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BERGER v. NAZAMETZ

July 27, 2001

DAVID BERGER AND GERRY TSUPROS, ON BEHALF OF THEMSELVES AND OTHERS SIMILARLY SITUATED, PLAINTIFFS, VS. PATRICIA M. NAZAMETZ AND XEROX CORPORATION RETIREMENT INCOME GUARANTEE PLAN, DEFENDANTS.


The opinion of the court was delivered by: David R. Herndon, United States District Judge

  MEMORANDUM AND ORDER

I. Introduction

David Berger filed suit in this Court against the Xerox Corporation Retirement Income Guarantee Plan ("RIGP") and Patricia Nazametz, as the administrators of an employee benefit plan under ERISA. Berger seeks equitable relief, including restitution, for the Plan's alleged violation of ERISA and the Internal Revenue Code and for the alleged implementation of treasury regulations. Berger terminated his employment before a normal retirement age pursuant to a Voluntary Reduction in Force program. Berger alleges that the lump sum distribution of pension benefits that he received when he retired early was less than the present value of his minimum benefits at normal retirement age. On February 7, 2001, the Court certified a class consisting of all RIGP participants who received a lump sum distribution after January 1, 1990 (Doc. 88). On January 10, 2001, Magistrate Judge Gerald B. Cohn entered an Order granting Plaintiffs' motion to add an additional named plaintiff, Gerry Tsupros, finding that Tsupros is similarly situated to Berger.

The parties have filed cross motions for summary judgment as to Counts I, II and III of Plaintiffs' First Amended Complaint (Docs. 56 and 78). On January 4, 2001 and July 3, 2001, the Court heard oral argument on the motions. In addition, the parties have submitted voluminous briefs and exhibits for the Court's consideration. For the following reasons, the Court denies Defendants' motion for summary judgment and grants Plaintiffs motion for summary judgment as to liability on Counts I and II. The Court grants Defendants' motion for summary judgment as to Count III with Plaintiffs being given leave to amend.

II. Summary Judgment Standard

Summary judgment is proper where the pleadings and affidavits, if any, "show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." FED. R. CIV. P. 56(c); Oates v. Discovery Zone, 116 F.3d 1161, 1165 (7th Cir. 1997)(citing Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986)). The movant bears the burden of establishing the absence of fact issues and entitlement to judgment as a matter of law. Santaella v. Metropolitan Life Ins. Co., 123 F.3d 456, 461 (7th Cir. 1997)(citing Celotex, 477 U.S. at 323). The Court must consider the entire record, drawing reasonable inferences and resolving factual disputes in favor of the non-movant. Regensburger v. China Adoption Consultants, Ltd., 138 F.3d 1201, 1205 (7th Cir. 1998)(citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986)).

In response to a motion for summary judgment, the non-movant may not simply rest upon the allegations in his pleadings. Rather, the non-moving party must show through specific evidence that an issue of fact remains on matters for which he bears the burden of proof at trial. Walker v. Shansky, 28 F.3d 666, 670-71 (7th Cir. 1994), aff'd, 51 F.3d 276 (citing Celotex, 477 U.S. at 324). In reviewing a summary judgment motion, the Court does not determine the truth of asserted matters, but rather decides whether there is a genuine factual issue for trial. Celex Group, Inc. v. Executive Gallery, Inc., 877 F. Supp. 1114, 1124 (N.D. Ill. 1995). The "mere existence of a scintilla of evidence in support of the plaintiff's position will be insufficient to show a genuine issue of material fact." Weeks v. Samsung Heavy Industries Co., Ltd., 126 F.3d 926, 933 (7th Cir. 1997)(citing Anderson, 477 U.S. at 252). No issue remains for trial "unless there is sufficient evidence favoring the non-moving party for a jury to return a verdict for that party. If the evidence is merely colorable, or is not sufficiently probative, summary judgment may be granted." Anderson, 477 U.S. at 249-50 (citations omitted). Accord Starzenski v. City of Elkhart, 87 F.3d 872, 880 (7th Cir. 1996), cert. denied, 519 U.S. 1055 (1997); Tolle v. Carroll Touch, Inc., 23 F.3d 174, 178 (7th Cir. 1994).
Because this case is brought under ERISA, federal common law principles govern. GCIU Employer Retirement Fund v. Chicago Tribune Co., 66 F.3d 862, 864-65 (7th Cir. 1995)(citing Phillips v. Lincoln Nat. Life Ins. Co., 978 F.2d 302, 307 (7th Cir. 1992)). These principles direct a court to construe terms of ERISA plans "in an ordinary and popular sense as would a person of average intelligence and experience." Swaback v. Ameritech, 103 F.3d 535, 540-41 (7th Cir. 1996). In addition, a court reviews questions of law de novo, regardless of whether the plan vests the plan administrator with discretion. E.g., Williams v. Midwest Operating Eng'rs Welfare Fund, 125 F.3d 1138, 1140 (7th Cir. 1997), overruled on other grounds, Mers v. Marriott Int'l Group Accidental Death and Dismemberment Plan, 144 F.3d 1014 (7th Cir. 1998). The issues presented in this case involve questions of law and not plan interpretation. This Court's review of those issues is de novo and not under an arbitrary and capricious standard.

