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Young v. Verizon's Bell Atlantic Cash Balance Plan

August 28, 2008

CYNTHIA N. YOUNG, ON BEHALF OF HERSELF, AND OTHERS SIMILARLY SITUATED, PLAINTIFF,
v.
VERIZON'S BELL ATLANTIC CASH BALANCE PLAN, FORMERLY KNOWN AS BELL ATLANTIC CASH BALANCE PLAN, FORMERLY KNOWN AS BELL ATLANTIC MANAGEMENT PENSION PLAN, AND VERIZON COMMUNICATIONS, INC., AS SUCCESSOR IN INTEREST TO BELL ATLANTIC CORPORATION, DEFENDANTS.



The opinion of the court was delivered by: Morton Denlow United States Magistrate Judge

Magistrate Judge Morton Denlow

MEMORANDUM OPINION AND ORDER

This is an ERISA class action suit in which Plaintiff Cynthia N. Young ("Plaintiff") alleges that Defendants Verizon's Bell Atlantic Cash Balance Plan and Verizon Communications, Inc. (collectively "Defendants") calculated her pension benefits, and those of other similarly situated employees, using an improper formula. Plaintiff seeks judicial review of the final decision of Defendant Verizon's Bell Atlantic Cash Balance Plan Administrator denying her claim for additional benefits. The Court conducted a bench trial on the papers and heard oral argument on August 5, 2008. The Court has carefully considered the administrative record, declarations, and the briefs and arguments of counsel. The following constitute the Court's findings of fact and conclusions of law pursuant to Rule 52(a) of the Federal Rules of Civil Procedure.

I. BACKGROUND FACTS

A. General Background

Plaintiff brings her claim on behalf of herself and a class of persons who were participants in the Bell Atlantic Management Pension Plan on December 31, 1995. Compl. ¶ 1.*fn1 The claim is brought under ERISA § 502(a)(1)(b), 29 U.S.C. § 1132(a)(1)(b), and § 502(a)(3), 29 U.S.C. § 1132(a)(3). Compl. ¶ 2.

Plaintiff was a management employee of Bell Atlantic. VZ 58, VZ 267.*fn2 For many years, Bell Atlantic operated a traditional pension plan, known as the Bell Atlantic Management Pension Plan (the "BAMPP"), as part of the compensation package for its employees. VZ 85-180. For those employees choosing early retirement, Bell Atlantic would create "cash out windows" that would allow employees to receive their pension all at once, in the form of a lump-sum, rather than an annuity. VZ 130-135. When she retired in November 1997 with 29 years of credited service, Plaintiff elected to receive her retirement benefits in the form of a lump-sum payment. VZ 50. Plaintiff accrued benefits under a series of defined benefit pension plans, including the BAMPP.

Effective December 31, 1995, Bell Atlantic amended the BAMPP to add a cash balance formula and to adopt a new name, the Bell Atlantic Cash Balance Plan (the "Plan" or "1996 Plan"). VZ 1035-36; VZ 1046-1106. The actual Plan document ("1996 Cash Balance Plan" or the "Cash Balance Plan"), referred to as the "official plan document" was not finalized until July 6, 1996, but was made retroactive to December 31, 1995. VZ 1046-1106. The Plan operated in accordance with this official plan document, the 1996 Cash Balance Plan, until it was amended in 1997 by the 1997 Cash Balance Plan. VZ 182-244. Thereafter, the Plan was amended on a yearly basis, and after Bell Atlantic merged with Verizon, it was renamed as the Verizon's Bell Atlantic Cash Balance Plan. VZ 11712-17; VZ 12586.The 1996 Cash Balance Plan was in effect at the time of Plaintiff's retirement, and is thus the version of the Plan at issue in this case.

B. Cash Balance Plan Operation

The Cash Balance Plan provides pension benefits expressed as a specific dollar amount to be paid upon retirement in any number of forms, including a lump-sum or an annuity. VZ 1055. For participants who worked at Bell Atlantic prior to the conversion to the Cash Balance Plan and who accrued benefits under the BAMPP, the Cash Balance Plan devoted a separate section of the plan to the calculation of the opening balances of their Cash Balance Accounts, § 16.5 "Opening Balance." VZ 1100. That section provided several different formulas for calculating opening balances, depending on the particular circumstances of the participant. VZ 1100-01.

The two formulas at issue in this case are found in § 16.5.1(a)(1), which applies to former participants of the BAMPP who were eligible for service pensions on December 31, 1995, and § 16.5.1(a)(2), which applies to former participants of the BAMPP who were not eligible for service pensions on December 31, 1995. VZ 1100.

