(CORRECTED
In this certified class action
The Court held a bench trial from July 14, 2015 to July 27, 2015. Twenty-one fact witnesses testified—15 live
The Class’s core claim is that the Company failed to inform its employees (the “Participants”) that plan changes that went into effect as of January 1, 1996 implemented an effective freeze on growth of the employees’ pension benefits—such that, for a period of time, additional periods of service did not result in additional benefits. The Class asserts that both class-wide and individual communications failed to clearly describe that the vast majority of Participants would be in a period of “wear-away” during which new accruals would not increase the benefit to which the Participant was already entitled. By contrast, while Foot Locker does not contest that the vast majority of Participants were in a period of wear-away, it claims that the Plan communications adequately disclosed the necessary details of changes to the Plan, Including an adequate description of the actual benefit a Participant would receive. According to Foot Locker, Participants had the information necessary to inform them they were in a period of wear-away. The Company concedes that it did not describe wear-away explicitly because it believed it was too complicated and its variations and- effects too unpredictable. According to Foot Locker, the additional disclosures might have had misled Participants into believing that they were entitled to a greater benefit .than' that to which they were entitled at termination.
Having considered all of the evidence, at long last the dust on this case has settled and the Court does not believe it presents a close call. The evidence is overwhelming that the changes in the Retirement Plan resulted in an effective freeze of pension benefit accruals—and that this freeze was not adequately disclosed to Participants. Some Participants were severely impacted, some moderately, and a few not at all. In this regard, the evidence is clear that (1) wear-away was an intended feature of the Plan, (2) Plan disclosures and other communications to Participants failed to disclose wear-away, (3) this lack of disclosure was- intentional, (4) wear-away impacted thousands of employees—many; including the named plaintiff, terminated employment and were paid benefits while they were still in wear-away, (5) Participants did not understand that, as a result of wear-away, additional periods of service
Both parties have compared this case to Amara v. CIGNA Corp., which the Court discusses below. This case presents a more egregious set of circumstances than Amara. In Amara, wear-away resulted, in large part, from fluctuations in interest rates; here, by contrast, the structure' of plan conversion guaranteed that most Participants would experience severe wear-away and that this was the expected source of cost savings to Foot Locker.
I. FINDINGS OF FACTS
' Pursuant to Federal Rules of Civil Procedure 52, the Court’s findings of fact and conclusions of law are set forth below.
A. The January 1, 1996 Plan Amendment
Before 1996, benefits under Foot Locker’s pension plan were defined as an annual benefit commencing at age 65 and continuing for life. (Expert Opening Report of Lawrence Deutsch, E.A. (“Deutsch 6p. Report”) at 5.)
Foot Locker converted the Plan to a cash balance plan as of January 1, 1996. Under the Amended Plan, Participants’ age-65 ’annual benefit accrued as of December 81, 1995 (the “December 31, 1995 accrued benefit” or the “December 31, 1995 frozen accrued benefit”) was converted into an initial account balance that would be used to calculate the benefit under the new formula. This conversion was effected in three steps:
1. First, the Plan calculated a lump sum value of the Participant’s age-65 accrued benefit under the old Plan, as of December 31,1995.
2. Second, the Plan discounted this age-65 lump sum to January 1,1996, to reflect the time value of money.
*525 3. Third, the Plan further discounted this January 1, 1996 present value by a mortality discount—to reflect the possibility that the Participant might not live until age 65.
(Deutsch Op. Report at 7.)
Critically, the conversion at steps l and 2 was accomplished using a 9 % discount rate. Following the conversion, however, Participants’ account balances were credited with pay credits and an interest credit at a fixed annual rate of 6%. (See id. at 7-8.) Thus, while' Participants’ growing account balances created the appearance of pension benefit growth, this appearance was deceptive: the initial conversion was accomplished using a 9% rate (and a mortality discount) but each Participant’s account subsequently earned interest only at a 6% rate. As a result, the account balance under the new formula was—for a period of time (in many cases, years)— smaller than the December 31, 1995 accrued benefit. (See id.)
The disparity between the December 31, 1995 accrued benefit and the benefit under the new formula triggered ERISA’s anti-cutback rule, which (with narrow exceptions inapplicable here) requires that a participant’s benefit entitlement, once earned, never be reduced due to a plan amendment. (Id. at 3.) To comply with the anti-cutback rule, the new Plan calculated benefits based on a “greater of’ formula. Under this formula, a Participant’s actual pension benefit was the greater of the December 31, 1995 accrued benefit (the “A benefit”) and the Participant’s cash balance benefit (the “B benefit”). (Id.)