III. Factual Background

The underlying material facts relevant to Plaintiffs' and Defendants' motions are not in dispute. Prior to 1990, Xerox maintained a defined contribution plan known as the Xerox Corporation Profit Sharing Plan (the "PSP") and a separate defined benefit plan known as the Xerox Corporation Retirement Income Guarantee Plan (the "RIGP"). These plans represented the two prongs of a so-called "floor offset" arrangement. Under this arrangement, the defined contribution benefit provided by the PSP was applied to offset and reduce the amount of the defined benefit provided by the RIGP. A participant would always receive a benefit at least equal to the that provided by the RIGP (i.e., the "floor plan"), but might receive a higher benefit if the contributions and earnings attributable to her account in the PSP provided a larger benefit. At all relevant times, the RIGP has provided for a normal retirement age of age 65. RIGP § 1.24. For years prior to 2000, the RIGP has applied the PBGC rates as in effect on the first day of the year in which the distribution is made for purposes of determining the amount of lump sum payments. RIGP § 8.2(a)(v).

As an example of a typical floor-offset arrangement, if the RIGP provided a participant with an age 65 monthly annuity of $1,500, and the participant's account in the PSP would provide a $1,000 monthly annuity also commencing at age 65, the participant would receive a total benefit of $1,500, with $500 payable from the RIGP and the remaining $1,000 payable from the PSP. Changing the example slightly, assume the PSP would provide a $1,500 annuity, while the RIGP would provide only a $1,000 annuity. In this situation, the participant would receive the same $1,500 monthly annuity benefit, but the source of the benefit changes: the PSP pays the entire $1,500 annuity, while the RIGP would pay no portion of the benefit. E.g., White v. Sundstrand Corporation, 2001 WL 748046 (7th Cir. July 3, 2001).

Effective January 1, 1990, Xerox amended the RIGP in two respects relevant to this lawsuit. First, Xerox transferred the defined contribution benefit of each PSP participant, including the named Plaintiffs, to the RIGP (the "1990 transfer"). The participants' PSP benefits were placed in an "account" in the RIGP called a Transitional Retirement Account ("TRA"). Following the 1990 transfer, these TRAs retained their character as defined contribution plan benefits. In the years following the transfer, while the TRAs increased and decreased for investment earnings and losses, Xerox did not make any further contributions to these accounts.

The second relevant amendment added a new defined benefit accrual formula to the RIGP. This formula is commonly referred to as a cash balance plan. Under the formula, balances are determined based on "hypothetical" allocations made to a Cash Balance Retirement Account ("CBRA"). For participants like the named Plaintiffs, who were employed by Xerox prior to 1990, and for whom Xerox transferred their PSP benefits to the RIGP, the RIGP set the opening balance of their CBRAs at the same amount as the amount of their transferred PSP benefit (also the same amount as the beginning balance of each participant's new TRA). For participants who did not have a PSP benefit, the CBRA opening balance was zero, and there was no TRA.

For periods after January 1, 1990, the terms of the RIGP made "hypothetical" allocations to every participant's CBRA. The hypothetical allocations took two forms. First, the RIGP allocated a "compensation credit" equal to 5% of the participant's annual compensation.*fn1 The second type of credit allocated to the CBRAs is an "interest credit." The RIGP provides for the allocation of interest credits at the "interest crediting rate" defined by the RIGP as the effective average yield for one-year Treasury bills measured as of the first business day of each month of the prior year, plus one percent (the "Interest Crediting Rate").

Participants continue to receive compensation credits at a rate of 5% times all compensation earned during their employment with Xerox and while they remain a participant in the RIGP. Unlike compensation credits, the RIGP continues to provide allocations of interest credits at the Interest Crediting Rate to a participant's CBRA until the participant's entire benefit attributable to his or her CBRA has been distributed. Stated differently, the RIGP makes the right to receive interest credits at the Interest Crediting Rate a part of the benefit promised under the CBRA formula. See, e.g., Esden v. Bank of Boston, 229 F.3d 154 (2nd Cir. 2000). A summary plan description ("SPD") describes this phenomenon. The SPD states that "[i]f you defer payment, the Cash Balance Retirement Account receives interest credit and the Transitional Retirement Account will continue to share in investment results, but no additional Xerox contributions will be made to either account."

