMENTAL AUTHORITY

Plaintiffs' Notice of Supplemental Authority filed with this Court on April 15, 2008, with respect to Internal Revenue Service Revenue Ruling 79-325, 1979-2 C.B. 190,
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is yet another in a sea of red herrings floated by Plaintiffs in this case, and it should be disregarded by this Court for two reasons: (1) Plaintiffs cite a 29-year-old IRS ruling as "Supplemental Authority" in

support of their opposition to Defendants' Motion to Reconsider ("Motion"). Briefing on that motion has been closed for months (other than with respect to the process by which the Treasury letter was issued and the deference due to that letter). Plaintiffs' belated "Notice of Supplemental Authority" is merely an attempt to circumvent the limitations imposed by this Court on the submission of briefs. (2) In addition, and as discussed further below, the purported "supplemental

authority" cited by Plaintiffs has no application to the facts of this case. On the first point, the parties' "Stipulation Concerning Lobbying Discovery and Schedule for Supplemental Briefing on Honeywell's Motion to Reconsider," filed on March 20, 2008, and this Court's Order dated March 21, 2008 ("March 21 Order"), made clear that no further briefing would be permitted on the Motion, other than on the issue of the deference due the Treasury letter. In derogation of this clear understanding between the parties and this Court's March 21 Order, Plaintiffs filed a "Notice of Supplemental Authority" on April 15, 2008 that cited a decades-old IRS ruling. This is plainly not a proper use of " Supplemental Authority," and for that reason alone, the Court should disregard the Notice. Moreover, the 1979 Revenue Ruling cited by Plaintiffs is simply irrelevant, and reflects yet another attempt to cobble together a viable anti-cutback argument where none exists. Revenue Ruling 79-325 deals with a situation in which a plan sponsor amended a plan during a plan year, retroactive to the beginning of that plan year, to reduce the participants' accrued benefits from the level in effect on the date the amendment was adopted to the level in effect at the beginning of the plan year. The Ruling holds that even though the amendment was adopted during the plan year, it could not be made retroactive to the beginning of the year if to do so would result in a decrease in benefits accrued between the beginning of the plan year and the date the plan amendment was adopted. By
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way of example, if a plan amendment is adopted on September 1st of a given year and made retroactive to January 1st of the same year, and if participants had accrued benefits during the intervening eight months, the Revenue Ruling makes clear that those eight months of accrued benefits may not be reduced by making the amendment retroactive to January 1st. Defendants do not quarrel with that conclusion, which correctly applies the anti-cutback rule in the context of the facts presented there. The factual scenario addressed by the 1979 Revenue Ruling, however, bears no resemblance to the fact pattern in this case. Here, the December 1983 amendments to the Garrett Retirement Plan froze participants' benefits as of December 31, 1983, so no participant accrued any benefits in the period between the adoption of the Garrett Retirement Plan amendment at the end of 1983 and the later adoption of the Signal Plan amendments at issue in this case. Specifically, the Garrett Retirement Plan was amended on December 23, 1983, by Amendment IX (the "Garrett Amendment"), to effectuate its merger into the Signal Retirement Plan effective December 31, 1983. The Garrett Amendment provided that "[u]pon such merger, no participant in this Plan or any former Participant shall be entitled to any rights or benefits under this Plan except to the extent expressly provided under the Signal Retirement Plan." (HW 0000303, 0000304) (emphasis added). In other words, unlike the factual scenario contemplated in Revenue Ruling 79-325, the Garrett Amendment was timely adopted in advance of the Garrett Plan's December 31, 1983 merger into the Signal Retirement Plan to freeze any further accruals under the Garrett Retirement Plan. The Garrett employees only resumed accruing additional benefits when the Signal Retirement Plan was amended, retroactive to January 1, 1984, to make them participants and give them newly accrued benefits. In other words, unlike the facts of Revenue Ruling 79-325, the Garrett employees did not accrue benefits under any benefit formula between December 31, 1983 and the date the Signal Retirement Plan was amended and restated to provide for such accruals. This sequencing of events is common in connection with pension plan mergers, particularly in the context of a corporate
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transaction. Such sequencing freezes benefit accruals for a period of time until the parties can draft and adopt the often complex amendments necessary to effectuate the plan merger and the transition of the acquired employee group into the new plan's accrual formula. Once the amendment is adopted, the new benefit accruals are made retroactive to the effective date of the amendment. Plaintiffs' Notice of Supplemental Authority asserts that "Revenue Ruling 79-325 negates Defendants [sic] argument that the 1984 amendments reducing Plaintiffs [sic] accrued benefits were somehow saved from violation of the anti-cutback rule (Section 204(g) of ERISA and IRC Section 411(d)(6)) by virtue of a Signal Retirement Plan provision (§4.10(c)(ii))." Nothing could be further from the truth. Defendants have established, consistent with the 1977 Treasury Regulations (and as clarified in the 2005 Treasury Regulations), that the Signal Retirement Plan, as amended and restated as of January 1, 1984, implemented the new Signal Retirement Plan accrual formula both retroactively and prospectively for Garrett employees, but preserved, per Section 4.10(c)(ii), the Garrett employees' accrued benefits determined under the Garrett Plan formula as of December 31, 1983, the date on which their accruals under that formula had been timely frozen. This is all that Internal Revenue Code Section 411(d)(6) requires when adopting a new benefit accrual formula with retroactive application. Nothing in Revenue Ruling 79-325 suggests that this approach violates Code Section 411(d)(6). In short, Plaintiffs' "Notice of Supplemental Authority" is an untimely attempt to inject an irrelevant piece of 29-year old IRS authority into this case, in a last-ditch effort to muddy the waters concerning Plaintiffs' untenable anti-cutback claim. It should be disregarded by this Court. /// /// /// ///
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Respectfully submitted this 21st day of April, 2008. OSBORN MALEDON By: /s/David B. Rosenbaum David B. Rosenbaum Dawn L. Dauphine Osborn Maledon, P.A. 2929 North Central Avenue, Suite 2100 Phoenix, AZ 85012-2794 Michael L. Banks Azeez Hayne MORGAN, LEWIS & BOCKIUS LLP 1701 Market Street Philadelphia, PA 19103 Howard Shapiro PROSKAUER ROSE LLP 909 Poydras Street, Suite 1100 New Orleans, LA 70112-4017 Amy Covert PROSKAUER ROSE LLP One Newark Center, 18th Floor Newark, NJ 07102-5211 Christopher Landau, P.C. Craig S. Primis, P.C. Eleanor R. Barrett KIRKLAND & ELLIS LLP 655 Fifteenth Street, N.W. Washington, DC 20005-5793 Attorneys for Defendants

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CERTIFICATE OF SERVICE I do certify that on April 21, 2008, I electronically transmitted the attached document to the Clerk's Office using the CM/ECF System for filing and transmittal of a Notice of Electronic Filing to all CM/ECF registrants.

/s/ Kelly Dourlein

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