Free Lodged Proposed Document - District Court of Arizona - Arizona

Allen v. Honeywell Ret. Earnings Plan, No. CV-04-0424-PHX-ROS

LODGED: PROPOSED PLAINTIFFS OPPOSITION TO DEFENDANTS NOVEMBER 16, 2007 MOTION FOR RECONSIDERATION

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SUSAN MARTIN (AZ#014226) DANIEL L. BONNETT (AZ#014127) JENNIFER KROLL (AZ#019859) MARTIN & BONNETT, P.L.L.C. 3300 N. Central Avenue, Suite 1720 Phoenix, Arizona 85012-2517 Telephone: (602) 240-6900 [email protected] [email protected] [email protected] Attorneys for Plaintiffs 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, vs. Honeywell Retirement Earnings Plan, Honeywell Secured Benefit Plan, Plan Administrator of Honeywell Retirement Earnings Plan and Plan Administrator of Honeywell Secured Benefit Plan, Defendants. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) )

No. CV04-0424 PHX ROS

Plaintiffs Opposition to Defendants November 16, 2007 Motion for Reconsideration

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This is Defendants third direct attempt to overturn this Court s summary judgment ruling.1 Not surprisingly, the motion is repetitive. In addition to arguments about an August 7, 2007 letter from Assistant Treasury Secretary, Eric Solomon to Congressman Jim McCrery ( Solomon letter ), the motion improperly attempts to reargue matters both fully presented

Defendants have previously filed five briefs seeking either reconsideration or interlocutory review. (See Docs. 79, 80, 95, 116 and 140.) Combined with the summary judgment briefing, Defendants have now briefed these issues no fewer than 8 times. (See also Docs. 15, 31, 38.)

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and considered by the Court as well as matters that Defendants could have, but failed to present.2 The Court awarded partial summary judgment in favor of Plaintiffs on their anticutback claims. Allen v. Honeywell Ret. Earnings Plan, 382 F.Supp.2d 1139 (D. Ariz. 2005). In its order denying Defendants earlier motion for reconsideration, the Court rejected

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Defendants claim that the Supreme Court s decision in National Cable v. Telecomm. Assn v. Brand X Internet Serv., 545 U.S. 967 (2005), authorized it to disregard the precedential effect of the Ninth Circuit s ruling in Michael v. Riverside Cement, 266 F.3d 1023 (9th Cir. 2001) based on the August 2005 regulations under § 411(d)(6) of the Internal Revenue Code. (Doc. 138.) The Court found that in clear and unambiguous terms, the 2005 regulations were prospective and only applied to plan amendments adopted after August 2005: There is nothing else Treasury could have said to make its intentions clearer. Defendants cite no case law, and the Court could find none, that would permit disregarding language so explicit. The fact that the agency expressly recognized contrary interpretations adopted by courts and cited these decisions as justification for enacting the Regulations suggests that the agency intended the effective date language to apply to all Regulations regardless of whether they were rule-making or interpretive. Further, it suggests that Treasury was aware of what the applicable authorities are and the outcome that could result in following them. Had Treasury intended for the regulations not to apply to this or any other similarly situated case, it could have stated that the regulations do not apply to any or all plans that existed prior to August 2005, except for matters pending before the court, but it did not. As a result, its intentions are clear, and the Court is left to consider the amendments in light of applicable authorities, which includes Michael. (Doc. 138 p. 12.) Like their previous motions, Defendants November 16, 2007 motion for reconsideration should be denied on the following grounds:

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1.

Defendants delay in filing their motion after the Solomon letter was authored

See e.g. Defs Br. pp. 12-14 making arguments about the record in Michael v. Riverside Cement, what the Michael court had before it and what it considered, all of which could and should have been argued in 2004.
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and inclusion of arguments they failed to make in prior briefing or that the Court already considered and rejected. (Point I) 2. Brand X does not apply to the Solomon letter because Chevron U.S.A., Inc. v.

Natural Resources Defense Council, Inc., 467 U.S. 837 (1984) is inapplicable. (Point II)
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3.

Michael is a sufficient, but not necessary predicate for a ruling in favor of

Plaintiffs on their anti-cutback claims. The challenged Retirement Plan amendments dramatically reduced Plaintiffs accrued benefits overall. Summary judgment in favor of Plaintiffs would still stand even if the Court were persuaded that the Solomon letter represented a change in the law justifying departure from Michael. (Point III) 4. The Solomon letter provides no basis for the Court to reconsider its summary

judgment ruling as the regulations are, in relevant respect, unambiguous and the Solomon letter is clearly erroneous and in conflict with the 2005 and the 1977 regulations and is not otherwise entitled to any form of deference. (Point IV) BACKGROUND Defendants offer no support for their claim that [t]aken as a whole, the amendment

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increased rather than decreased Plaintiffs benefits.