The RIGP as amended maintains the floor-offset arrangement. Following the 1990 transfer, the RIGP contained both a defined benefit component and a defined contribution plan component within a single plan.*fn2 The parties agree that the RIGP, as a Section 414(k) plan, operates as a single plan (albeit with separate defined benefit and defined contribution plan components) in essentially the same way as the pre-1990 floor-offset arrangement where the pre-1990 RIGP operated as a separate defined benefit plan and the PSP operated as a separate defined contribution plan.

The post-1989 RIGP effectuates the floor-offset arrangement by defining the normal retirement benefit provided by the RIGP as the "monthly normal retirement benefit of the largest of a or b or c or e or f below." RIGP § 4.2. Through the mechanism determining the benefit provided by the RIGP as the greater of the TRA benefit or the CBRA formula benefit, the example of the method of calculating benefits under the floor-offset arrangements remains essentially unchanged following the restatement of the RIGP effective January 1, 1990.

Restating the example as applicable to the post 1989-RIGP and the benefits accruing under the TRAs and the CBRA formula: if the CBRA formula provides a participant with an age 65 monthly annuity of $1,500, and the participant's TRA would provide a $1,000 monthly annuity also commencing at age 65. Under the post 1989-RIGP, the participant would still receive a total benefit of $1,500, with $500 payable under the CBRA formula and the remaining $1,000 payable under the TRA. Again, changing the example slightly, assume the TRA would provide a $1,500 annuity, while the CBRA formula would proved only a $1,000 annuity. In this situation, the participant would still receive the same $1,500 monthly annuity benefit, but the source of the benefit changes: the TRA provides the entire $1,500 annuity, while the CBRA formula would provide no portion of the benefit.

Class members, including the named Plaintiffs, are former employees of Xerox and continue as participants in the RIGP. Berger received a lump sum distribution from the Plan in November 1995. Tsupros received a lump sum distribution in approximately August 1998. Because the amount in their TRA exceeded the hypothetical balance of their CBRA at the date of distribution, the Plan distributed the amounts in their TRAs. It is undisputed that in determining the amount of their lump sum distributions, the RIGP did not project any Class member's CBRA to age 65 at the Interest Crediting Rate, or any other rate intended to state the value of the future interest credits the CBRA would have received had it remained in the RIGP.

Tsupros also received a lump sum distribution of an additional defined benefit he accrued known as a "RIGP Plus" benefit.*fn3 Xerox amended the RIGP in April 1998 to add the RIGP Plus Benefit as an additional defined benefit formula to the RIGP. The RIGP Plus Benefit was made available only to certain "Eligible Members" (i.e., participants) of the RIGP, defined by RIGP § 17.2 as those participants who would have reached age 45, and would have combined age and years of service equal to or greater than 70, as of May 31, 1998. Eligible Members qualified for the additional defined benefit accrual provided by the RIGP Plus Benefit formula if they terminated employment on or after February 1, 1998 and before February 1, 1999.

The RIGP Plus Benefit formula was added to the RIGP document as a new Article 17. RIGP § 17.1 of the 1999 RIGP Restatement provides that Eligible Members who terminate employment during the applicable window period "shall be eligible to receive the `RIGP Plus Benefit' as defined herein in addition to any benefit otherwise payable under Section 4.2." The 1999 RIGP Restatement defines the RIGP Plus Benefit as a benefit equal in amount to the Eligible Member's "Annual Pay" (as defined in RIGP ¶ 17.4), multiplied by 5%, with the product further multiplied by the Eligible Member's "Years of Service" completed as of May 31, 1998 (up to a maximum of 20 Years of Service).

The RIGP Plus Benefit is essentially an additional cash balance plan formula benefit accrual, provided to a limited group of participants for a limited period of time. Section 17.5 of the RIGP provides that "the RIGP Plus Benefit shall be paid at the same time and in the same form as the benefit calculated pursuant to Section 4.2 as elected by the Eligible Member." As with benefits provided under Section 4.2 of the RIGP, the Eligible Member could defer the payment of his RIGP Plus Benefit until he or she reached the normal retirement age of 65. RIGP § 8.9. In addition, unless the participant consented to an immediate distribution, the RIGP could not distribute a participant's accrued benefit from the RIGP unless the "actuarial equivalent of the Member's vested benefit" was less than $5,000.

If a participant's RIGP Plus Benefit was not distributed immediately following the date the participant terminated employment with Xerox, Section 17.5 provides that the amount of the RIGP Plus Benefit continues to receive interest credits at the Interest Crediting Rate applicable to the CBRAs. Section 17.1 provides that once the participant elects to receive the RIGP Plus Benefit, it is calculated in the same manner as ...


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