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Lani Allen v. Hsbc-North America (U.S.) ) Retirement Income Plan and Hsbc North

September 1, 2011

LANI ALLEN, PLAINTIFF,
v.
HSBC-NORTH AMERICA (U.S.) ) RETIREMENT INCOME PLAN AND HSBC NORTH AMERICA HOLDINGS PLAN ADMINISTRATIVE COMMITTEE, DEFENDANTS.



The opinion of the court was delivered by: Judge Ronald A. Guzman

MEMORANDUM OPINION AND ORDER

Plaintiff Lani Allen filed this action against defendants HSBC- North America (U.S.) Retirement Income Plan (the "Plan") and HSBC North America Holdings Plan Administrative Committee (the "Plan Committee") pursuant to § 502(a) of the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1132(a)(1)(B), alleging that the Plan Committee did not correctly calculate his Plan benefits. Before the Court is defendants' motion to strike and plaintiff's and defendants' cross-motions for summary judgment. For the reasons provided in this Memorandum Opinion and Order, the Court dismisses defendants' motion to strike as moot, denies plaintiff's motion for summary judgment and grants defendants' motion for summary judgment.

Facts

Allen worked for Household International, Inc. ("Household") from February 27, 1967 until November 8, 1997. (Defs.' LR 56.1 Stmt. ¶ 18.) When he retired, Allen elected to receive a subsidized early retirement benefit under the Plan that, together with his regular Plan benefit, totaled a life annuity in the amount of $1,734.09 per month which, at Allen's election, was converted to a lump sum of $287,269.35 ("1997 Plan Benefit") using the actuarial assumptions provided in the Plan. (Id. ¶¶ 19-21.) If Allen had not been eligible for the subsidized early retirement benefit, the actuarially equivalent benefit payable beginning at his age would have been $881.72 per month as opposed to $1,734.09 per month. (Id. ¶ 22.) On December 19, 1997, the Plan paid the 1997 Plan Benefit, plus accrued interest of $644.58, for a total of $287,913.93 to Allen's individual retirement account. (Id. ¶ 23.) Allen has never contested the calculation of his 1997 Plan Benefit.*fn1 (Id. ¶ 24.)

On February 26, 1999, Household rehired Allen. (Id. ¶ 25.) On June 8, 2007, Allen retired for the second time. (Id.) His Plan benefit was recalculated by taking into account all of his "Years of Service" between 1967 and 2007 and utilizing his Final Average Salary as of June 2007. (Id.) Allen's monthly benefit, had there been no prior distribution in 1997, was calculated to be $3,043.35 ("2007 Plan Benefit"). (Id. ¶ 26.) Using the applicable interest rate provided in the Plan, Allen's monthly benefit calculation was converted to a lump sum of $467,723.79 ("2007 Pre-Offset Benefit Calculation"). (Id.)

The Plan Committee determined that, as required under the Plan, Allen's 2007 Pre-Offset Benefit Calculation must take into account (i.e., offset) the actuarially equivalent value of

Allen's 1997 Plan Benefit (i.e., the present day value of the 1997 Benefit of $287,913.93). (Id. ¶ 29.) As did the 1989 Plan, the 2005 Plan provided for the actuarial adjustment of any prior benefit payment when determining the appropriate offset against subsequent benefit calculations. (Id. ¶ 13.) Specifically, the Plan provides:

Offset for Benefits Previously Paid. The calculation of reemployed Employee's benefit under this Section shall take into account all of the Employee's Benefit Service regardless of whether the Employee had begun to receive benefit payments under the Plan. However, the benefit calculated under this section shall be offset by the Actuarial Equivalent Value of benefits payments previously made to or for the Employee as provided in Section A-6.3 (Id.) Section A-6.3 provides, among other things, that where a participant previously received benefits under the Plan, "an appropriate actuarial adjustment shall be made to reflect the benefits previously earned or paid." (Id. ¶ 14.) More specifically:

In General. Benefits payable under the Plan with respect to a period of Benefit Service (including benefits payable to a surviving Spouse, Beneficiary or an alternate payee) shall not duplicate benefits previously earned or paid under the Plan (or payable under a group annuity contract purchased with respect to the Plan or Merged Plan) with respect to the same period of Service and, if there could be such a duplication, an appropriate actuarial adjustment shall be made to reflect the benefits previously earned or paid.

