JERRY L. LYONS, individually and on behalf of all other persons similarly situated, Plaintiff - Appellant, versus GEORGIA PACIFIC CORPORATION SALARIED EMPLOYEES RETIREMENT PLAN, GEORGIA PACIFIC CORPORATION Defendants - Appellees.
No. 99-10640
IN THE UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT
AUGUST 11, 2000
[PUBLISH] D.C. Docket No. 97-00980-1-CV-JOF FILED U.S. COURT OF APPEALS ELEVENTH CIRCUIT AUGUST 11, 2000 THOMAS K. KAHN CLERK
(August 11, 2000)
CARNES, Circuit Judge:
This is an Employee Retirement Income Security Act (“ERISA“),
I. BACKGROUND
A. The Plan
There are two basic types of pension plans, defined contribution plans and defined benefit plans. A defined contribution plan provides for each participant a separate account to which contributions are made, with the retirement benefit depending on the amounts that have been contributed to the account and the investment gains and losses on the amounts in the account. See ERISA § 3(34),
Instead, this case involves a defined benefit plan, which is one where the retirement benefit is expressed as a certain annual amount to be paid by the employer over the employee‘s lifetime, beginning at the employee‘s retirement. See ERISA § 3(35),
At all times relevant to this case, the Georgia-Pacific Corporation Salaried Employees
Section 3.1 of the Plan requires that a hypothetical bookkeeping account - the Personal Account - be established and maintained for each participant. Each month the participant‘s Personal Account is credited with (1) service credits, a specified percentage of the participant‘s compensation for that month; and (2) interest credits, which are derived by multiplying the hypothetical balance in the Personal Account by the Periodic Adjustment Percentage. That adjustment percentage is computed under the Plan by determining the Pension Benefit Guaranty Corporation (“PBGC“)3 twelve-month “immediate” annuity interest rate for the preceding year, then adding .75% to that rate, and, lastly, dividing this composite annual rate by 12. Under ERISA the Plan could have used an adjustment percentage equal to the prescribed maximum PBGC rate, but instead it used a higher rate. If the Plan had not used a higher adjustment rate, the dispute in this case would never have arisen, but more about that later.
Although service credits cease when the participant leaves employment, interest credits continue until the participant‘s Benefit Commencement Date. That is why the Plan is said to be a “front-loaded” interest credit plan, defined as one in which “future interest credits to an employee‘s hypothetical account balance are not conditioned upon future service.” I.R.S. Notice 96-8 at 4. In the case of an
annuity form of benefit under this Plan, the Benefit Commencement Date is the date that the annuity is payable. Thus, if the participant is entitled to an annuity that is payable at age 65, under the front-loaded aspect of the Plan, interest credits continue to accrue until age 65, even if the participant separates from employment with Georgia-Pacific before age 65.
Under the Plan a participant may elect, under certain specified conditions, to receive his accrued pension benefits in an optional lump sum form, payable immediately, rather than as an annuity commencing at age 65. If the participant elects this option, the amount payable under the Plan
B. Facts
From 1965 until 1990, Jerry L. Lyons was employed as a paper inspector and paper tester for Great Northern Corporation. In 1990, Georgia-Pacific Corporation acquired Great Northern. As a result of the acquisition, Lyons became an employee of Georgia-Pacific, Great Northern‘s pension plan was merged with the Georgia-Pacific Salaried Employees Retirement Plan (which we are calling “the Plan“), and Lyons became a participant of it.
On January 5, 1991, Lyons left employment at Georgia-Pacific. In accordance with Article 4 of the Plan, Lyons was entitled to a vested benefit, because he had worked for Georgia-Pacific and Great Northern for at least five years. Pursuant to section 1.1 of the Plan, Lyons’ accrued pension benefit was an annuity commencing at age 65. In November 1992, Lyons elected to receive his accrued pension benefit in the optional lump sum form, payable immediately, as he was permitted to do under section 6.4(a) of the Plan. Consistent with the Plan‘s payout provision for lump sums, Georgia-Pacific distributed to Lyons in January of 1993 a lump sum equal to the amount credited to his Personal Account - $36,109.15. See Lyons, 66 F. Supp. 2d at 1329, 1332.