(Defs. Br. p. 3.) Defendants also

misstate the dates of the challenged amendment and mischaracterize Plaintiffs claims and this Court s rulings. As Plaintiffs have corrected Defendants, ad nauseum, the Court has determined that the merger of the Garrett Retirement Plan into the Signal Retirement Plan took place on December 31, 1983. Allen v. Honeywell Ret. Earnings Plan, 382 F.Supp.2d 1139, 1146 (D. Ariz. 2005). Likewise, Plaintiffs anti-cutback claims did not challenge the merger of the Garrett and Signal Plans per se, but rather the cutback in benefits effectuated by various discrete amendments adopted on different dates reducing Plaintiffs accrued benefits. In this latest square peg-round hole attempt to now take shelter under the 1977

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Treasury regulation, Defendants would have the Court ignore the actual adoption and effective dates of the various amendments at issue. (Defs br. p. 5.) However, under the 1977 Treasury regulation, in order for a plan s amendments to be considered as a single amendment for anti-cutback rule purposes, simultaneity of both the adoption and the

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effective dates of the amendments is required. In apparent recognition that to acknowledge the discrete adoption and effective dates of the challenged amendments would be to concede defeat under the 1977 regulation, Defendants disingenuously misstate the dates of the amendments. Defendants attempt to bundle their ERISA violations under one big merger amendment does not withstand scrutiny and would require either rewriting or ignoring the very regulations upon which Defendants purport to rely. There were, in fact, two sets of amendments to the Garrett Retirement Plan, each with different adoption and effective dates as follows: Amendment IX to the Garrett Retirement Plan. Amendment IX to the Garrett Retirement Plan was adopted on December 23, 1983 and was effective December 31, 1983. (Order, p.6.) That amendment merged the Garrett Retirement Plan into the Signal Retirement Plan, (id.) It also eliminated the fractional reduction to the SBA offset for participants with more than 35 years of service. February 1984 Signal Retirement Plan Amendments.3 On February 4, 1984, The adoption date of the Signal Plan amendments is disputed. In August 2001 Defendants first provided a Signal Retirement Plan document dated October 28, 1985. It was not until October 2003 after Plaintiffs administrative claims were denied, that Defendants first produced a Signal Retirement Plan document dated February 4, 1984 purporting to be effective as of January 1, 1984. As set forth in Plaintiffs Renewed Motion to Compel Disclosure of Documents Withheld By Defendants on Claim of Attorney-Client and/or Work Product Privilege, (Doc. 332), Defendants have listed as Document 44 on Defendants privilege log a document dated February 10, 1984 and entitled Letter Enclosing Draft Retirement Plan For Comment. The letter purporting to circulate a draft is dated after the February 4, 1984 Plan was allegedly adopted. This document, which refers to the Plan as a draft, after the date it was allegedly adopted appears to confirm Plaintiffs concern that the Signal Plan may not have been legally adopted until October 1985.
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the Signal Retirement Plan was amended effective January 1, 1984 to admit Garrett Retirement Plan participants for the first time and to change the benefits formulas in several respects at issue here. Among the amendments adopted at that time were the decreases in accrued benefits that the Court found violated the anti-cutback rule, including the amendments increasing the interest rate used to calculate the Retirement Plan s offset of the value of Retirees Severance Plan benefits and introduction of a Social Security offset applied to years of service before its adoption. The Solomon letter The Solomon letter provides no basis for the Court to revisit Shaw v. Int l Ass n of Machinists & Aerospace Workers Pension Plan, 750 F.2d 1458, 1460 (9th Cir. 1995) and Michael. The Solomon letter, which Defendants contend constitutes a significant change in the law, (Tr. of Status Hearing held on November 2, 2007 at 43-44, attached hereto as Exh. A) was never officially made public. Despite the multitude of official methods for publication and communication by the Treasury Department and the Internal Revenue

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Service with respect to ERISA matters, none were utilized in this case.4 To the contrary, an article about the letter was included in a Bureau of National Affairs (BNA) September 18, 2007 issue of Daily Reports for Executives in which BNA announced it had obtained the letter on September 17, 2007, (but not from whom). When queried, Michael Wyand, the

The Treasury and IRS s Regulations, policy statements and interpretations take various forms and are issued with different degrees of formality, publicity and legal effect. IRS Prac. & Proc. ¶ 3.01, table 3.1. Among the forms of binding guidance or guidance meant to be generally relied on are: Treasury regulations which are published in the Federal Register, Revenue Rulings which are also published in the Internal Revenue Bulletin and Revenue Procedures, which are published in the Internal Revenue Service Bulletin. Id., Table 3.1. Certain forms of guidance that are meant to binding only as to the party to whom the guidance is issued include Letter rulings and technical advice, which are publicly available for inspection under IRC § 6601. Id. Sources of information and guidance that are generally not binding on the IRS or taxpayers include the Internal Revenue Manual which is not published, information letters which are issued only to the requestor, IRS publications which are published by the IRS and oral communications which are also not published. Id. It appears this letter is nothing more than an information letter.
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reporter of the BNA article, refused to disclose from whom he had obtained the letter or to clarify whether it was from a private party or a government source, saying that such information was confidential and that keeping it confidential was his method of ensuring continued receipt of these types of documents.
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(Declaration of Jennifer Kroll in Support

of Plaintiffs Opposition to Defendants Motion for Reconsideration ( Kroll Declaration ¶3.) The Solomon letter is dated August 7, 2007 and responds to an inquiry from Congressman McCrery. It appears the letter attempts to reassure Congressman McCrery that the IRS will not take steps to disqualify plans that adopted an amendment before 2005 as a