Method for Determining Offset. The amount of any reduction required under this Section shall be determined by the Administrative Committee on the basis of rules uniformly applied to similarly situated Participants and shall be determined with reference to the benefit payable under this Plan and such other plan as of the Participant's Normal Retirement Date as determined under this Plan. (Id.) The Plan Committee used the interest rate for 30-year Treasury securities ("30-year Treasury rate") (the rate established by the Pension Benefit Guaranty Corporation prior to 1999) to both convert annuitized benefits to lump sum present values and to adjust earlier benefits payments that must be offset against later benefit calculations. (Id.) On December 28, 2006, this practice, as it applied to the actuarial adjustment of prior distributions for purposes of determining the appropriate offset against later benefit calculations, was incorporated in the Plan's terms by amendment ("2006 Amendment") as follows: "In cases where a benefit that was previously paid in the form of a lump sum must be offset against a later recalculated Plan benefit, the offset shall be accomplished using the 'Applicable Interest Rate,'" which is defined as "the annual rate of interest on 30-year Treasury Securities [30-year Treasury rate] determined by the Secretary of Treasury." (Id. ¶¶ 16-17.)

Accordingly, using the 30-year Treasury rate, the Plan Committee actuarially adjusted Allen's 1997 Plan Benefit to reflect the time value of the money Allen received in 1997, and determined that, as of July 1, 2007, Allen's 1997 Plan Benefit had an actuarially adjusted value of $473,588.39 (the "1997 Actuarially Adjusted Plan Benefit"). (Id. ¶ 30.) Because the 1997 Actuarially Adjusted Plan Benefit exceeded the 2007 Pre-Offset Benefit Calculation of $467,723.79, the Plan Committee determined that Allen was due no additional benefits under the Plan. (Id. ¶ 32.)

On April 27, 2007, Allen contested the Plan Committee's decision in an email to Steve Gonabe, Vice President of HSBC's Personnel Department, which Gonabe forwarded to Cynthia Ryan, the Manager of HSBC's Pension Administration. (Pl.'s LR 56.1 Stmt. ¶ 33.) On May 3, 2007, Ryan responded in a letter to Allen explaining, among other things, that he had received a letter upon his reemployment stating that his "pension benefit will be calculated using all accumulated service and offset by the value of the pension benefit already paid to you." (Id.) She admitted that "value" was not defined in the letter, but that "the Plan is very specific as to how an Offset by 'Prior Distribution Under the Plan' is handled" and provided him with a summary breakdown of his pension calculation, including copies of the relevant Plan provisions. (Id.) She explained that the benefit calculation must "take into account the value of the benefit [he] received 10 years ago since money received many years ago has a much larger current value" and that this was done by using "the 30 year Treasury rates for each intervening year." (Id. ¶ 34.)

On March 18, 2008, Allen took the next step, and filed an administrative claim with the Plan Committee asserting that only the unadjusted dollar value of his 1997 benefit- $287,269.35-and not the adjusted value-$473,588.39-should have offset his 2007 benefit. (Id. ¶ 35.) Specifically, he argued: (1) that the Plan violated the "definitely determinable" requirement under the Internal Revenue Code ("IRC"); (2) that the Plan's offset provisions violated the anti-forfeiture provisions of § 203(a) of ERISA; and (3) that the Plan violated the holding of Miller v. Xerox, 447 F.3d 728, 730 (9th Cir. 2006), which, according to plaintiff, held that it was "impermissible to offset a subsequent accrual of pension benefits . . . by more than the accrued benefit cashed out in a prior distribution." (Defs.' LR 56.1 Stmt., Ex. D, Pl.'s Claim Ltr., at 1.)

On June 2, 2008, the Plan Committee denied Allen's administrative claim. (Id. ΒΆ 37.) In its denial, the Committee explained: (1) that the 1997 Actuarially Adjusted Benefit exceeded the 2007 Pre-Offset Benefit Calculation because of the "heavy front-loaded nature of the Plan's benefit formula (i.e., Allen accrued most of the benefit that he could accrue under the Plan prior to his 1997 early retirement); (2) that Allen received a substantial early retirement subsidy when he retired in 1997; and (3) the Plan and Committee consistently applied the methodology employed to actuarially ...


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