The “greater of’ comparison between the A and B benefits was an annuity-to-annuity comparison that was accomplished via the following steps. First, the A benefit (the December 31,1995 accrued benefit) was converted to an annuity. The B benefit (the Participant’s cash balance benefit) was projected to age 65 with a fixed -6% interest'rate, 'and converted to an annuity commencing at age 65. The last step was accomplished by Using either the 6% rate or the applicable rate under Internal Revenue Code (“IRC”) § 417(e) and the applicable mortality table under § 417(e). (See Deutsch Op. Report at 4, 6.) For the vast majority of Participants, the A benefit exceeded the B benefit. This meant that growth in the B benefit—the hypothetical account balance—due to additional service and interest credits did not represent any growth in the actual benefit a Participant would receive. (See id. at 4.)
Under the new Plan, Participants could choose to receive their pension benefit as a lump sum or an annuity. Under ERISA, a lump sum cannot be less than the present value of a participant’s.age-65 benefit using the interest rate and mortality assumptions required by IRC § 417(e). “Lump
The cash balance conversion was also accompanied by a new 401(k) plan.
Early Retirement Subsidy/Enhancement. The prior Plan included an early retirement subsidy, which worked as follows: Participants between age 55 and 65 had the option to receive early retirement benefits. For Participants with fewer than 15 years of service, early retirement benefits were equal to the Participant’s age-65 benefit reduced by 6% per year for early commencement. (Deutsch Op. Report at 5; Deutsch Tr.
■ To receive the value of this subsidy under the new Plan, Participants had to elect an annuity form of payment, not a lump sum. (D.eutsch Tr. 128:2-6.) ■ However, approximately 97% of Participants elected lump sums. (Deutsch Op. Report at 16.)
Under the new Plan, Participants who were at least age 50 and had at least 15 years of service on December 31, 1995 received an enhancement to their opening account balance. (Deutsch Op. Report at 8-9.) The size of the enhancement varied: at the optimal ages of 50 to 55, the enhancement was a 66.67% increase in the account balance; for. Participants older than age 55, the enhancement decreased, disappearing at age 65. • (Id. at 8-9.)
B. Internal Communications
At trial, the Court heard a significant amount of testimony—and received a large number of documents—regarding the internal process by which the January 1, 1996 Plan amendment was developed and implemented.
In late 1994 or early 1995, Foot Locker’s management determined that, in light of the Company’s poor financial condition, it was necessary for the Company to cut costs, including in connection with retirement benefits, (Declaration of Patricia A. Peck (“Peck Deck”) If 3, ECF No. 333.) Roger N. Farah, Foot Locker’s Chief Executive Officer at the time, specifically requested a recommendation with" regard to cost savings available through the retirement plan. (See PX 24 (February); PX 632 (January).) A task force of four employees from the corporate benefits department was established: Tom Kiley, Carol Kanowicz, Marion Derham, and Pat Peck. (See Peck Tr. 1112:3-12; PX 24.)
Peck had been the Vice President " of Human Resources during the period at issue. In that capacity, she headed the Human Resources Department. (Peck Tr. 1103:14-20.) Peck reported to Barry Thomson, Foot Locker’s Chief Administrative Officer and a member of the Chairman’s Group. (Tr. 1105:14-22.) Peck was led the team responsible for coming up with recommended changes to "the Plan and communication to Participants. She was ultimately the person responsible for deciding which Plan recommendation and option(s) to present to management. (See Tr. 1109:2-6, 1113:5-1114:4; Peck Deck ¶3.) In understanding this assignment, Peck understood cost cutting was to play a significant role. (Tr. 1114:5-7.) Peck primarily worked with William M. Mercer Inc. (“Mercer”), the company’s actuarial advisor and Kiley—an individual with the necessary expertise who Peck believed understood the ins and outs of pension plans. (Peck Deck • ¶3; Tr. 1116:1-7, 1116:121117:2.) Based on Mercer’s advice, Kiley recommended that the Plan be converted to a cash-balance, plan—and that this change occur simultaneously with the institution of a 401(k) plan. (Peck Deck ¶ 3; Tr. 1118:3-12.)