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prohibited cutback if the amendment has the same applicable effective date as another amendment and the net effect of the two amendments does not involve a prohibited cutback even if the issue arose prior to the effective date of the 2005 regulations. (Doc. 323, Tab A.) The Solomon letter confirms that the 2005 regulations are prospective and apply for amendments adopted after August 11, 2005 (the date of the final regulations were published in the Federal Register) . (Id.) The Solomon letter confirms that the guidance provided in the final regulations on the issue raised was not based on any change in law during this period. Remarkably, Defendants want to use the Solomon letter s disavowal of either

retroactivity or any change in the law, as a proxy for a retroactive change in the law. Such circuitous reasoning is irrational.

Contrast this with the unsubstantiated representations in Defendants motion that on September 18, 2007, the U.S. Treasury Department made public the Solomon letter. (Defs. Br. p. 2.) There is no evidence before this Court to support the claim that Treasury or any government official made the letter public on September 18, 2007, or that they approved of its being made public. Nor is there anything in the record before this Court to support Defendants assertion that the Solomon letter was separately addressed and sent to each of the four signatories of the July 9 letter. (Defs. Br. p. 8.) Surely if Treasury intended to make the letter public, it would have utilized a more appropriate vehicle for an administrative pronouncement than a reporter at BNA.
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The quoted Solomon letter conclusion utilizes the terminology, applicable effective date. Such terms appear nowhere in the 1977 regulation or the 2005 regulations under 26 C.F.R. § 1.411(d)-3. The Solomon letter appears to exist solely as a result of a three page letter signed by two Congressman and two Senators a month earlier (the Solicitation Letter ), soliciting an opinion from the Treasury Department consistent with their own interpretation of the 1977 regulations, which they labeled the simultaneous amendment rule another term not appearing in the regulations but also used in the Solomon letter. (Doc. 323 at Tab G ) The Solomon letter was not written until August 7, 2007, 30 years after

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adoption of the 1977 regulation and two years after the 1977 regulation was replace[d]

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by the 2005 final regulations (although acknowledging that prior rules

generally have been carried over in the new regulations). 70 Fed. Reg. 47109, 47110-11 (2005) ( Overview ). Despite the clarity of the 2005 regulation, which plainly indicated that the 1977 rules were completely replaced, the Solicitation Letter erroneously asserts that the rules articulated under the 1977 regulations were not affected by the final regulations issued in 2005. (Doc. 323, at Tab G) The four paragraph Solomon letter acknowledges that the 2005 final regulations were the product of a long notice and comment process that began in 1998 and culminated in August 2005, in which the agency solicited comments, issued proposed regulations and then issued final regulations which were based on the entire record, including not only the

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written comments received, but also testimony at a public hearing that was held on June 24, 2004." Notwithstanding his agreement that the final 2005 regulations only apply prospectively, and without explanation or mention of the source of any authority to support his statement, the Solomon letter proceeds to describe the thirty year old and now superceded 1977 regulations in terms that do not appear in either the 1977 or the 2005 regulations as

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follows: The virtually identical simultaneous amendment rule in the 1977 regulations would apply to amendments adopted and effective prior to the effective date of the 2005 final regulations. Moreover, the interpretive conclusion in the 2005 final regulations is by logic equally applicable to periods before the effective date. As discussed below, the 1977 and 2005 regulations are plainly not virtually identical and they are expressly inapplicable to periods before August 2005. For this and many other reasons, the Solomon letter merits no respect and provides no basis to reconsider the Court s prior rulings.

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The Regulations The 1977 and 2005 regulations are clearly and unambiguously not virtually identical. Solomon s conclusion to the contrary is clearly erroneous, in conflict with the regulations and entitled to no respect. The 2005 regulations completely replace[d] the provisions in former § 1.411(d)-3. The only provision in the 1977 regulation that dealt with IRC § 411(d)(6) was a one paragraph, three sentence provision under 1.411(d)-3(b) entitled Prohibition against accrued benefit decrease. In contrast, the entirety of the 2005 regulations under 26 C.F.R. § 1.411(d)-3 is now entitled Section 411(d)(6) Protected Benefits. The 2005 regulations are divided into subparagraphs (a) through (j) and have separate subparagraphs for protection of accrued benefits and Section 411(d)(6)(B) protected benefits and include a generally

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applicable definitions section under subparagraph (g). The 2005 regulations for the first time include rules relating to changes to Section 411(d)(6) made by the Retirement Act of 1984, P.L. 98-397 (98 Stat. 1426) (REA). 70 Fed. Reg. 47109, 47110. As the preamble noted: Section 301(a) of REA amended Code section 411(d)(6) to add subparagraph (B), which provides that a plan amendment that has the effect of eliminating

