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Wheeler v. Pension Value Plan for Employees of the Boeing Co.

March 13, 2007

LARRY WHEELER, ET AL., INDIVIDUALLY AND ON BEHALF OF ALL THOSE SIMILARLY SITUATED, PLAINTIFFS,
v.
PENSION VALUE PLAN FOR EMPLOYEES OF THE BOEING COMPANY, ET AL., DEFENDANTS.



The opinion of the court was delivered by: David RHerndon United States District Judge

MEMORANDUM AND ORDER

This matter is before the Court on the motion for a lift of stay (Doc. 30) and the motion to dismiss (Doc. 11) brought by Defendant Boeing Company ("Boeing"). For the following reasons, Boeing's motions are GRANTED and this action is DISMISSED with prejudice. The motion for class certification brought by Plaintiffs Larry Wheeler, David Keeton, Maral Keeton, and Vincent Parisi (Doc. 38) is DENIED as moot.

Introduction

This case is a putative class action pursuant to the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1001-1461, on behalf of a proposed class of participants in Defendant Pension Value Plan for Employees of the Boeing Company ("the Plan"). Plaintiffs are onetime employees of Defendant McDonnell Douglas Corporation ("McDonnell Douglas") who became, as a result of a merger between Boeing and McDonnell Douglas in 1997, employees of Boeing. In 1999 Plaintiffs became participants in the Plan.

The Plan employs a so-called "cash balance" design. Specifically, under the Plan's terms, each Plan participant has a "Credit Based Account" ("CBA"). See Doc. 12, Ex. A § 4.2(a)(1).*fn1 "Benefit Credits" are allocated to each Plan participant's CBA as of the last day of each Plan year as a percentage of the participant's salary based on the participant's age. See id.§ 4.2(b). Thus, Plan participants younger than 30 receive annual credits of 3% of their salary, participants aged 30 to 34 receive credits of 4% of their salary, participants aged 35 to 39 receive credits of 5% of their salary, participants aged 40 to 44 receive credits of 7% of their salary, participants aged 45 to 49 receive credits of 9% of their salary, and participants aged 50 or over receive credits of 11% of their salary. See id. "Interest Credits" are allocated to Plan participants' CBAs at the end of each Plan year at a rate equal to the annual rate on 30-year Treasury securities for the November of the prior Plan year. See id.§ 4.2(c)(1). The Plan cabins the applicable interest rate between 5.25% and 10%. See id. The credits are, of course, an accounting fiction, as the CBAs are entirely hypothetical; in a cash balance plan, "the employee has no actual account, the employer makes no contributions to an employee account, and so there is no account balance to which interest might be added." Berger v. Xerox Corp. Ret. Income Guar. Plan, 338 F.3d 755, 758 (7th Cir. 2003).

Plaintiffs properly allege that they are participants in the Plan, that the Plan is an employee benefit plan, and that Boeing and McDonnell Douglas are sponsors of the Plan and/or predecessor plans within the meaning of ERISA. See 29 U.S.C. § 1002(7), (2)(A), (3), (16)(B). Plaintiffs' complaint contains two counts. Count I alleges that the Plan violates ERISA § 204(b)(1)(B), 29 U.S.C. § 1054(b)(1)(B), prohibiting so-called "backloading" of ERISA plan benefits. Count II alleges that the Plan violates ERISA § 204(b)(1)(H)(i), 29 U.S.C. § 1054(b)(1)(H)(i), prohibiting age discrimination with respect to ERISA plan benefits. Plaintiffs seek relief as to both counts of the complaint under ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3). On August 30, 2006, Boeing moved for dismissal of Plaintiffs' complaint under Rule 12(b)(6) of the Federal Rules of Civil Procedure, arguing, inter alia, that the decision of the United States Court of Appeals for the Seventh Circuit in Cooper v. IBM Personal Pension Plan, 457 F.3d 636 (7th Cir. 2006), requires dismissal of Count II of the complaint. On November 2, 2006, the Court stayed proceedings as to Count II pending disposition of a petition for a writ of certiorari in the Cooper case by the Supreme Court of the United States. The petition having been denied on January 16, 2007, see Cooper v. IBM Personal Pension Plan, 127 S.Ct. 1143 (2007), Boeing has requested that the Court lift the stay. The Court grants that request and now proceeds to rule on Boeing's Rule 12(b)(6) motion.

Discussion

A. Legal Standard

The purpose of a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure is to test the sufficiency of a complaint, not to resolve a case on its merits. See Marshall-Mosby v. Corporate Receivables, Inc., 205 F.3d 323, 326-27 (7th Cir. 2000); Carr v. Whittenburg, No. 3:01-cv-625-DGW, 2006 WL 1207286, at *2 (S.D. Ill. Apr. 28, 2006). When evaluating a Rule 12(b)(6) motion, a court must accept as true all factual allegations in a complaint and draw all reasonable inferences in a plaintiff's favor. See Hentosh v. Herman M. Finch Univ. of Health Scis./The Chicago Med. Sch., 167 F.3d 1170, 1173 (7th Cir. 1999); Maxwell v. Village of Sauget, Ill., No. 06-451-GPM, 2007 WL 420195, at *1 (S.D. Ill. Feb. 5, 2007). Because the Federal Rules of Civil Procedure establish a liberal pleading system that requires only notice pleading, "[a] complaint's mere vagueness or lack of detail is not sufficient to justify a dismissal." National Serv. Ass'n, Inc. v. Capitol Bankers Life Ins. Co., 832 F. Supp. 227, 230 (N.D. Ill. 1993). See also Bommersbach v. Ruiz, 461 F. Supp. 2d 743, 751 (S.D. Ill. 2006) ("A Plaintiff need not set out all relevant facts or recite the law in his or her complaint[.]"). A complaint should not be dismissed "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Johnson v. Martin, 943 F.2d 15, 16 (7th Cir. 1991) (quoting Conley v. Gibson, 355 U.S. 41, 45-46 (1957)).