In 'February 1995, Peck learned that there was an aspect of the proposed cash balance plan that would have the effect of suspending the accrual of new benefits to employees for a period of time. (See Peck Deck ¶ 6; Tr. 1121:31-16; PX 84.) Notes that Peck took during a meeting with Mercer. that month reflect that she was informed that the discount rate used to convert the benefit from the prior plan into an initial account balance interacted with the GATT (General Agreements on Tariff & Trade) rate to create a suspension of new accruals. (See PX 84; Peck Tr. 1121:171122:1.) Her notes also reflect that she wrote, “does not constitute partial plan termin[ation]; nothing more than plan amendment.” (PX 84.) She later indicated in 'the same notes that there would be a “positive effect on P & L & contributions.” (Id.) Peck understood wear-away. (Peck Tr. 1128:4-8.) She also understood that it was not a required feature of plan design. (Tr. 1129:11-14, 1129:24-1130:5.) In other words, to convert to a cash balance plan did not require wear-away. The Company had the option of choosing a combination of rates that would cause wear-away—but it could also choose rates that would not
Peck also knew that the Plan conversion created the cost savings that the Company sought. (Tr. 1131:8-11.) She understood that the cost savings were based directly on the required feature that Participants would not earn any additional benefits for a period of time. ' (Tr. 1131:12-19.) She also knew that a decline in the GATT fate would worsen the wear-away for Participants. (Tr. 1132:10-16.) She further understood that, for a Participant in wear-away, increases in that Participant’s cash balance account would not have increased any actual benefit to which that Participant was entitled. (Tr. 1133:1-9.) Pension benefits were part of an employee’s total compensation. (Tr. 1135:6-8, 1135:17-23.) When.an employee was in wear-away, his or her pension was not increasing in value; this was an effective decrease in such employee’s compensation. (Tr. 1135:24-1136:4.)
Prior to May 1995, Peck had not made a determination as to the type of plan changes that would be recommended to management. (Tr. 1120:4-12.) Peck understood that a lump sum option could have been provided by way of amendment to the prior plan. (Tr. 1159:7-19.) .
On May 1, 1995, P’eck made a formal presentation to management regarding her recommendation changes to the pension program. (Tr. 1145:10-17; PX 10' (with Peck’s notes); PX 632 (with Filey’s notes).) She understood that her assigned task had been to cut costs, not bo make the Plan more beneficial for Participants. (Peck Tr. 1146:24-1147:3.) The task force had looked at several variations of the bash balance formula—and chose the particular formula because of the level of savings it provided and because it was service-based, which was appropriate based on the emerging demographics of the Company. (PX 632; Peck Tr. 1149:6-11.) Peck’s presentation to senior management .reflected that an advantage of converting to a cash balance plan was “decreases [in] future company costs;” a disadvantage was that it would lead to a “permanent loss of retirement benefits.” (PX 632.) The Company viewed announcing a temporary plan freeze as a “morale killer.” (Peck Tr. 1155:16-19, 1164:13-16.) However, Peck agreed that wear-away was, in effect, a freeze. , (Tr. 1160:10-13.) It was not announced as such. Conversion to a cash balance plan had the advantage of being able to obscure what was an effective freeze, without the accompanying negative publicity, loss of morale, and decreased ability to hire and retain workers. (Tr. 1157:16-1158:1,1161:11-23.)
On July 20, 1995, a presentation was made to senior management—including Farah and Dale Hilpert, Foot Locker’s Chief Operating Officer at .the time—regarding the proposed changes in the pension program. (PX 101.) The presentation included cost savings expected in large part because of the wear-away effect. (PX 101.) Peck testified, and the Court credits, that senior management was involved throughout the decision making process. (See Peck Tr. 1114:23-1115:25, 1169:3-9, 21-25.)
On August 8, 1995, a presentation regarding the proposed changes in the retirement plan was'made to the Company’s Retirement Investment Committee. (PX 19; PX 147.) That presentation, which was made by Barry Thomson, included a comparison of various defined benefit plan alternatives—and contained various benefit illustrations for the version of the cash
On August 22, 1995, Peck sent the Board an abbreviated version of the August 8, 1995 presentation (PX 91) in order to enable to Board to review the materials in advance of a meeting scheduled for September 13, 1995. (Peck Tr. 1176:11-15, Tr. 1177:3-9.) On September' 13, 1995, Thomson presented the proposed recommendations to the Board. (PX 37, PX 40.) The Board adopted the recommendations and, two days later, on September 15, 1995, a company-wide announcement letter was issued about the changes to the Plan. (PX 2.)