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or reducing an early retirement benefit or a retirement-type subsidy, or eliminating an optional form of benefit, with respect to benefits attributable to service before the amendment is treated as impermissibly reducing accrued benefits. Id. at 47110. The accrued benefit cut-backs at issue in this case clearly affected Plaintiffs rights under both ERISA Section 204(g)(1) and 204(g)(2) (IRC § 411(d)(6)(A) and (B)). (Doc. 138 pp. 6-7.) Indeed, the change in the interest rate used to project the SBA offset only affects participants who leave employment before normal retirement age. The 1977 regulation had absolutely no application to Plaintiffs rights to early retirement benefits, retirement-type subsidies and optional forms of benefits. The 1977 regulation and the 2005 regulations are also different in other significant ways. The 1977 regulation requires that in order for more than one amendment to be treated as one plan amendment, the amendments must have both the same adoption and effective dates. 6 26 C.F.R. § 1.411(d)-3 (1977), 42 Fed. Reg. 42,340, TD 7501 (August 23, 1977). In contrast, the 2005 regulations require that amendments must have the same applicable

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amendment date, which is a defined term under the 2005 regulations as follows: Applicable amendment date. The term applicable amendment date, with respect to a plan amendment means the later of the effective date of the amendment or the date the amendment is adopted. 26 C.F.R. §1.411(d)-3(g)(4) (2005).7

See Crooks v. Harrelson, 282 U.S. 55, 58 (1930) ( We find nothing in the context or in other provisions of the statute which warrants the conclusion that the word and was used otherwise than its ordinary sense. ); OfficeMax, Inc. V. United States, 428 F.3d 583, 584-85 (6th Cir. 2006);1A Norman J. Singer, Statutes and Statutory Construction § 21.14, at 179-80 (6th ed. 2002) ( Statutory phrases separated by the word and are usually to be interpreted in the conjunctive. ). In disregard of the specific requirements of either regulation, the Solomon letter employs the novel applicable effective date in its conclusion. Applicable effective date is meaningless under either the 1977 or the 2005 regulations.
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The 2005 regulations also introduce a myriad of rules nowhere to be found in the 1977 regulation and, for example, clarify that the anti-cutback rule protects participants who satisfy the pre-amendment conditions for the benefit either before of after termination of employment. Needless to say, the 2005 regulations themselves expressly contradict

Solomon s virtually identical characterization. In conflict with Solomon s conclusion that the 1977 and 2005 regulations are virtually identical, the preamble to the 2005 regulations merely recites that the rules in the former regulation were generally carried over. I. DEFENDANTS MOTION IS UNTIMELY AND IMPROPER

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The Court s summary judgment order was entered in July 2005. Given the excessive briefing since that time, this is an appropriate occasion to adopt Defendants suggestion that [a]t some point, district courts need to say that they have decided an issue and leave it to the court of appeals to determine if they have decided it correctly. (Defs. Br. p. 9, citing this Court s opinion in Castaneda v. Thickett, No. 04-1143, 2006 WL 410880, at *1 (D. Ariz. Feb. 21, 2006) (Silver, J.).) Defendants delay constitutes grounds for denial of the motion. Local Rule 7.2(g) as in effect at the time Defendants motion for reconsideration was filed provided [a]bsent good cause shown, any motion for reconsideration shall be filed no later than ten (10) days after the filing of the Order that is the subject of the motion. October 2, 2007 was the tenth day after an article about the letter appeared in BNA. Defendants waited until November 16,

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2007, 101 days after the date of the letter and 45 days after the BNA article before filing their motion and make no attempt to justify their delay. Defendants motion also violated Local Rule 7.2(g) and applicable precedent by purporting to reargue matters fully argued or which should have been argued on summary judgment. The Court has already stated that:

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Motions for reconsideration are disfavored, however, and are not the place for parties to make new arguments not raised in their original briefs. Nor is it the time to ask the Court to rethink what it has already thought. (Doc. 138, pp. 5-6 (citations omitted).) Nevertheless, Defendants motion makes

arguments never raised in their original briefs and rehashes arguments previously rejected. The 1977 regulation s applicability to this case was briefed and argued several times. (See, e.g., Doc. 31, pp.8-9; Doc. 80, p. 2; Doc. 90, pp. 10, 12.) The Court rejected those arguments. Defendants also argue that the 1977 regulation should control because it is not clear that the Michael court actually considered them. (Defs. Br. pp. 12-14) This argument

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is patently inappropriate at this juncture. Defendants were free at all times to examine the record in Michael. They inexcusably failed to raise these issues three years ago. This argument is untimely and presents no grounds to reconsider the Court s summary judgment ruling. II. BRAND X DOES NOT APPLY Without explaining how or why, Defendants assert that the key point is that the Court s reasoning with respect to the 2005 Regulation [regarding the fact that under Brand X, the Treasury Departments reasonable interpretation binds the Courts] applies with equal force to the 1977 Regulation. (Defs Br. p. 9.) Defendants assertion that the 1977 Regulation trumps Michael for exactly the same reasons that this Court has concluded that the 2005 Regulation trumps Michael, (Defs. Br. p.11), proposes a wholly unauthorized