1. The PBGC Interest Rate under §§ 16.5.1(a)(1) and (a)(2)

Both §§ 16.5.1(a)(1) and 16.5.1(a)(2) require the pension benefits due to participants under the BAMPP as of December 31, 1995, to be converted into a lump-sum. VZ 1100. Generally, to determine the lump-sum, the plan uses a mortality table to determine the participant's life expectancy at the time of the conversion, and applies an interest rate to convert the sum of the expected values of participant's age - 65 (normal retirement age) annuity payments into a lump-sum cashout benefit.Id.

Section 16.5 of the Cash Balance Plan sets forth the formulas for converting the benefits to a lump-sum. Section 16.5 states as follows:

16.5 Opening Balance

The provisions of Section 4.3 of the Plan shall be supplemented by the following:

16.5.1 Pension Conversions as of the Transition Date

Where a present value must be determined under this Section 16.[5], the present value shall be determined as follows: (a) using the PBGC interest rates which were in effect for September of 1995 (using the immediate PBGC rate for a Participant who was then eligible for a Service Pension under the 1995 BAMPP Plan, and using the deferred PBGC rates for individuals who were not then eligible for a Service Pension), (b) using the UP-84 mortality table, and (c) taking account of age in years and completed months, either as of December 31, 1995 (for Participants not eligible on the Transition Date for a Service Pension under the 1995 BAMPP Plan) or as of November 15, 1996 (for Participants who were eligible on the Transition Date for a Service Pension).

16.5.1(a) 1995 Active Participants and 1995 Former

Active Participants In the case of a 1995 Active Participant or 1995 Former Active Participant, the opening balance of the Participant's Cash Balance Account on January 1, 1996 shall be the amount described in subsection (1) or (2) below, as applicable:

16.5.1 (a)(1) If Eligible for Service Pension

If, as of December 31, 1995, the Participant was eligible for a Normal Retirement Service Pension or an Early Retirement Service Pension under the 1995 BAMPP Plan, then the amount described in this paragraph (1) is the product of multiplying (A) the Participant's applicable Transition Factor described in Table 2 of this Section, times (B) the lump-sum cashout value of the immediate annuity benefit under the 1995 BAMPP Plan, determined as if the Participant had retired on December 31, 1995, ignoring any compensation paid after the date of the last paycheck for salary earned in December 1995. For a 1995 Former Active Participant, the date on which the individual ceased to be an Eligible Employee shall be substituted for December 31, 1995 in the last phrase of the previous sentence.

16.5.1(a)(2) Not Eligible for Service Pension

In the case of a Participant who is not eligible for a Service Pension under the 1995 BAMPP Plan as of the Transition Date, the amount described in this paragraph (2) is the product of multiplying (A) the Participant's applicable Transition Factor described in Table 1 of this Section, times (B) the lump-sum cashout value of the Accrued Benefit payable at age 65 under the 1995 BAMPP Plan, determined as if the Participant had a Severance From Service Date on December 31, 1995, based on Compensation paid through December 31, 1995, multiplied by the applicable transition factor described in Table 1 of this Section. For a 1995 Former Active Participant, the date on which the individual ceased to be an Eligible Employee shall be substituted for December 31, 1995 in the last phrase of the previous sentence.

VZ 1100.

Plaintiff alleges that Defendants used the wrong PBGC interest rate when calculating the opening balance of her account. Defendants used a rate of 120% of the applicable interest rate*fn3 specified by the Pension Benefit Guaranty Corporation ("PBGC") if the amount of the lump-sum, based on the 120% rate, exceeded $25,000; and the applicable PBGC rate if the lump-sum amount did not exceed $25,000, as provided for in § 4.19 of the BAMPP. VZ 11; VZ 133-34; VZ 1100. Because Plaintiff's lump-sum amount exceeded $25,000, Defendants used 120% of the PBGC applicable interest rate. VZ 11-12. The use of this interest rate reduced her opening cash balance to $240,127 compared to $292,383 if 100% of the applicable PBGC applicable interest rate had been used. VZ 10. Plaintiff argues that Defendants should have applied § 16.5.1 of the Cash Balance Plan, and accordingly, should have used 100% of the applicable PBGC rate, rather than applying § 4.19 of the BAMPP.

2. The Transition Factor in § 16.5.1(a)(2)

Plaintiff also contends that Defendants incorrectly calculated her opening balance formula under § 16.5.1(a)(2) by multiplying her applicable transition factor by her lump-sum cashout value only once. To compute her opening balance, Defendants multiplied her lump-sum cashout value by her applicable transition factor. Plaintiff, however, argues that § 16.5.1(a)(2) requires Defendants to multiply her transition factor twice.Multiplying the transition factor twice for Plaintiff's opening account balance would increase that balance from $240,813 to $640,321. VZ 15648.