A year later, in September 1996, Peck learned that the wear-away period would be significantly longer than previously expected—and would last between four and five years. • (Peck Tr. 1141:12-17; PX 9.) Prior to this point, both Peck and Kanow-icz believed that wear-away was only expected to last two to three years. (Peck Tr. 1134:23-1135:5; Kanowicz 3/29/2012 Tr. 167:8-18.) On September 11, 1996, Mercer informed Foot Locker that the normal cost (e.g., annual cost to Foot Locker) under the new Plan was about $4 million and was expected to rise to about $10 million by the year 2000, when wear-away would end in about four years. (PX 9; Peck Tr. 1141:22-1142:13.)
Mercer’s September 11, 1996 letter referenced wear—away explicitly-and indicated that extending the wear-away period would result “in some additional short term savings.” (PX 9.) This letter was read by executives at the highest level: Farah clearly read the September 11,1996 letter because attached to that letter was Farah’s memo to John Cannon and John Gillespie, dated September 10, 1996 (one day earlier), requesting a meeting with regard to the interest crediting rate on cash account balances. (PX 9; see also PX 113.) ■ Peck informed at least one other senior executive, Barry Thomson, that wear-away was built into the Plan design and that everybody was going to be impacted by it. (Peck Tr, 1142:22-1143:12.) The SPD was not in fact printed and distributed until December 1996, after Foot Locker understood that that wear-away would be prolonged. (PX 59; Peck Tr. 1227:25-1228:14.)
In November 1996, Peck made another presentation to senior management entitled “Review of Plan Options for Additional Cost Savings.” (PX 11 (emphasis added).) The presentation referenced that Plan changes had been approved by senior management in July 1995, approved by the Board in September 1995, and implemented in January 1996. (Id.) These changes had resulted in savings of $6 million from 1995 to 1996. (Id.)
C. Employee Communications
Foot Locker communicated the changes to the retirement plan to employees in a series of communications; All of the communications—whether intended for company-wide dissemination or to individuals or regional groups—share core common characteristics. All failed to describe wear-away. All failed to clearly discuss the reasons for the difference between a Participant’s accrued benefit under, the old Plan and his or her cash balance under the new. The Court finds that all the statements were intentionally false and misleading.
The changes in' the pension program were first—and very misleadingly—introduced to Participants in a September 15, 1995 announcement letter from Farah and Hilpert.- (PX 2.) The Company told employees that it was “excited” to announce that, after' “listenfing] to what associates have told us they would like to see,” it had decided to update its pension plan to “give
The September 15, 1995 announcement letter to employees states in part as follows:
The other part of the new retirement benefit- program provides several changes to The Woolworth Retirement Plan. These changes will provide participants with more flexibility and a better ability to monitor their benefits. Each plan participant will have an individual account, to which the company will make a yearly contribution. That contribution will be based on a new formula that will reflect percent of pay and years of service. Participants will be able to see their individual account balance grow each year, and know its value.
(PX 2.) Foot Locker knew at the time that the statement, “Participants will be .able to see their individual account balance grow each year, and know its value,” was false as- to almost all Participants, because the account balance would have no “value” to Participants in wear-away. (Peck Tr. 1182:15-1183:17, 1184:2-4,11:15.) At trial, Peck agreed that Participants would not know the value of their benefit while they were in wear-away unless they were specifically informed that they were in wear-away. (Tr. 1183:18-21.)
The next company-wide communication was distributed on November 17, 1995. (PX 4 (the “Highlights Memo”).) Peck had direct involvement in drafting that memo as well. . (Peck Decl. ¶ 16.) She again made an affirmative decision to leave out the negative aspects of the Plan changes. (Peck Tr. 1188:12-18.) Wear-away was not disclosed. (Tr. 1188:22-24.) Foot Locker knew at the time that it was a misleading statement for anyone in-wear-away to state, as the Highlights Memo did, that “At termination of , employment, provided you are vested, you will have the option of taking the lump sum payment equal to your account balance.” (PX 4; Peck . Tr. 1188:25-1189:10, 1213:24-1214:11.) This statement obscured the fact that the accrued benefit was the sole true benefit for anyone in wear-away.. (Of course, Participants had a lump sum versus annuity choice; that portion of the statement was true). The Highlights Memo further referred Participants to forthcoming statements of their estimated benefits. (PX 4 (“A statement showing your estimated benefits under the amended Plan will be mailed to you during December 1995.”))
But as Kanowicz,. who worked on the pension design team, explained- during her deposition, the Company simply “left [the wear-away] part out” of communications
The Summary Plan Description (“SPD”) was distributed in December 1996.. (See PX 5; PX 59; Kiley Tr. 803:24-804:9.) The SPD contains a variety of statements that falsely indicated to Participants that their actual retirement benefits were fully reflected in their account balances—versus the factually correct statement that such benefits would often default to the December 31, 1995 accrued benefit under the “greater of’ formula.