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expansion of the Supreme Court s holding in Brand X. National Cable & Telecomms. Ass n v. Brand X Internet Servs., 545 U.S. 967 (2005). Brand X dealt solely with the impact of an agency construction of a statute that was entitled to Chevron deference. The Brand X Court was explicit on this point: In all other respects, the court's prior ruling remains binding law (for example, as to agency interpretations to which Chevron is inapplicable).
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Brand X, 545 U.S. at 983-84.8 Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984)

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indisputably does not apply. This conclusion is the same regardless of whether the Solomon letter is deemed to be interpreting the statute (as Defendants appear to contend in relying on Brand X) or the regulations. See Christensen v. Harris County, 529 U.S. 576, 587 (2000); Bassiri v. Xerox Corp., 463 F.3d 927 (9th Cir. 2006). There is certainly no support in the Brand X opinion for the proposition that an informal letter that was not made public by the agency, purporting to interpret a thirty year old regulation two years after the regulation was entirely replace[d], could, if entitled to some form of deference, authorize setting aside controlling appellate court precedent. The Solomon letter does not present grounds for revisiting this Court s rulings that the Ninth Circuit s holdings in Shaw and Michael are dispositive. The motion for reconsideration should be denied. III. THE NET EFFECT OF THE CHALLENGED AMENDMENTS REDUCED ACCRUED BENEFITS
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Defendants also completely misrepresent the holding in Omohundro v. United States, 300 F.3d 1065, 1067 (9th Cir. 2002) (per curiam) when they state that a reasonable agency interpretation of a statute administered by the agency trumps an inconsistent judicial interpretation. (Defs. Br. p. 14.) Omohundro stands only for the proposition that an administrative agency s interpretation of a statute contained in an informal rulemaking must be accorded the level of deference set forth in Skidmore v. Swift & Co., 323 U.S. 134, 165 S.Ct. 161, 89 L. Ed. 124 (1944). 300 F.3d at 1068 citing Mead 533 U.S. at 234, 121 S.Ct. 2164. The Ninth Circuit chose to give deference to an IRS Revenue Ruling only after going through the Skidmore analysis and recognizing that the deference required depends on the thoroughness evident in [the agency s] consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade . . . . Id. Accordingly, Defendants have grossly misrepresented the holding in Omohundro by implying that an agency interpretation automatically trumps an inconsistent judicial interpretation. In fact, the Ninth Circuit made it patently clear nine months after Omohundro that once a panel resolves an issue in a precedential opinion, the matter is deemed to resolved, unless overruled by the court itself sitting en banc, or by the Supreme Court. Miranda B. v. Kitzhaber, 328 F.3d 1181, 1185 (9th Cir. 2003) (citation omitted).
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Defendants assert that the amendment at issue here did not violate ERISA s anticutback provision because, taken as a whole, that amendment increased rather than decreased plaintiffs benefits.
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(Defs Br. p. 3.) The fallacy of that claim disposes of the entire motion

for reconsideration. The net effect of the challenged amendments was a dramatic reduction in accrued benefits. Under ERISA whether an amendment reduced accrued benefits is determined as of the beginning of the first plan year to which the amendment applies.
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H.R. Conf. Rep. 93-

1280 P. 286. P.L. 93-406 (Aug. 12, 1974). Under the 2005 regulations the net effect test is
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also measured immediately after the amendment.

An amendment will violate Section

411(d)(6) if for any participant, the net effect is to decrease participants accrued benefit as of that applicable amendment date. 26 C.F.R. §1. 411(d)-3(a)(2)(ii) (emphasis added).

As set forth in the declaration of Claude Poulin ( Poulin Decl. ) submitted herewith, the accrued benefits of Garrett Plan participants were reduced overall as a net effect of the

There was no doubt on summary judgment that the controlling authorities in this Circuit were the rulings in Michael v. Riverside Cement, 266 F.3d 1023 (9th Cir. 2001) and Shaw v. Int l Ass n of Machinists & Aerospace Workers Pension Plan, 750 F.2d 1458, 1460 (9th Cir. 1995). Although Plaintiffs submit that no basis exists for the Court to revisit those precedents, if, however as Defendants urge, reconsideration is warranted because of a change in controlling law, judgment in favor of Plaintiffs is still appropriate because the challenged amendments reduced accrued benefits overall. Defendants motion should be denied for the simple reason that they have left the Court and Plaintiffs to guess how or where there might have been an increase in benefits or how or where the net effect of any amendments increased rather than decreased accrued benefits. Plaintiffs cannot adequately address Defendants contentions and submit that further briefing may be appropriate if the Court determines to reconsider the partial summary judgment ruling. Alberty-Velez v. Corporacion De Puerto Rico Para La Difusion Publica, 242 F.3d 418, 422 (1st Cir. 2001) (citing Leddy v. Standard Drywall, Inc., 875 F.2d 383, 386 (2d Cir.1989)). Contrary to the clear protections of the statute, Defendants position at summary judgment endeavored to compare Plaintiffs benefits at termination of employment with their benefits on December 31, 1983 in two declarations stricken by the Court.
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challenged amendments. (Poulin Decl. ¶ 2, 17-18, 20.) Sixty-nine percent (69%) of all Garrett Plan participants (an estimated 11,385 out of the total 16,500 participants) experienced a reduction in their accrued normal retirement benefits as a result of the amendments under the Signal Retirement Plan effective as of January 1, 1984 calculated as of January 1, 1984 compared to their accrued normal retirement benefits under the Garrett Plan calculated as of December 31, 1983. (Id. ¶ 17.) Fifty-six percent (56%) of all Garrett Plan participants currently receiving benefits ( retired participants ), ninety-three percent (93%) of all deferred vested participants and ninety-two percent (92%) of all active

