The opinion of the court was delivered by: J. Phil Gilbert United States District Judge
This matter comes before the Court on the joint motion for summary judgment on Counts I, II and III filed by defendants Monsanto Company Pension Plan and Monsanto Company (collectively, "Monsanto"), Pharmacia Cash Balance Pension Plan, Pharmacia Corporation, Pharmacia & Upjohn Company and Pfizer, Inc. (collectively, "Pharmacia") and Solutia Inc. Employees' Pension Plan ("Solutia") (Doc. 284). The plaintiffs, on behalf of their respective classes, have responded to the motion (Doc. 294), and the defendants have replied to that response (Doc. 299). The Court also considers the plaintiffs' motion for summary judgment (Doc. 285) to the extent it seeks judgment on Counts I, II and III, the defendants' response to the plaintiffs' summary judgment arguments about Counts I, II and III (Doc. 293), and the plaintiffs' reply to that response (Doc. 297). The parties have submitted additional materials in connection with the pending motions (Docs. 314, 315, 316, 318 & 319), and on May 6, 2009, the Court held oral argument on the motions.
Summary judgment is appropriate where "the pleadings, the discovery and disclosed materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c); see Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Spath v. Hayes Wheels Int'l-Ind., Inc., 211 F.3d 392, 396 (7th Cir. 2000). There are no factual disputes before the Court in relation to Counts I, II and III; the Court is only asked to decide legal issues to determine whether any party is entitled to judgment as a matter of law.
This matter involves an identical provision in the pension plans of defendants Monsanto Company Pension Plan, Pharmacia Cash Balance Pension Plan and Solutia Inc. Employees' Pension Plan. Because the relevant provision is identical, the Court will refer to all of the plans collectively simply as "the Plan." Furthermore, a single corporation was the predecessor of all the defendant corporations, and the Court will refer to that entity at "Old Monsanto."
As of January 1, 1997, Old Monsanto converted its various existing traditional defined benefit pension plans to a single cash-balance defined benefit plan. In a traditional defined benefit plan, a participant is entitled to a certain benefit upon retirement such as, for example, a monthly annuity equal to a certain percentage of his highest annual earnings. A traditional defined benefit plan must provide that benefit regardless of the cost to the plan, so the employer bears the risk that the plan will not be adequately funded to pay the benefits. In a cash-balance defined benefit plan, each participant maintains a cash balance account on the books only -- thus, it is often referred to as a "notional" account -- to which credits can be added through the participant's working period based on his salary and "interest" on the notional account balance. Because the account is notional and contains no real dollars, the employer still bears the risk of not having sufficient assets to cover pension obligations, but Old Monsanto believed participants could more easily understand the value of a cash-balance benefit than a future pension expressed as a monthly payment amount. In 1996, before the conversion, Old Monsanto communicated the details of the conversion to its employees in a variety of ways and included detailed descriptions of how benefits that participants had accrued under the prior defined benefit plans would be treated in the conversion, which is described in more detail in the following paragraphs.
The conversion to a cash-balance plan was complicated because many employees who worked for Old Monsanto prior to January 1, 1997, had accrued benefits under the prior plans, and when those benefits were converted to the new Plan, Old Monsanto had to do so without reducing their value. To accomplish this, Old Monsanto converted an employee's accrued benefit under a prior plan into a Prior Plan Account ("PPA").*fn1 It did this by determining the value at the time of conversion of the monthly annuity to which the employee would have been entitled under the prior plan at age 65 (the Plan's normal retirement age) based on the employee's then-current salary history and/or years of service, and multiplying that number by 125 to get a lump sum value for the employee's accrued benefit at the time of conversion (125 is the annuity conversion factor selected to approximate the average number of months an annuity would be paid). It then reduced the lump sum by 8.5% per year to its value at the age of the employee at the time of the transition to arrive at the employee's opening PPA balance, as described in § 6.2(b) of the Plan, which is further described in the following paragraph.