The SPD contained á number of intentionally falsé misstatements. The Introduction to the SPD states, “This SPD explains how you qualify for a pension” and “how that pension is determined.” (PX 5 at FLPL0020.) The “Highlights” section contains the following bullet points next to “How Your Retirement Benefit Is Determined”:
■ Account balances are credited ,with 6% interest annually.
■ Compensation credits, arrived at using a formula based on your years of - service and compensation, are added to your account balance annually.
(Id. at FLPL0023 (italicization in original).
Your Plan benefit is based on the account balance you accrue, or earn, while a participant. That account balance is made up of:
■ Your initial account balance, which is the value of your Plan benefit as of December 31, 1995, before the Plan was amended;
■ interest credited to your account balance; and
■ additions to your account balance, called compensation credits, which are based on years of service and a percentage of compensation.
*532 When your employment terminates, you are entitled to receive payments on a monthly basis (an annuity) or in a lump sum. The annuity payable to you is determined in the following manner. Your account balance is increased by interest credits (as described below) to normal retirement date. The resulting amount is converted to an annuity using factors required by federal law and IRS regulations. The lump sum payable to you is the greater of your account balance or the amount determined by multiplying the annuity payable to you by factors required by federal law and IRS regulations.
(Id. at FLPL0030-S1 (italicization in original).) Benefits manager Marion Derham conceded at trial that the “greater of’ language did not disclose wear-away. (Derham Tr. 1431:19-1432:1.)
The SPD then contains a subsection entitled “Initial Account Balance.” (PX 5 at FLPL0031.) This subsection contains a lengthy explanation, including complicated calculation concepts, followed by a single sentence that states, ‘Your accrued benefit at the time your employment terminates is the greater of the amount determined under the Plan as amended on January 1, 1996 or your accrued benefit as of December 31, 1995.” (Id. (italicization in original).)
The term “accrued benefit”—italicized in the preceding sentence—is separately defined in the “Definition of Terms” section of the SPD as “[a] participant’s accumulated account balance converted to a Single Life Annuity payable at normal retirement age.” (PX 5 at FLPL0024 (italicization in original).) Substituting this definition into the preceding sentence leads to:
Your accumulated account balance converted to a Single Life Annuity payable at normal retirement age at the time your employment terminates is the greater of the amount determined under the Plan as amended on January 1,1996 or your accrued benefit as of December 31,1995.
Deutsch testified—and the Court agrees— that this sentence is incorrect: it states that a Participant’s account balance, not ultimate benefit, is the greater of the two formulas. (Deutsch Tr. 302:4-12.) Thus, even if a clever Participant carefully read the SPD and cross-referenced the SPD’s provisions with the Definitions section, he or she still would not get a correct statement of the “greater of’ comparison.
The term “initial account balance” is also defined in the Definitions section. That definition is as follows:
If you were a participant in the Plan on December 31, 1995 and on January 1, 1996, you have an initial account balance. That balance is equal to the actuarial equivalent lump sum value of your accrued benefit (as determined under the terms of the Plan in effect on December 31, 1995) as of December 31, 1995. This value is determined actuarially based upon a 9% rate of interest and the mortality table set forth in IRS rulings.
(Id. at FLPL0025.) The SPD contains no further explanation of the meaning of “actuarial equivalent lump sum value” or “the 9% rate of interest.” That phrase is highly technical and not accessible to most reasonably educated people, let alone the average Foot Locker employee, who had a high school level education. It is not immediately apparent to the lay person that the “9%” is being used as a discount rate.
The SPD also references “Interest Credits” as part of the calculation of a Participant’s retirement benefits, stating, in pertinent part:
Interest credits will help your account balance grow. On the last day of each*533 Plan year, account balances, as of the first day of that Plan year will be credited with interest at the rate of 6% (1/2% per month).
(Id. at FLPL0031 (italicization in original).) The SPD fails to mention that this “growth” in the account balance did not represent any growth in the pension benefit for the vast majority of Participants.
Peck understood the importance of the SPD in terms of communicating the terms of the Plan amendment accurately to Participants. (Peck Tr. 1240:16-19.) She provided final approval of the SPD. (Tr. 1224:13-15, 1240:20-23, 1241:3-6.) At the time she provided her final approval, Peck knew that wear-away was anticipated to last for an additional three to four years— and that the Company’s prior communications about the changes to the Plan contained statements that were false as to all Participants who were in wear-away. (Tr. 1241:7-20, 1242:1-3.) Nonetheless, Peck did not use the SPD as an opportunity to correct these false • statements. (Tr. 1241:21-25.)