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participants experienced a reduction in their accrued benefits as of January 1, 1984. (Id. ¶18.) Overnight, the reduction in benefits effectuated by the challenged amendments was as large as $320 per month for life for one of the Garrett participants. (Id.) Based on the actual reduction in accrued benefits on the day after the amendments, there can be no dispute that the Court s summary judgment ruling was appropriate under a net effect analysis as well as under Michael and Shaw. So drastic were the reductions in accrued benefits effectuated by the challenged amendments that some participants never recovered. Despite additional years of service and notwithstanding years of salary increases, approximately 102 former Garrett Plan participants were actually paid or are scheduled to be paid benefits under the Signal Plan that are less than the benefits those participants had accrued under the Garrett Plan in 1983 on the day before the amendments. (Poulin Decl.

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¶18.) This was true for participants who terminated employment as many as18 years after December 31, 1983. The reduction in actual normal retirement benefits under the Signal Plan at date of termination compared to accrued benefits under the Garrett Plan on December 31, 1983 was as large as $117 per month.. (Id.) This group of participants received an average of $33 per month less than they were entitled to receive under the Garrett Plan on December 31, 1983. (Id.)
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As Mr. Poulin explains, the net effect of the reduction in accrued benefits under the Signal Plan can be illustrated without resort to complex actuarial analysis. (Poulin Decl. ¶ 21-23.) The Court will recall that both plans direct that benefits be calculated under the formula that produces the highest benefit. (See id. at ¶ 8, 10, 11.) As of January 1, 1984, the Signal Plan s 1% Minimum Benefits Formula produced the highest normal retirement benefit for 771 former Garrett Plan participants. (Id. ¶ 22.) The Garrett Plan s Basic Formula also provided a1% computation formula (1% of final average compensation up to the maximum Social Security wage base times years of credited services minus the SBA offset). (Id. ¶ 8,

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21.) Because, contrary to the terms of the Signal Plan,11 Defendants applied an increased SBA offset in the calculations under the Signal Plan 1% Minimum Benefits Formula, the accrued benefits for participants for whom the 1% Minimum Benefits Formula produced the highest benefit under the Signal Plan were, by definition, reduced. (Id. ¶ 21-22.) Although Defendants make no such arguments now, in their earlier motion for reconsideration, Defendants argued that Section 4.10(c)(ii) of the Signal Retirement Plan operated to prevent accrued benefits from being decreased by the challenged plan amendments.12 However, this Signal Plan provision offers no escape clause for Defendants The Court found that the Plan did not permit Defendants to apply an SBA offset to the calculation of benefits under the Minimum Benefits formula. Allen, 382 F.Suppp.2d at 1173. Defendants have indicated their intent to appeal this ruling. Plaintiffs present this illustration to demonstrate that the 1984 Plan amendments, by definition, reduced accrued benefits through, inter alia, the change in the SBA offset . The example further demonstrates that even if Defendants were to prevail on appeal on their claim that the 1984 Signal Plan did not prohibit application of an SBA offset to the minimum benefits formula, application of that offset to the minimum benefits formula results in an impermissible reduction of accrued benefits in violation of Section 204(g) of ERISA. The only other argument advanced by Defendants on summary judgment to support their defense that the amendments somehow increased benefits overall was through reference to the December 31, 1983 amendment to the separate Severance Plan which provided for its termination through the complete discontinuance of its contributions and provided that
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ERISA violations. Section 4.10(c) of the 1984 Plan provides that a participant s: Accrued Benefit as of December 31, 1983 of any Employee or Former Employee who was a participant in any plan which merged with this plan as of January 1, 1984 shall not be less than his Accrued Benefit as of December 31, 1983 determined under the terms of such other plan and, for Participants eligible to commence benefits on December 31, 1983, further determined by reference to the actuarial equivalence tables or interest assumption [sic] actually specified in such other plan on December 31, 1983. ( Doc 16, Promislo Decl. Ex. E § 4.10(c)(ii) at HW0000351-52(emphasis supplied).) On its face does not apply to this situation. The Garrett Plan merged with the Signal Plan on December 31, 1983.13 Because the provision applies to Plans that merged as of January 1, 1984" the provision does not apply to Garrett Plan participants. In any event, it appears to be nothing more than a vehicle to determine how to calculate benefits for participants who do not accrue benefits after December 31, 1983 and for whom there is no longer a functioning pension plan. The use of the December 31, 1983 reference point for the Signal Plan measurement provides no safeguard whatsoever to Plaintiffs whose benefits were