Two months after receiving his lump sum, Lyons consulted with the National Center for Retirement Benefits (“NCRB“)5 and was told by it that Georgia-Pacific had distributed to him substantially less than the amount he was entitled to receive under ERISA § 203(e), see
We will discuss those Treasury regulations more later, but at this juncture it is enough to say that Georgia-Pacific did not follow them. If it had, instead of merely paying Lyons a lump sum equal to the amount credited to his Personal Account, which was $36,109.15, Georgia-Pacific would have taken the value of the annuity Lyons would have received at age 65 and discounted it to present value by using the PBGC rate.6 That approach, following the Treasury regulations, would have yielded Lyons a lump sum payout of $49,341.83. See Lyons, 66 F.Supp.2d at 1332. The validity of the Treasury regulations is thus a question worth $13,232.68 to Lyons.7
C. Procedural History
In a letter dated March 18, 1996, the NCRB, acting on behalf of Lyons, advised Georgia-Pacific that Treasury Regulation 1.417(e)-1 requires a minimum lump sum payable from a defined benefit plan to be no less than the present value of the participant‘s normal retirement benefit; and that the present value of Lyons’ normal retirement benefit exceeded the amount in
Georgia-Pacific responded to the NCRB on April 17, 1996, taking the position that: the Plan is a “special” form of defined benefit plan known as a “cash balance plan;” IRS Notice 96-8 notes that cash balance plans define benefits for each employee by reference to a hypothetical account balance; most cash balance plans permit the distribution of an employee‘s accrued benefit in the form of a single sum equal to the employee‘s hypothetical account balance; Lyons’ “lump
sum distribution was not calculated with reference to the present value of a normal retirement benefit;” and instead, the amount distributed to Lyons was the amount credited to his Personal Account.
On April 14, 1997, Lyons, on behalf of himself and other similarly situated persons, filed a class action complaint against Georgia-Pacific and the Plan (collectively “Georgia-Pacific“) alleging that the method used to pay lump sum cash distributions under the Plan violated ERISA § 203(e)(2),
All participants (or beneficiaries of participants) in the [Plan] (i) who received a lump sum distribution of benefits calculated at a time when such participants had a vested interest in the Plan and who (ii) received a distribution of benefits in a lump sum where (iii) at the date as of which the amount of the lump sum was calculated, the lump sum was lower than the present value, if determined using the “applicable interest rate” as defined in Internal Revenue Code Section 417(e)(3) and set forth in Treasury Regulations issued pursuant to Internal Revenue Code Section 417(e), of such participants’ accrued benefit, as defined under ERISA.
Dist. Ct. Consent Order (September 29, 1997). Thereafter, the parties informed the district court that they “would prefer to seek a ruling from the Court as to the threshold issue of potential liability as to any class member before engaging in costly and time consuming discovery on issues pertaining to individual class members (or groups thereof), damages, or class membership.” Dist. Ct. Consent Order (March 11, 1998). On March 11, 1998, the court accommodated the parties by entering a consent order permitting them to file summary judgment motions on that threshold liability issue. See id. at 1-2. The order provided that if the court‘s ruling on that issue did not dismiss or otherwise resolve the case, there would be a period during which the parties could “conduct discovery on issues pertaining to defenses as to claims of individual class members or groups thereof, class membership, damages, and similar issues.” Id. at 2.
In its ensuing motion for summary judgment, Georgia-Pacific argued that the interest rate restrictions set forth in ERISA § 203(e)(2) apply exclusively to involuntary lump sum distributions of $3,500 or less, and because Lyons and the other class members received a voluntary lump sum distribution, the statute was inapplicable. Georgia-Pacific further argued that: ERISA § 204(c)(3) and Internal Revenue Code (“IRC“) § 411(c)(2) permitted distribution of the Personal Account as the entire accrued benefit; Georgia-Pacific was entitled to rely upon a good faith exception in IRS Notice 96-8 (a notice Lyons argued supports his claim); and two IRS determination letters exonerated it from liability.
On April 2, 1999, the district court entered an amended order and final judgment, certifying the class under
II. DISCUSSION
The principal dispute in this case is about whether ERISA § 203(e), 29 U.S.C. § 1053(e), and the Treasury regulations interpreting that provision required Georgia-Pacific to calculate Lyons’ lump sum benefit by determining the amount he would have received at the normal retirement age of 65 and then discounting that amount back to the present value using the PBGC discount rate. It may help to explain why that matters.