Peck testified—and the Court agrees— that the statement in the SPD that ‘Your Plan benefit is based on the account balance you accrue, or earn, while a' participant” was false for Participants in wear-away. (Peck Tr. 1244:12-16.) In fact, the entire SPD was focused on the account balance benefit - (Tr. 1246:3-7) and was irrelevant to Participants in wear-away until they got out of wear-away (Tr. 1245:711, 1247:12-16). Peck knew that, with expected attrition, thousands of employees would terminate and leave the Company without ever getting out of wear-away. (Tr. 1245:15-19.) Nonetheless, wear-away was not disclosed anywhere in the SPD. (Tr. 1242:20-1243:1.) Peck conceded at trial that she had made an affirmative decision to limit the Company’s communications with Participants to “good news”—and not mention that Participants would stop earning additional benefits for a period of time. (Tr. 1243:15-20.) Meanwhile, Peck’s team was aware that it was through the wear-awdy that the cost savings sought by Fa-rah were achieved. (Tr. 1243:25-1244:7.)
Peck acknowledged that she did not expect the average Participant to read the entire SPD—and that the average Participant would instead focus on the Highlights section.’ (Tr. 1248:24-1249:2, 1253:4-7.) She also agreed that the Highlights section does not reference wear-away. - (Tr. 1249:8-11.) She agreed that Participants would not be familiar with the concept of wear-away,and would have to be—as she was—educated- about that concept. (Tr. 1250:12-16, 1250:25-1251:10, 1241:15-16.) Peck knew at the time she gave final approval to the SPD that almost everyone was in wear-away and would not be familiar with wear-away—and that she approved statements that were false for them, namely, that their Plan benefit was based on their account balance.' (Tr. 1252:7-13.)
Misstatements were made to Participants year after year. (Tr. 1221:17-21, 1222:8-10.) For example, beginning in July 1996, employees received booklets setting forth their individualized “total compensation” statements. (Peck Tr. 1222:11-17; PX 7 at FLPL 3009.) The booklets listed the employee’s Current account balance in dollars, and the booklets after 1996 showed the previous year balance and the growth of that balance via compensation and interest credits. (PX 7 at FLPL 3011; PX 53 at FLPL 3092; PX 54 at FL-OSB 008522; PX 55,-FL-OSB 008529; PX 56, FL-OSB 007545; PX 57 at FL-OSB 008365; PX 58, FLPL0017.) They advised employees, ‘You will want to compare this statement with those you réceive in the future. It is a measure of your yearly progress, and as your time
-Participants also received individualized annual pension plan statements, which stated that the account balance was the amount, the Participant “could expect to receive upon termination of employment or retirement if you accrue no further benefits and elect a Lump Sum form of payment.” (PX6; see also PX 23.) Peck was involved in drafting these annual statements, which contained two columns-a column entitled “Current, Plan,” listing the estimated accrued benefit through December . 31, 1995; and a column entitled “Amended Plan as of January 1, 1996,” listing the estimated account balance .-as of January 1, 1996. (See PX 43; PX 6; Peek Tr. 1190:25-1191:5.). The “Amended Plan” column did not refer to the December 31, 1995 accrued benefit—or state the Participant would be entitled to the “greater of’ the December 31,1995 accrued benefit and the account balance. (See PX 43; PX 6; Peek Tr. 1192:3-11.) Instead, the “Amended Plan” column stated that the estimated account balance as of January 1, 1996 .was what the Participant “could expect to receive.” (PX 43)
Peck knew that this statement was. false for anyone in wear-away. (Peck Tr. 1194:16-23, 1195:16-19, 1215:13-24.) In fact, if a Participant were to have been paid on January 1, 1996, the account balance would not be the payment he or she would receive; he or she would receive the December 31,1995 accrued benefit. (Peck Tr. 1192:15-1193:4.) In many cases, the January 1, 1996 account balance was half of the lump sum value of the December 31, 1995 accrued benefit. . (Peck Tr. 1194:1115.) But like the annual booklets, Plan statements beginning in May 1997 showed annual account growth, reinforcing the message that the-Participant’s account size is equal to his benefit size. See PX 3 at FL-OSB 002244 (‘Tour benefit is expressed as an account balance that grows each year with interest and pay credits.”)