The magnitude of the reduction was impacted by Old Monsanto's decision to treat all participants as if they were entitled to a fully subsidized early retirement benefit at age 55 and a discounted early retirement benefit before age 55 (features of the Plan), even when they were not entitled to such benefits under their prior plans. The result was that each participant's lump sum accrued benefit under his prior plan was reduced 8.5% per year for each year the employee was less than 55 years old, not 65 years old. The resulting amount -- the lump sum value of the employee's accrued benefit at the time of the conversion reduced by 8.5% for each year the employee was under 55 years of age -- became the beginning PPA notional cash balance. Had Old Monsanto not extended the early retirement benefits to participants who had not been entitled to them under their prior plans, their lump sum accrued benefits would have been reduced from age 65. The Plan provided that the PPA balance would grow by 8.5% annually through "interest credits" so that by the time the participant reached age 55, the PPA balance would be equal to the undiscounted lump sum value of the employee's accrued benefit under the prior plans at the time of conversion.*fn2
The controversy in this litigation stems from § 6.2(d) of the Plan, which directs that "interest credits" be awarded to each participant's PPA at a rate of 8.5% per year until the participant reaches age 55, at which time the interest credit awards cease. The plaintiff classes claim that this provision violates the prohibition on age discrimination in § 204(b)(1)(H)(i) of the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1054(b)(1)(H)(i), and the Internal Revenue Code ("IRC"), 26 U.S.C. § 411(b)(1)(H)(i), and the prohibition on forfeiting benefits in § 203(a)(2) of ERISA, 29 U.S.C. § 1053(a)(2), and the IRC, 26 U.S.C. § 411(a)(2). The defendants argue that the cessation of interest credits to PPAs at age 55 is not discriminatory because the interest credits up to that time simply reversed the discount taken in the calculation of the beginning PPA cash balance to reflect the pre-55 early retirement feature of the Plan. In the defendants' view, once a participant reaches age 55, the discount will have been fully reversed by the annual 8.5% credits prior to age 55, and the PPA cash balance will be equal to the full, undiscounted lump sum value of the employee's accrued benefit under the prior plan as calculated at the time of the conversion. They further argue that the claims of the plaintiff classes are time-barred.
The critical statutory provision is § 204(b)(1)(H)(i) of ERISA, 29 U.S.C. § 1054(b)(1)(H)(i), which forbids age discrimination in benefit accrual by disqualifying from tax benefits any plan where "an employee's benefit accrual is ceased, or the rate of an employee's benefit accrual is reduced, because of the attainment of any age."*fn3 The plaintiff classes claim that § 6.2(d) of the Plan*fn4 violates this provision because, by its plain terms, it stops the awarding of "interest credits" on the PPA balance when a participant turns 55 years old. They argue that the Plan must stand or fall on its face because it is unambiguous, and consideration of extrinsic evidence to interpret an unambiguous contract provision should not be allowed. On the other side, the defendants argue that the history and context of the PPA "interest credits" must be considered in order to understand their role in the Plan, that is, that they are not truly "interest" but the restoration of a discount taken at the time of the conversion.
A. Consideration of Extrinsic Evidence
The Court will consider extrinsic evidence to interpret § 6.2(d) of the Plan and to determine its place in the context of the entire Plan. Plan interpretation is governed by federal common law rules of contract interpretation. Neuma, Inc. v. AMP, Inc., 259 F.3d 864, 873 (7th Cir. 2001). Where a plan is unambiguous, that is, if it is susceptible to only one reasonable interpretation, it must be interpreted accordingly. However, where a plan is susceptible to more than one reasonable interpretation, the Court may consult extrinsic evidence in accordance with the plain language of the plan.
The plaintiff classes are correct that § 6.2(d) is unambiguous on its face when read in a vacuum. Its language viewed in an "ordinary and popular sense as would a person of average intelligence and experience," Neuma, 259 F.3d at 873, is clear: the Plan stops awarding interest credit when a participant turns 55. True interest credits for a cash-balance account are an accrued benefit to which a participant is entitled when he reaches normal retirement age and which therefore must be included when calculating a lump sum retirement benefit. See Berger v. Xerox Corp. Ret. Income Guar. Plan, 338 F.3d 755, 761 (7th Cir. 2003). Thus, under § 6.2(d)'s plain terms, the participant's accrual of ...