As we have said, because the Plan is “front-loaded,” interest credits to a participant‘s Personal Account continue after separation from employment until the normal retirement date, which is specified by the Plan to be age 65. Another important feature of the Plan is that the interest credit rate it provides is higher than the maximum discount rate prescribed in ERISA § 203(e). As a result, if the Plan‘s interest credit rate is applied to the Personal Account balance at separation and projected forward to determine what the normal retirement benefit would be at age 65, and that benefit is then reduced to a present value using the maximum discount rate, the resulting amount will be more than what is in the Personal Account before the calculations are done.9 The amount of the difference will be the result of two factors - the time until age 65 (the longer the time, the greater the difference) and the amount the interest credit rate exceeds the prescribed maximum discount rate (the more it does, the greater the difference). Pinning our
explanation to the facts of this case, the difference of $13,232.68 between the balance in Lyon‘s Personal Account, which is what he was paid under the Plan, and the amount he claims he is entitled to results from the .75 percent difference between the higher interest credit rate established in the Plan and the discount rate prescribed by PBGC, carried over the time between the payout of his lump sum distribution and his normal retirement date. If the plan had pegged the interest credit rate to the prescribed maximum discount rate, there would have been no difference (regardless of the time factor), and no dispute. But it did not, so there is a dispute.
The district court held that the Treasury regulation requiring that any lump sum cash payout be calculated by applying the PBGC discount rate to the normal retirement benefit under the plan was invalid. We review that holding de novo. See Lee v. Flightsafety Services Corp., 20 F.3d 428, 431 (11th Cir. 1994).
A. The Statute, Code Sections, and Regulations
In 1974, Congress enacted ERISA,
(e) Restrictions on mandatory distributions
(1) If the present value of any accrued benefit exceeds $3,500, such benefit shall not be treated as nonforfeitable if the plan provides that the present value of such benefit could be immediately distributed without the consent of the participant.
(2) For purposes of paragraph (1), the present value shall be calculated by using an interest rate not greater than the interest rate which would be used (as of the date of the distribution) by the Pension Benefit Guaranty Corporation for purposes of determining the present value of a lump sum distribution on plan termination.
ERISA § 203(e),
Two years later, Congress enacted the Tax Reform Act of 1986. Among other things, that legislation amended ERISA § 203(e)(2) and the parallel IRC § 417(e)(3) by adding new provisions relating to the calculation of the present value of an accrued benefit. One of those provisions permitted the use of a discount rate up to 120% of the applicable PBGC interest rate if the vested accrued benefit exceeded $25,000 using the PBGC rate. The other provision clarified that the present value determined under the 120% rate could not be less than $25,000. See Tax Reform Act of 1986, Pub. L. No. 99-514, §§ 1139(b), (c), 100 Stat. 2085.
After those amendments were made in the Tax Reform Act of 1986, this is how ERISA § 203(e) read:
(1) If the present value of any nonforfeitable benefit with respect to a participant in a plan exceeds $3,500, the plan shall provide that such benefit may not be immediately distributed without the consent of the participant.
provides that a plan may not use an interest rate that is greater than the rate used by the Pension Benefit Guaranty Corporation (PBGC) for valuing a lump sum distribution upon plan termination.
For purposes of calculating the present value of a benefit as of the date of the distribution, the plan is required to use an interest rate no greater than the rate used by the Pension Benefit Guaranty Corporation (PBGC) in valuing a lump sum distribution upon plan termination . . .
S. Rep. No. 98-575 (1984), reprinted in 1984 U.S.C.C.A.N. at 2549, 2562 (emphasis added). This legislation was not specifically tailored to cash balance plans - which did not even begin to appear until 1985, see supra n.2 - but was instead aimed at defined benefit plans in general.
(2)(A) For purposes of paragraph (1), the present value shall be calculated -
(i) by using an interest rate no greater than the applicable interest rate if the vested accrued benefit (using such rate) is not in excess of $25,000,
and
(ii) by using an interest rate no greater than 120 percent of the applicable interest rate if the vested accrued benefit
exceeds $25,000 (as determined under clause (i)). In no event shall the present value determined under subclause (II) [sic] be less than $25,000.