• Additional materials sent to some Participants describing the benefits they would receive also did not disclose wear-away. While some Participants—after ..individual inquiry—received additional statements that listed a “lump sum payable figure that was greater than,the “initial account balance” or “accrued benefit” figures, (see, e.g., PX 339, PX 330, PX 390.), the statements did not explain that the differential was due to the fact that the initial account balance was not a meaningful figure that led to increased benefits over time. In fact, some statements showed the account balances increasing over time. (See, e.g., PX 330.)
Foot Locker has asserted that its communications with Participants were- consistent with legal advice it was .provided. However, the evidence does not support that counsel—inside -or outside—had the full array of facts, including those facts necessary to provide a clear understanding of the number of Participants impacted by wear-away. (See Peck. Tr. 1278:17-24.) Peck also did not ensure that outside counsel knew -that wear-away could continue for a period of years. (Tr. 1277:22-1278:1, 1279:20-1280:6.) Finally, outside counsel had advised that the annual statements be revised to. include the qualifier, “unless your accrued benefit as of December 31, 1995 (set forth in 5, above) is greater, on an actuarial equivalent basis.” (PX 44.) In
' Foot Locker has also argued that the Plan changes provided certain benefits to employees—including the ability to receive retirement benefits in a lump sum and a-401(k) plan. This is supported by the evidence but' ultimately irrelevant. The lump sum option could have been provided without any conversion to a cash balance plan, let alone to a cash balance plan that had mathematically locked-in wear-away' (Déutsch Tr. 124:17-125:7;' see also id. 145:1-146:21.) Additionally, the rollout of the 401(k) cannot make up for the absence of clear communications as to what an employee’s actual retirement benefit would be, or the fact and impact of wear-away!on that benefit’s growth.
D. Employee Reaction to Plan Communications
Perhaps the clearest indication that wear-away was not understood was the fact that not„a single employee ever complained about it, This absence of complaint was the logical result of Foot Locker’s false and misleading -communications: employees simply did not know that wear-away was an issue for them.
At the time of the events in this case, the average Foot Locker employee earned an average of $22,000. (Peck Tr. 1135:14-15.) To communicate effectively with employees, Foot Locker’s benefits employees had an assumption that employees had an eighth-grade level of education. (Ine Tr. 983:19-23.)
Ada Cardona, a class member who testified credibly at trial, is an example of an average employee. She worked, for the company for a total of 40 years. (Cardona Tr. 429:17-18.)
Ralph Campuzano, who worked-at Woolworth until 1998, also testified credibly at trial. . He testified'that he read all of the Plan communications sent to him. (Declaration of Ralph Campuzano (“Campuzano Decl.”) ¶ 5, ECF No. 328.) He read the Highlights Memo (PX 4) and believed that it indicated that his pension benefits would continue to grow. (Campuzano Decl. ¶ 9.) He would regularly receive Plan summaries and carefully saved them in his files. (PX 53, PX 61, :PX 356.) Unbeknownst to him, they were in fact irrelevant to the pension benefit he actually stood to receive. Between 1996 and his termination, he was neyer out of wear-away. .
Doris Albright was also very credible. She worked at Woolworth between 1974 and 1996, and left only when the facility at which she -worked was closed down. (Declaration of Doris Albright (“Albright
Richard Schaeffer is another class member who testified credibly at trial. He worked at Woolworth between 1975 and 1997, when the facility at which he worked was closed down. (Declaration of Richard Schaeffer (“Schaeffer Deck”) ¶ 1, ECF No. 326.) Schaeffer worked first as a forklift driver, then as a forklift supervisor, and finally as a rebuyer. (Id.) Based on the communications he received and reviewed about the changes to the Plan, Schaeffer believed that the old Plan formula was no longer relevant, that his benefit was now his account balance, and that this benefit would keep growing as he continued working for the Company. (Id. ¶¶ 6, 7; Schaef-fer Tr. 1085:19-23.)
In 1997, Schaeffer contacted Foot Locker regarding his and his- wife’s pension benefit because he wanted to know the figure that he would be receiving, when he and his wife would be let go. (Schaeffer Decl. ¶ 8; Schaeffer Tr. 1084:6-1085:10.) The evidence demonstrated that he intended to and did rely on the information Foot Locker provided. In reviewing the response he received from Foqt Locker, Schaeffer focused on the bottom line figure and did not fully understand the accompanying calculations. (PX 390; Schaeffer Decl. ¶ 9; Schaeffer Tr. 1089:12-20.) He did not understand from the letter and the calculations that his pension benefit had not been growing during 1996 and 1997. (Schaeffer Decl. ¶ 9; Schaeffer Tr. 1090:6-14.)
