138 F. Supp. 3d 517
S.D.N.Y.2015Background
- Foot Locker converted its traditional defined‑benefit pension to a cash‑balance plan effective Jan. 1, 1996; conversion used a 9% discount to create opening balances but credited accounts at 6% interest, producing a predictable period of “wear‑away” (no increase in payable benefit despite account growth).
- Company communications (Sept. 1995 announcement, Nov. 1995 Highlights, individualized statements, Dec. 1996 SPD) emphasized account balances and growth but did not disclose or explain wear‑away; SPD language was technical and misleading.
- Foot Locker management and benefits staff (including VP Patricia Peck) knew wear‑away was built into the chosen conversion methodology, viewed it as a source of cost savings, and intentionally omitted clear disclosure to avoid employee backlash.
- Thousands of employees (across education levels) relied on the communications and believed their benefits continued to accrue; no employees complained because they were not informed of wear‑away.
- The Class sued under ERISA §§ 404(a) and 102(a) seeking reformation; bench trial held July 2015. Court found pervasive fiduciary breaches and ordered Plan reformation to provide the A plus B benefit the communications led participants to expect.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Foot Locker breached ERISA fiduciary duties (§ 404) by misleading disclosures | Foot Locker intentionally issued false/incomplete summaries that concealed wear‑away, breaching fiduciary duty to act solely for participants’ benefit | Disclosures were adequate; wear‑away was complex and full disclosure could mislead; legal advice supported communications | Court: Breach. Fiduciary duty violated; communications were materially false/misleading and intentionally obscured wear‑away |
| Whether SPD/SMMs complied with ERISA disclosure rules (§ 102) | SPD and SMMs failed to present material limitations (wear‑away) in manner understandable to average participant | Company argued industry practice and complexity justified limited disclosures | Court: Violated § 102. SPD/SMMs not sufficiently accurate or comprehensible; regulators’ guidance required clear, non‑obscured disclosure of reductions/limitations |
| Whether classwide mistake/reliance and equitable fraud/inequitable conduct support reformation | Class members reasonably (and uniformly) believed account growth meant benefit growth; company knew and exploited that mistake — equitable fraud/inequitable conduct justify reformation | Foot Locker claimed individualized issues of notice/reliance and that some features (e.g., lump sums, enhancements) mitigate harms | Court: Classwide mistake and equitable fraud/inequitable conduct proved by clear and convincing evidence; individualized reliance not required for reformation under Amara line |
| Appropriate remedy: reformation scope (A+B, enhancements, whipsaw, statute of limitations) | Reform Plan to restore promised A plus B benefit: initial balance computed with 6% (no pre‑retirement mortality discount), include promised enhancement, 6% interest credits, compensation credits, and required whipsaw adjustments; apply to retirees with prejudgment interest | Foot Locker argued enhancement tied to 9% design so should be excluded; PPA eliminated whipsaw; some claims time‑barred | Court: Adopted Class’s remedy largely per expert Deutsch (initial balance at 6%, include enhancement, credit pay/interest, whipsaw where legally required); PPA not retroactive — whipsaw may apply where distribution paperwork signed pre‑PPA; statute of limitations tolled by concealment — no class exclusions required |
Key Cases Cited
- Amara v. CIGNA Corp., 775 F.3d 510 (2d Cir. 2014) (reformation under ERISA § 502(a)(3) requires showing fiduciary misconduct and that beneficiaries were mistaken about plan terms; reasonable beneficiary perceptions govern remedy)
- CIGNA Corp. v. Amara, 563 U.S. 421 (2011) (Supreme Court directing analysis of equitable remedies under § 502(a)(3) where summary documents misstate plan terms)
- Laurent v. PricewaterhouseCoopers LLP, 794 F.3d 272 (2d Cir. 2015) (defines and explains the whipsaw calculation applicable to pre‑retirement lump‑sum distributions)
- Varity Corp. v. Howe, 516 U.S. 489 (1996) (an employer can be an ERISA fiduciary when communicating about plan benefits; fiduciary duties include truthful communications)