(B) For purposes of subparagraph (A), the term “applicable interest rate” means the interest rate which would be used (as of the date of the distribution) by the Pension Benefit Guaranty Corporation for purposes of determining the present value of a lump sum distribution on plan termination.
(3) This subsection shall not apply to any distribution of dividends to which section 404(k) of Title 26 applies.
in January of 1993. We will confine our analysis to the law applicable to Lyons and those similarly situated.12
Many ERISA sections have parallel provisions in the Internal Revenue Code, tax provisions that are worded in ways materially identical to the ERISA sections.13 ERISA § 203(e) is such a provision. Its tax counterparts are IRC §§ 411(a)(11) and 417(e). ERISA itself provides that Treasury regulations promulgated under IRC §§ 410(a), 411 and 412 are equally applicable to the parallel provisions of ERISA. See ERISA § 3002(c),
Because of the law discussed in the preceding paragraph, Treasury Regulation 1.411(a)-11 which interprets IRC
(a) Scope -- (a)(1) In general. Section 411(a)(11) restricts the ability of a plan to distribute any portion of a participant‘s accrued benefit without the participant‘s consent. Section 411(a)(11) also restricts the ability of defined benefit plans to distribute any portion of a participant‘s accrued benefit in optional forms of benefit without
standards set forth in parts 2 and 3 of subtitle B of subchapter I of this chapter.
complying with specific valuation rules for determining the amount of the distribution. . . .
***
(d) Distribution valuation requirements. In determining the present value of any distribution of any accrued benefit from a defined benefit plan, the plan must take into account specified valuation rules. For this purpose, the valuation rules are the same valuation rules for valuing distributions as set forth in section 417(e); see § 1.417(e)-1(d) . . . This paragraph also applies whether or not the participant‘s consent is required under paragraphs (b) and (c) of this section.
sum distributions. That means Georgia-Pacific loses most of the battle involving the threshold liability issue, if this Treasury regulation is valid.16
The district court held that the interest rate restrictions set forth in
B. Chevron Analysis
“The power of an administrative agency to administer a congressionally created . . . program necessarily requires the formulation of policy and the making of rules to fill any gap left, implicitly or explicitly, by Congress.” Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 843, 104 S.Ct. 2778, 2782 (1984) (quoting Morton v. Ruiz, 415 U.S. 199, 231, 94 S.Ct. 1055, 1072, 39 L.Ed.2d 270 (1974)). For that and other reasons, agency regulations, like the one at issue here, are to be given deference “unless they are arbitrary, capricious, or manifestly contrary to the statute.” Id. at 844, 104 S.Ct. at 2782.
Bringing
In Chevron, the Supreme Court explained: “First, always, is the question whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.” Chevron, 467 U.S. at 842-43, 104 S. Ct. at 2781. Thus, our first step is to determine whether Congress’ intent, as embodied in
The intent of Congress behind this part of
Clause (i) of paragraph (2)(A) specifies the applicable discount rate to be used “if the vested accrued benefit (using such rate) is not in excess of $25,000,” and clause (ii) specifies a different, higher, discount rate to be used “if the vested accrued benefit exceeds $25,000 (as determined under clause (i)).” An additional, final sentence of paragraph (2) reiterates that “[i]n no event shall the present value determined under subclause (II) be less than $25,000,”18 which is an amount higher than the $3,500 cap for non-consensual distributions set forth in paragraph (1). What all of these references to amounts above and below $25,000 mean is that Congress must have had something other than involuntary distributions in mind, because the cap on them was clearly specified in paragraph (1) to be $3,500. If Congress had intended to address only involuntary distributions, it would have used the $3,500 figure in place of the $25,000 figure in all three places in paragraph (2) of
Georgia-Pacific has never explained why, if
Moreover, the heading upon which Georgia-Pacific relies originated in the 1984 legislation, before Congress added to
The fairest statement that can be made about
[I]f a statute is silent or ambiguous with respect to the question at issue, our longstanding practice is to defer to the executive department‘s construction of a statutory scheme it is entrusted to administer, unless the legislative history of the enactment shows with sufficient clarity that the agency construction is contrary to the will of Congress.
Japan Whaling Ass‘n v. Am. Cetacean Soc‘y, 478 U.S. 221, 233, 106 S. Ct. 2860, 2868 (1986) (internal quotations and citations omitted).