II. PROCEDURAL HISTORY

On June 9, 2004, Plaintiff filed her initial administrative claim for benefits on the grounds that Defendants incorrectly determined her opening account balance because it used 120% of the PBGC rate, instead of 100%, in performing the calculation. VZ 2-3. The Verizon Claims Review Unit ("Review Unit") denied this claim on October 19, 2004. VZ 10-15. Plaintiff appealed the Claim Review Unit's decision on December 6, 2004, and the Verizon Claims Review Committee ("Committee") denied Plaintiff's appeal on February 16, 2005. VZ 50-57.

A. Administrative Decision Regarding the PBGC Interest Rate

In its denial letter, the Review Unit explained that it used 120% of the PBGC rate, rather than 100% of the PBGC rate, because that is what is required under § 16.5.1(a)(2). Because § 16.5.1(a)(2) states that the opening cash balance account is determined by multiplying the "Transition Factor described in Table 1" by "the lump-sum cashout value of the Accrued Benefit payable at age 65 under the 1995 BAMPP Plan . . .", Defendants applied § 4.19(c)(2)(C) of the BAMPP to determine the lump-sum cashout value, in which "the lump-sum cashout value is determined, for present values exceeding $25,000, using 120% of the PBGC deferred interest rates in effect for September of 1995 . . ." VZ 11 (emphasis added).

In her appeal letter, Plaintiff challenged Defendants' use of § 4.19(c)(2)(C) of the BAMPP because, according to Plaintiff, it "applies only to the 1994-95 cash-out window and is not applicable to all distributions from the BAMPP." VZ 46. Plaintiff contends that because § 16.5.1 provides a formula for determining the present value, and because § 16.5.1(a)(2)(B) uses the term "lump-sum cashout value" without specifically re-defining that term, the lump-sum cashout value is synonymous with the term "present value," and thus § 16.5.1 governs how to determine that value. Plaintiff states that "Section 16.5.1 specifically references the PBGC rates and makes no mention of the use of 120% of the PBGC rates." Id.

In reviewing Plaintiff's appeal of the Review Unit's decision, the Committee examined the relevant provisions of the current Verizon Plan, § 16 of Verizon's Bell Atlantic Cash Balance Plan as set forth in a document restated effective January 1, 1999 (the "1999 Bell Atlantic Plan"). The Committee also reviewed the provisions of § 16 of the 1996 Cash Balance Plan, which was in effect when Plaintiff retired. In addition, the Committee reviewed the resolutions authorized by the Human Resources Committee of Bell Atlantic's Board of Directors ("HRC") to amend the BAMPP. The Committee also consulted with David Beik of Verizon's finance department, and Rita Galgano of Verizon's pension department. VZ 55-56.

After reviewing the above documents and consulting with those individuals, the Committee concurred with the Review Unit's decision that "the opening balance of [Plaintiff's] cash balance account was appropriately determined using 120% of the PBGC deferred rates for September of 1995." VZ 56. The Committee found that Plaintiff's "potential lump-sum benefit under Section 4.19 is the 'lump-sum cashout value' referred to in Section 16.5.1(a)(2) of the [1996 Cash Balance Plan], which pursuant to Section 4.19(c)(2)(C), is calculated using 120% of the PBGC deferred interest rates for September of 1995." VZ 55. The Committee found the statement in § 16.5.1 of the 1995 Bell Atlantic Plan regarding "present value" determinations does not override the specific reference to "lump-sum cashout value" in § 16.5.1(a)(2). VZ 57. The Committee further stated that the use of 120% of the PBGC deferred rates is consistent with the resolutions of the Human Resources Committee amending the BAMPP to provide for the cash balance conversion, assumptions applied for plan funding purposes, administrative interpretation of plan terms, and restated plan language intended to preserve rules relating to the cash balance conversion. Id.

To support its finding, the Committee references the October 23, 1995 resolutions of the HRC authorizing the amendments to the BAMPP, "in the manner presented to th[e] meeting." VZ 55-56. The Committee cited the proposed BAMPP amendments presented to the HRC, explaining how "a participant's opening account balance shall be equal to the product of the cashout value of the participant's accrued benefit on the Effective Date, [i.e., December 31, 1995] (determined under the existing rules of BAMPP as of 12/31/95) . . ." VZ 56. The Committee also cited the statements of Mr. Beik in Verizon's finance department, explaining that for plan funding purposes, both before and after the conversion, "the opening cash balance account values [were] determined using 120% of the applicable PBGC rate for benefits valued in excess of $25,000." Id.

The Committee additionally cited Rita Galgano from Verizon's pension department, who advised the Committee that "Section 16.5.1(a)(2) of the [1996 Cash Balance Plan] reflects the amendments to the BAMPP made by the [HRC] in October of 1995 and supports the conclusion of the plan administrator that 120% of the September 1995 PBGC deferred interest rates should be used to determine opening ...


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