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reduced under the Signal Plan on January 1, 1984. A promise that the Signal Plan s benefits on December 31, 1983 will not be less than the Garrett Plan s benefits on December 31, 1983 provides no protection from reduction in accrued benefits by the Signal Plan on January 1, excess assets, if any, were to be allocated. Defendants also attempted to rely on the fortuity of a favorable interest rate provided by an insurance company guaranteed under a group annuity contract until 2009. Neither the contract nor the rate were ever promised by Defendants through any plan amendment or otherwise. Under no circumstances could a net effect rule allow amendments of one pension plan to be treated as a single amendment of an entirely different pension plan. See Miller v. Xerox, 464 F.3d 871, 875 (9th Cir. 2006) ( [T]he defined benefit and defined contribution portions of a combined floor-offset plan must satisfy the ERISA requirements applicable to the respective types of plans. ). See also Berger v. Xerox Ret. Income Gaur. Plan, 338 F.3d 755, 764 (7th Cir. 2003) ( entitlement conferred by [defined benefit] plan,...is independent of other entitlements that the employee might have... ).
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Other plans merged with the Signal Plan effective January 1, 1984.
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1984. Furthermore, as Plaintiffs previously asserted, the provision does not purport to protect all of Plaintiffs accrued benefits in this case. The 1984 Plan narrowly defines

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accrued benefits as (b) An Employee s Accrued Benefit as of his separation from the Service shall be equal to his Normal Retirement Benefit computed under Section 4.2. (Decl. Of Amy Promislo, dated May 4, 2004, Exhibit E, at HW0000351.) The definition, and hence the Section 4.10 (c)(ii) , did not include early retirement benefits set forth under Signal Plan Sections 4.3 and 4.4, Disability Retirement Benefits under Section 4.5 or Optional Retirement Benefits under Section 4.6. (Id., at HW0000340-42; 344-45.) While the 2005 regulations provided that a plan could avoid violating Section 411(d)(6) through a provision under which a participant s accrued benefit could not be less than it was before the applicable amendment date, no parallel provision exists under the 1977 regulation and even if it did, Defendants Plan provision did not even purport to protect benefits on February 4, 1984, the date the Signal Plan was adopted.

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If there were any doubt that the provision did not apply to Garrett Plan participants, such doubt is dispelled by the fact that approximately 100 participants are actually being paid or scheduled to be paid lower benefits than they had earned as of December 31, 1983and by the fact that the Signal Plan never calculated or took into account the calculation of Plaintiffs accrued normal retirement benefits under the Garrett Plan as of December 31, 1983. (See Poulin Decl. ¶ 19.) Section 4.10(c)(ii) of the Signal Retirement Plan does not save the February 4, 1984 amendments from violation of the anti-cutback rule. IV. THE SOLOMON LETTER IS NOT ENTITLED TO RESPECT In urging reconsideration, Defendants assert that Auer v. Robbins, 519 U.S. 542 (1997) and Bassiri v. Xerox Corp., 463 F.3d 927 (9th Cir. 2006) should govern this Court s

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inquiry. However, Auer deference is not appropriate because the 2005 and 1977 regulations are not ambiguous in any relevant respect and because the Solomon letter does not apply to the facts of this case and even if it did, it is inconsistent with the regulations and is plainly erroneous.14 As set forth above at pp. 8-10, the characterization of the 2005 and 1977 regulations ase virtually identical and other characterizations in the letter are in conflict with the clear and unambiguous terms of the regulations and are clearly erroneous. This Court has already found that the preamble to the 2005 regulations could not be more clear with regard to the fact that the regulations apply only prospectively (i.e after

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August 12, 2005). (Doc. 138 p. 12.) Likewise, the IRS could not be more clear that the 1977 regulation was completely replace[d]. The two regulations employ separate and

unambiguous rules regarding the circumstances under which more than one amendment can be treated as a single amendment. In addition, the three sentence 1977 regulation had no application to early retirement benefits at issue here. Solomon s suggestion that the 2005 regulations consisting of ten subparagraphs and specific definitions and examples mirror

Furthermore, this cannot be considered an agency interpretation in any legitimate respect. There is no evidence that Treasury intended for the letter to be made public or to provide anything other than a response to Congressman McCrery on whether IRS would take enforcement action under the circumstances outlined, a matter divorced from the inquiry here. See Swede v. Rochester Carpenters Pension Fund, 467 F.3d 216, 221 (2d Cir. 2006) (mere fact that IRS Revenue Procedure limited the retroactive effect of the Supreme Court s ruling in Central Laborers Pension Fund v. Heinz, 541 U.S. 739 (2004) did not mean that a participant could not challenge a similar retroactive cutback in benefits under Title I of ERISA). In Swede, the Second Circuit held that a Revenue Procedure s rules regarding plan qualification issues would not be applied to participant rights under Section 204(g) of ERISA. 467 F.3d at 221. Similarly, the Solomon letter merely provides assurance to tax committee members that the IRS will not challenge the tax exempt status of any entity even if the issue arose prior to the effective date of the 2005 final regulation. Since the IRS has no enforcement authority under Title I or ERISA, Solomon s choice of such limiting language negates any intention to impact participant rights under Title I. See Gonzales v. Oregon, 546 U.S. 243, 257-58, 269 (2006).
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the three sentence 1977 regulation is not persuasive nor entitled to any respect. In Southeast Alaska Conservation Counsel v. U. S. Army Corp of Engineers, 486 F.3d 638 (9th Cir. 2007), the Ninth Circuit reversed a lower court decision upholding the issuance of a permit by the EPA, based upon the EPA s arbitrary application of a surmised intent regarding a regulatory definition as justification for issuing the permit. The dispute centered around language contained in the Clean Water Act and regulations defining fill material and its application to froth-floatation mill operations. In reconciling two different regulations, each equally applicable but seemingly in conflict and attempting to determine