In the Retirement Protection Act of 1994, Congress removed the language relating to the calculation of present value amounts in excess of $25,000, thereby lessening (or perhaps removing) the ambiguity or self-contradictory nature of the
Georgia-Pacific argues that in the 1994 legislation Congress simply “clarified” its earlier intent. Of course, the Retirement Protection Act of 1994 was enacted by a different Congress than the one that enacted the Tax Reform Act of 1986, which put in place the version of
Because the language of
Labeling the 1986 legislative history itself “ambiguous,” Georgia-Pacific prefers to direct our attention to statements found in the Senate Report to the 1984 legislation which first put
As the previous discussion indicates, the legislative history of
Georgia-Pacific contends that the Treasury regulation is unreasonable because, all other factors being equal, it produces benefits that are inversely proportional to the age of the participant at the time the lump sum distribution is taken. To the extent that the argument means the earlier a participant leaves employment the better the payout, that is not entirely true. While interest credits continue after separation from employment, service credits do not. The longer a participant stays employed under the Plan, the more service credits will be added to the accrued annuity, and the larger the effect the interest credit will have (because the interest credit is applied to the Personal Account balance which will grow with the addition of service credits). Moreover, those who design plans can reduce any perceived disparity by reducing or eliminating the difference between the statutory discount rate (which was derived from the PBGC rate at the time of Lyons’ distribution) and the interest credit rate. To the extent that Treasury Regulation 1.411(a)-11 does make it easier for younger employees to leave an employer who has a front-loaded, cash balance defined benefit plan, we cannot say that consequence makes the regulation unreasonable in light of the fact that one arguable benefit of such plans is that they allow younger workers to take a larger benefit with them when changing jobs. See Give Employees Meaningful Information When Pensions are Changed to Cash Balance Plans, Says Actuary, PR Newswire, May 7, 1999.22
Georgia-Pacific also argues that Treasury Regulation 1.411(a)-11 is unreasonable, because it will not work at all where the credit rate varies in response to some measure of market fluctuations, such as a stock or bond index. As an example, Georgia-Pacific posits a farfetched hypothetical.23 We note that Georgia-Pacific has not cited any evidence or source indicating that such plans exist, or if they do exist, that they are anything but rare.24 We will not strike down a regulation on the basis of a speculative hypothetical.
Because Congress has not spoken directly to the precise issue, because the legislative history is ambiguous, and because Treasury Regulation 1.411(a)-11 is not unreasonable, at least insofar as it applies to the specific type of plan in this case, Treasury Regulation 1.411(a)-11 is due to be upheld under the Chevron decision. See Atlantic Mut. Ins. Co. v. Comm‘r, 523 U.S. 382, 389, 118 S.Ct. 1413, 1418 (1998) (“The task that confronts us is to decide, not whether the Treasury regulation represents the best interpretation of the statute, but whether it represents a reasonable one.” (citation omitted)); Chevron, 467 U.S. at 843 n.11, 104 S. Ct. at 2782 n.11 (“The court need not conclude that the agency construction was the only one it permissibly could have adopted to uphold the construction, or even the reading the court would have reached if the question initially had arisen in a judicial proceeding.“) We turn now to Georgia-Pacific‘s contention that even if the Treasury regulation is valid, it does not apply to this specific Plan.
C. Application to the Plan
Lyons argues that Georgia-Pacific violated Treasury Regulation 1.411(a)-11 by failing to project the amount in his hypothetical account to normal retirement age and then discount that figure back to present value using the maximum discount rate prescribed in
Georgia-Pacific contends that until IRS Notice 96-8 was issued, there was no guidance suggesting that Treasury Regulation 1.417 would apply to cash balance plans in the manner advocated by Lyons. It argues that even if this Court gives deference to the Treasury regulation, there was no indication at the time of Lyon‘s lump sum distribution that Georgia-Pacific should have projected the amount in Lyon‘s hypothetical account to normal retirement age and then discounted that amount back to present value using
Because the plan here is a defined benefit plan, the individual employees “have a right to a certain defined level of benefits, known as ‘accrued benefits.‘” Id. at 440, 119 S.Ct. at 761. “That term, for purposes of a defined benefit plan, is defined as ‘the individual‘s accrued benefit determined under the plan [and ordinarily is] expressed in the form of an annual benefit commencing at normal retirement age.‘” Id. (quoting
Accrued Benefit means, as of the time of reference, a monthly amount of benefit, payable in the form of an increasing life annuity, commencing on a Participant‘s Normal Retirement Date, where the amount of such monthly benefit is the result of dividing the then credits to such Participant‘s Personal Account by the applicable factor from Section A of Appendix A.
