Appeal from the United States District Court for the Southern District of Illinois. No. 3:04 C 00436-J. Phil Gilbert, Judge.
The opinion of the court was delivered by: Flaum, Circuit Judge.
Before BAUER, FLAUM, and EVANS, Circuit Judges.
This is a class action lawsuit challenging the manner in which certain credits accrue in the Monsanto Company's pension plan as inconsistent with a provision of the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1054(b)(1)(H)(i), which prohibits defined benefit plans from ceasing or reducing an employee's benefit accrual because of the attainment of any age. Finding that the employees' rate of benefit accrual does not decrease because of age, we affirm the district court's grant of summary judgment to the defendants.
This case has its origins in a 1997 restructuring of Monsanto Company's pension plan. Monsanto converted*fn1 its classic defined benefit plan into a "cash balance plan." In a typical defined benefit plan, participants' benefits are described as an annuity to be paid at regular retirement age. Under a cash balance plan, each partici-pant has a hypothetical account that represents the value of his or her pension benefit as a lump sum (some, but not all, plans give participants the option of taking this lump sum at retirement rather than receiving annuity payments). The account is hypothetical because plan participants do not actually have individual accounts. Instead, all of the plan's assets are held in trust for all participants, and the employer is responsible for ensuring that the assets are sufficient to pay the promised benefits. ERISA treats cash balance plans as a type of defined benefit plan.
As part of the 1997 conversion, Monsanto established two different cash balance accounts for each of its employees. One account was intended to reflect only new benefits earned after conversion. The second was intended to preserve the age-65 benefits that employees had already earned at the time of conversion. Only the second account, called the "Prior Plan Account" or "PPA," is at issue in this case.
Prior to conversion, the Monsanto retirement plan was not wholly standardized, meaning that the retirement options of individual employees varied. First, all employees earned an age-65 retirement benefit, which was expressed as a monthly annuity beginning at age 65. For example, an employee who retired at age 55 might be entitled to receive a $1,000 monthly annuity beginning at age 65 until she died. Second, some of the prior plans provided a discounted early retirement option to employees. These employees could begin receiving annuity payments as early as age 55, although the payments would be discounted by 3% for each year that the employee's age was less than 65 to reflect the longer time of payment. Finally, some of the prior plans provided for a subsidized early retirement option. Eligible employees could begin receiving their full age-65 benefit as early as age 55, without taking a discounted monthly payment.
The new PPA accounts were designed to preserve each employee's age-65 accrued balances, while standardizing the early retirement options of Monsanto employees. First, the PPA extended to all employees the right to begin receiving full age-65 payments as early as age 55 (the most generous of the old early retirement options). Second, the new plan gave all employees the opportunity to begin receiving benefits even before age 55. If an employee chose this option, his or her benefit would be discounted by 8.5% per year for each year the participant was younger than age 55. It is the mechanism through which this discount was implemented that is at the center of this lawsuit.
To calculate the opening balance of each participant's PPA, Monsanto applied a conversion formula by which the account was "credited with an amount equal to the Actuarial Equivalent lump sum value of the Participant's Predecessor Plan Accrued Benefit . . . discounted using an interest rate of eight and one-half percent per annum for each month, if any, by which the Participant's age as of January 1, 1997 precedes age 55." (Plan § 6.2(b)). In other words, each employee's benefit under the old plan, which had been expressed as an annuity, would be converted to a lump sum equivalent to the cost of that annuity. That lump sum would then be discounted by 8.5% per year for each year younger than 55 the employee was at the time of conversion.
Once established, each individual's PPA increases by way of two monthly "credits": "pay credits" and "interest credits." Pay credits, which are intended to reward employees for the length of their service, are equal to the current PPA balance multiplied by the monthly equivalent of 4% per annum. Employees continue to receive pay credits as long as they work for Monsanto, regardless of age. Interest credits are equal to the current PPA balance multiplied by the monthly equivalent of 8.5% per annum. Interest credits cease once "the Participant attains age 55." (Plan § 6.2(d)).
In mid-1996, before the effective date of the plan con-version, Monsanto distributed literature to employees to explain the new plan. These communications explained that the 8.5% discount applied to the initial balance of employees younger than 55 and the corresponding 8.5% credits then applied until age 55. Each of these communications described the 8.5% discount as an early retirement benefit and the 8.5% interest credits as necessary to restore the full previously accrued benefit to employees.
On June 23, 2004, plaintiffs filed Walker v. Monsanto Company Pension Plan, No. 04-436, in the Southern District of Illinois. On September 1, 2006, the district court entered an order consolidating the Walker action with three related actions: Davis v. Solutia, Inc. Employees' Pension Plan, No. 05-736 (filed October 12, 2005); Donaldson v. Pharmacia Pension Plan, No. 06-3 (filed January 3, 2006); and Hammond v. Solutia, Inc. Employees' Pension Plan, No. 06-139 (filed February 15, 2006). The consolidated complaint alleges, among other things, that the substantively identical cash balance defined benefit plans violate ERISA's prohibition on ceasing or reducing an employee's benefit accrual because of the attainment of any age.
On May 22, 2008, the district certified three identical "Age 55 Cut-off claims." On June 11, 2009, the district court granted defendants' motion for summary judgment on the Age-55 Cut-off claims and denied plaintiffs' cross-motion for summary judgment on those same claims. After additional proceedings in which the plaintiffs prevailed on an unrelated claim (not challenged on appeal), the district court entered final ...