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their intent, the court stated, Courts consider contemporaneous explanations of regulations, such as those published in the Federal Register through noticeand-comment rulemaking, in order to determine an agency s intent. (Citations omitted) And courts will not defer to an agency s interpretation of a regulation that contradicts the agency s intent at the time it promulgated the regulation. 486 F.3d at 648. Instead, the appellate court looked at the definitions found in the current

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regulations as the proper source for determining the agency s intent. When the agencies promulgated the current definition in 2002, they foresaw and specifically addressed the potential conflict between the effects-based definition of fill material and performance standards already in place. To that end, the agencies explicitly stated that wastes subject to performance standards and effluent limitations would not be considered fill material. The Corp s application of the fill rule in this case, therefore, contradicts its interpretation at the time the regulation was promulgated. 486 F.3d at 648-649. See also Oregon Natural Resources Council v. Brong, 492 F.3d 1120, 1125 (9 th Cir. 2007). In this case, when the 2005 regulations were finalized by the Department of Treasury following the formal notice and comment period under the APA, a process explicitly recognized in the Solomon letter, a preamble was included which unambiguously states that

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the relevant regulations apply prospectively and only to amendments adopted after the effective date (i.e., August 12, 2005). The preamble also makes it unambiguously clear that amendments adopted prior to that date are to be resolved under applicable authority. On June 22, 2004, during the notice and comment period, the ERISA Industry Committee ( ERIC ) submitted comments regarding the Proposed §411(d)(6) Regulations urging Treasury to revise the rules to make clear that the regulations net effect rule (which it referred to as

the simultaneous amendment rule) applies to amendments adopted before publication of the final regulations as well as to amendments adopted thereafter. (Kroll Decl. ¶ 6 Exhibit B) Notwithstanding ERIC s request, the Treasury Department, after reciting that it considered all comments during the full notice and comment period, elected not to do so choosing

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instead to state in the preamble that application of the anti-cutback rule for amendments effective prior to August 12, 2005 should be reviewed under the applicable authorities. In this Circuit, the applicable authority is Michael v. Riverside Cement, as this Court has also recognized on repeated occasions. As this Court held, it would have been a simple matter for the Treasury to rule that the new regulation or for that matter, that the old 1977 regulation applied to pending cases, yet despite explicit comments, it expressly chose not to do so. To the degree that the Solomon letter purports to suggest that the 2005 regulations should apply by logic, or that the 1977 regulation somehow has an identical meaning, the letter violates the express determination in the 2005 regulations that there was to be no retroactive effect. To the degree the Solomon letter says the 2005 regulation should be applied by logic, it is not authoritative and cannot bind the court when the regulation itself

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clearly does not. Neither Auer nor Bassiri deference can apply.15

Because Plaintiffs believe that Bassiri does not apply and that the Court misapprehended Plaintiffs request to examine the circumstances surrounding the issuance of the letter, Plaintiffs have filed a motion for reconsideration of the Court s order denying
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CONCLUSION For the foregoing reasons, Plaintiffs respectfully request that Defendants November 16, 2007 Motion for Reconsideration be denied. Respectfully submitted this 21st day of December, 2007. MARTIN & BONNETT, P.L.L.C. By: s/Susan Martin Susan Martin Daniel L. Bonnett Jennifer L. Kroll 3300 North Central Avenue, Suite 1720 Phoenix, AZ 85012-2517 (602) 240-6900 Attorneys for Plaintiffs

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discovery and request the right to supplement this response in the event the Court permits discovery to proceed. See United States v. Mead, 533 U.S. 218, 228 (2001) ( The fair measure of deference to an agency administering its own statute has been understood to vary with circumstances, and courts have looked to the degree of the agency s care, its consistency, formality, and relative expertness, and to the persuasiveness of the agency s position. ) (citations and footnotes omitted).
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CERTIFICATE OF SERVICE I hereby certify that on December 21, 2007, 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 the Following CM/ECF registrants: David B. Rosenbaum Dawn L. Dauphine Osborn Maledon, P.A. 2929 North Central Ave., Suite 2100 Phoenix, AZ 85012-2794 Michael 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 Amy Covert Proskauer Rose LLP One Newark Center, 18th Floor Newark , NJ 07102-5211 Christopher Landau Eleanor R. Barrett Craig Primis Kirkland & Ellis LLP 655 Fifteenth Street, N.W. Washington, D.C. 20005 Attorneys for the Defendants s/.J. Kroll

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