Unlike a defined contribution plan, the “accrued benefit” under this Plan is not the amount in the Participant‘s Personal Account, but rather an amount derived from that hypothetical account. Thus, Lyons did not have a statutory right to the amount found in his hypothetical account prior to the normal retirement date, and Georgia-Pacific did not have a right to limit any distribution to him to that amount. Instead, after five years of work, Lyons earned a vested interest in an amount at normal retirement age, to be calculated under the Plan by projecting forward the amount in his hypothetical account using the interest credit rates specified in the Plan.
Treasury Regulation § 1.417(e)-1, which was in effect at the time of the distribution, unequivocally states that “[t]he present value of any optional form of benefit cannot be less than the present value of the normal retirement benefit determined in accordance with this paragraph.” Treas. Reg. § 1.417(e)-1(d) (emphasis added). “Any” means exactly what it says. See Lyes v. City of Riviera Beach, Florida, 166 F.3d 1332, 1337 (11th Cir. 1999) (en banc) (when no limiting language is used “‘any’ means all.“) (internal quotations and citations omitted). “[A]ny optional form of benefit” includes a pre-retirement lump sum benefit, which means that such a lump sum distribution cannot be less than “the present value of the normal retirement benefit determined in accordance with” the Treasury regulation.
For these reasons, we conclude that Treasury Regulation 1.411(a)-11, which was issued in 1988, requires that lump sum distributions under the Plan be calculated by determining what would have been the normal retirement benefit had the participant not elected to take an early lump sum distribution, and then discounting that amount to present value using the PBGC rate prescribed in
D. The IRS Determination Letter
In 1989 the IRS issued Georgia-Pacific a determination letter stating that the Plan was tax qualified. Georgia-Pacific argues that based upon that letter it cannot be held liable for any underpayment of benefits to Lyons and those similarly situated. The reasoning is that in determining the plan was tax qualified the IRS must have concluded that distributing the participant‘s Personal Account complied with
The one-page determination letter makes no mention at all of the lump sum payment provision, nor is there any indication in the letter that the IRS considered that provision of the Plan, much less the issue now before us. In its amicus brief the IRS urges us not to consider the letter, because it “may have erroneously overlooked the plan provision” for lump sum payments. Because it does not specifically address the issue at hand, the IRS letter is not owed any deference. See Hickey v. Chicago Truck Drivers, Helpers & Warehouse Workers Union, 980 F.2d 465, 469 (7th Cir. 1992) (“Given the informal nature of these letters, the express limitations included in the IRS letter, and the absence of any reasoning to explain the basis for the statements, we do not think that any implication in either of these letters . . . is entitled to deference.“); In re Gulf Pension Litigation, 764 F. Supp. 1149, 1172 (S.D. Tex. 1991) (“[T]he Court also finds that the IRS determination is due no deference because it evidences no investigation or legal analysis of the facts by the IRS.“). The letter may protect the Plan from adverse tax treatment, but it does not protect the Plan from liability to participants.30
E. Class Representative Problems
The Plan in this case was changed to a cash balance defined benefit plan by an amendment that became effective January 1, 1989. Thereafter, and until the Plan was amended in 1997, it utilized an interest credit rate that was higher than the statutorily prescribed maximum discount rate. The class the district court defined covered all of those who had received lump sum
Lyons, who is currently the only class representative, received his lump sum distribution in January of 1993. The version of
However, Lyons is not an adequate representative for those class members who received their lump sum distributions after the effective date of the 1994 amendment, because their claims are governed by
As we have explained before:
Among the prerequisites to the maintenance of a class action is the requirement of
Rule 23(a)(4) that the class representatives “will fairly and adequately protect the interests of the class.” The purpose of this requirement, as of many other of Rule 23‘s procedural mandates, is to protect the legal rights of absent class members. Because all members of the class are bound by the res judicata effect of the judgment, a principal factor in determining the appropriateness of class certification is “the forthrightness and vigor with which the representative party can be expected to assert and defend the interests of the members of the class.”