B. Count I (Backloading)

As discussed, Count I of Plaintiffs' complaint alleges violations of ERISA § 204(b)(1)(B), 29 U.S.C. § 1054(b)(1)(B), by the Plan. The Plan, as discussed, is a cash balance plan and thus is a "defined benefit plan" for ERISA purposes. 29 U.S.C. § 1002(35). See also Esden v. Bank of Boston, 229 F.3d 154, 158 (2d Cir. 2000); Lyons v. Georgia-Pacific Corp. Salaried Employees Ret. Plan, 221 F.3d 1235, 1237-38 (11th Cir. 2000). Accordingly, the Plan is prohibited from establishing minimum rates for accrual of benefits that cause a Plan participant's benefits to accrue very slowly until the participant is near retirement age, which is age 65 under both ERISA and the Plan. See Doc. 12, Ex. A ¶ 1.33. See also 29 U.S.C. § 1002(24); Berger, 338 F.3d at 758, 762; Walker v. Monsanto Co. Pension Plan, Nos. 04-cv-436-DRH, 06-cv-139-DRH, 06-cv-003-DRH, 05-cv-736-DRH, 2006 WL 2802051, at * 2 (S.D. Ill. Sept. 27, 2006); Donaldson, 435 F. Supp. 2d at 858. Plaintiffs allege that the Plan violates the so-called "133-1/3%" test of backloading because swings in the interest rate on 30-year Treasury securities are likely to cause the "Interest Credits" allocated to a Plan participant's CBA to accrue in later years at a rate more than one-third higher than the rate of accrual of such benefits in earlier years. See 29 U.S.C. § 1054(b)(1)(B). See also Register v. PNC Fin. Servs. Group, Inc., No. 04-CV-6097, 2005 WL 3120268, at *3 (E.D. Pa. Nov. 21, 2005) (although ERISA furnishes in addition to the 133-1/3% test of backloading in a defined benefit plan two other tests of backloading, namely, the "3% rule" set out at ERISA § 204(b)(1)(A), 29 U.S.C. § 1054(b)(1)(A), and the "fractional accrual rule" set out at ERISA § 204(b)(1)(C), 29 U.S.C. § 1054(b)(1)(C), only the 133-1/3% test is applicable to a cash balance plan because benefits under such a plan are based on career pay).

As Boeing points out, in testing the Plan for backloading Boeing is entitled to assume a constant rate of interest with respect to the accrual of "Interest Credits" in a Plan participant's CBA. For purposes of the 133-1/3% rule, ERISA § 204(b)(1)(B), 29 U.S.C. § 1054(b)(1)(B), provides that "all . . . relevant factors used to compute benefits shall be treated as remaining constant as of the current year for all years after the current year." 29 U.S.C. § 1054(b)(1)(B)(iv). The parallel provision of the Internal Revenue Code ("IRC") concerning backloading likewise states that under the 133-1/3% rule "all . . . factors used to compute benefits shall be treated as remaining constant[.]" 26 U.S.C. § 411(b)(1)(B)(iv).*fn2 Finally, regulations promulgated by the Treasury Department regarding section 411 of the IRC, which are owed, of course, the highest degree of deference by the Court, see Bankers Life & Cas. Co. v. United States, 142 F.3d 973, 983 (7th Cir. 1998) (citing Chevron U.S.A., Inc. v. Natural Res. Defense Council, Inc., 467 U.S. 837, 842-43 (1984)); University of Chicago Hosps. v. United States, No. 05 C 5120, 2006 WL 2631974, at *2 (N.D. Ill. Sept. 8, 2006), state that, for purposes of the 133-1/3% rule, for any plan year, social security benefits and all relevant factors used to compute benefits, e.g., consumer price index, are treated as remaining constant as of the beginning of the current plan year for all subsequent plan years.

26 C.F.R. § 1.411(b)-1(b)(2)(ii)(D). Boeing has demonstrated that, assuming "Interest Credits" are allocated to a Plan participant's CBA at a constant rate of 5.25% (the bottom rate under the Plan, as noted), a participant's benefit will never increase at a rate of more than a third in any given Plan year. Boeing points out further that, if a higher constant interest rate is assumed, the likelihood of the Plan violating the 133-1/3% rule is even more remote.

Plaintiffs do not dispute that, assuming a constant rate of interest, the Plan is not backloaded, but argue that the "real-world" effect of the Plan's use of a variable interest rate (the annual rate on 30-year Treasury securities) to compute "Interest Credits" creates a situation in which variations in the 30-year Treasury rate are likely to cause backloading. This argument is simply wrong. The Plan clearly is a "frontloaded" -- not backloaded -- cash balance plan within the meaning of applicable Treasury regulations. As noted, 26 C.F.R. § 1.411(b)-1 states plainly that factors used to compute benefits will be assumed to be constant even when a plan uses a variable outside index like the Consumer Price Index ("CPI") to compute such benefits. See 26 C.F.R. § 1.411(b)-1(b)(2)(ii)(D). More to the point, authoritative Treasury guidance regarding cash balance plans provides that a plan will be deemed frontloaded within the meaning of section 411 of the IRC if: plan participants accrue interest credit projected to normal retirement age in the year in which the interest credit is earned and not ...


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