Kirkpatrick v. J. C. Bradford & Co., 827 F.2d 718, 726 (11th Cir. 1987) (citations omitted). We cannot expect Lyons to assert with “forthrightness and vigor” those interests of other class members that he does not share and in which he has no stake. Indifference as well as antagonism can undermine the adequacy of representation.32
III. CONCLUSION
Treasury Regulation 1.411(a)-11 is a reasonable and valid interpretation of
REVERSED and REMANDED for further proceedings consistent with this opinion.
Notes
The House Conference Report to the Tax Reform Act of 1986 stated:
If the present value of the vested accrued benefit is no more than $25,000, then the amount to be distributed to the participant or beneficiary is calculated using the PBGC rate.
If the present value of the accrued benefit exceeds $25,000 (using the PBGC interest rate), then the conference agreement provides that the amount to be distributed is determined using an interest rate no greater than 120 percent of the interest rate . . . . In no event, however, is the amount to be distributed reduced below $25,000 when the interest rate used is 120 percent of the applicable PBGC rate.
For example, assume that, upon separation from service, the present value of an employee‘s total accrued benefit . . . is $50,000 using the applicable PBGC rate. Under the conference agreement, the plan may distribute to this employee (if the employee and, if applicable, the employee‘s spouse consents) the total accrued benefit, calculated using 120 percent of the applicable PBGC rate (e.g., $47,000).
H.R. Conf. Rep. No. 98-841 (1986), reprinted in 1986 U.S.C.C.A.N. 4075, 4576. Lyons argues that if the interest rate restrictions applied solely to the consent determination, the Conference Committee would not have stated that (1) the minimum distribution under the 120% rate is $25,000; and (2) if the amount computed utilizing the 120% rate is, for example, $47,000, the plan must distribute at least $47,000.
The Senate Report to Retirement Equity Act of 1984 states:
Present Law
Under present law, in the case of an employee whose plan participation terminates, a pension, profit-sharing, or stock bonus plan (pension plan) may involuntarily “cash out” the benefit (i.e., pay out the balance to the credit of a plan participant without the participant‘s consent) if the present value of the benefit does not exceed $1,750. . . .
Reasons for Change
The Committee believes that the limit on involuntary cash-outs should be raised to $3,500 in recognition of the effects of inflation on the value of small benefits payable under a pension plan.
Explanation of Provisions
The bill provides that, if the present value of an accrued benefit exceeds $3,500, then the benefit is not to be considered non-forfeitable if the plan provides that the present value of the benefit can be immediately distributed without the consent of the participant . . . .
S. Rep. No. 98-575 (1984), reprinted in 1984 U.S.C.C.A.N. 2547, 2569.
IRS Notice 96-8 states that it was issued to provide “guidance concerning the requirements of section 411(a) and 417(e) with respect to the determination of the amount of a single sum distribution from a cash balance plan.”
Notice 96-8 explains that if a plan‘s interest credit rate exceeds the statutory discount rates set forth in
Georgia-Pacific‘s contention disregards a Treasury decision issued well before Lyons received his distribution. On September 19, 1991, the Secretary of the Treasury issued Treasury Decision 8360 which, among other things, stated that cash balance plans must comply with
Several commentators requested clarification of the treatment of cash balance plans, another hybrid plan design. . . . Comments indicated that cash balance plans are becoming increasingly popular.
* * *
Some of the comments involving cash balance plans . . . requested that the final regulations provide special relief for cash balance plans from the requirements of section 417(e). . . . These rates, when combined into a single blended rate, are sometimes lower than the rates used by existing cash balance plans in determining employees’ cash balances, and can therefore require a plan that does not use the section 417(e) rates to determine interest adjustments to pay an employee more than the amount of the employee‘s hypothetical cash balance when benefits are paid in a single sum. The Treasury and the Service have determined that such relief cannot be granted consistent with the requirements of section 417(e). However, in order to minimize the occasions when this problem will arise, the final regulations include a blended section 417(e) interest rate among the alternative safe harbor interest rates a cash balance plan may use in determining interest adjustments.
T.D. 8360, 56 Fed Reg. 47524, 47528 (1991). Thus, the Treasury Department had put employers on notice of its position that the law required cash balance plans to use the statutory rates in