Russell Howard also testified credibly on behalf of the Class. Howard worked for Foot Locker between 1967 and 2003. (Declaration of Russell Howard (“Howard Decl.”) ¶ 1, ECF No. 327.) Howard testified that he received and read through all of the communications about the Plan changes, skimming certain parts. (Howard Decl. ¶4; Howard Tr. 449:15-450:1, 452:13-18.) Like his fellow class members, Howard believed, based on the communications he received, that his pension benefit was growing the entire time he worked for the Company. (Howard Decl. ¶ 3.) His understanding was that his opening account balance reflected the full value of the benefit he had earned through December 31, 1995—and that this benefit would continue to grow with continued employment. (Id.) Howard testified credibly that he never suspected that his pension benefit had stopped growing while he worked for the Company: “I just looked at the growth year to year, saw that it was growing and that was it, yeah.” (Howard Tr. 456:3-5.) In fact, his benefit was not growing.
Michael Steven, the former Chief Financial Officer of the Woolworth division— who holds a Master of Business Administration (“MBA”) in Finance and is a licensed Certified Public Accountant (“CPA”)—also testified on behalf of the Class. (Declaration of Michael T. Steven (“Steven Decl.”) ¶¶1-2, ECF No. 340.) He credibly testified that, based on company communications, he believed that his prior benefit was placed into—or somehow became—the basis for his cash balance account. (Steven Decl. ¶ 7; Steven Tr. 1367:1-3.) While he understood that there was an actuarial conversion process, he did not understand that the conversion resulted in a lower amount than that to which he
Steven made a second request later in 1996—and received another response from Kiley. (Steven Decl, ¶ 16; PX330.)- Even putting these two communications regarding his pension benefit together and seeing the differences between them did not reveal to him that he had not earned additional benefits during the intervening period of employment. (Steven Decl. ¶ 18.) For instance, when he saw the calculation of his initial account balance, he did not understand that the “9%” shown in the calculation had been used as a discount rate. (Steven Decl. ¶ 17; Tr. 1373:25-1374:4, 22-23.) At trial, counsel for Foot Locker walked Steven through the calculations provided to him—clearly with the view of demonstrating that he had all of the information that he needed before him to understand wear-away. This line of examination did not assist Foot Locker. Steven very credibly agreed to that with which he could agree, and very credibly indicated a lack of real understanding as to what the calculation showed.
• Named plaintiff Geoffrey Osberg has spent over eight years litigating this case on behalf of the Class. He was a sales associate at Foot Locker and rose to the level of store manager; he is now a sales associate at a department store in Illinois. (Declaration of Geoffrey Osberg (“Osberg Decl”) ¶¶ 2-3, EOF No. 331.) His former colleagues at Foot Locker have been represented by him in this case. He testified credibly at trial that while he reviewed the Plan communications, he did not understand that his pension benefit was not growing with additional years of service. (Osberg Decl. ¶¶ 6-8; Tr. 418:12-25.) He recalléd having received the initial communication in'the fall of 1995 from Farah and Hilpert announcing the coming changes to the Plan. (Osberg Decl. ¶ 10.) He testified credibly that he recalled'taking away from the letter that he should be “excited” about the changes and that they were positive changes for employees. (Id.)
The' evidence at trial overwhelmingly supports that the Company intended Participants to rely on Plan communications, that they did, and that the communications failed to inform them of wear-away. Indeed,- those communications were designed to conceal that information. Named plaintiff Osberg and class members Cardona, Schaeffer, Steven, Howard, Campuzano, and Albright all testified credibly that despite receiving the company communications, they did not understand that they had ceased to earn additional pension benefits despite continued employment. From the CFO of.Woolworth stores to a cashier, no one understood what was going on. ,
But there is even more evidence of the misleading nature of the communications than this. Even employees directly involved in pension benefits calculations did not understand the concept of wear-away—or that their accruals were effec
Ellen Glickfield testified on behalf of the Class. One of her job responsibilities in her 14-year employment as . a pension clerk at Foot Locker was to calculate pension benefits, including after the January 1, 1996 Plan amendment. (Declaration of Ellen Glickfield (“Glickfield Deck”) ¶¶3-4, EOF No. 351.) She believed that her December 31,1995 accrued benefit became an opening cash account balance. (Glick-field Deck ¶ 15.) Even, when she received a larger minimum lump sum (“MLS”) than the cash balance, she did not understand what had occurred. When. she noticed that the MLS was larger than her cash balance, account, she attributed the difference to governmental regulations:- “The MLS was just a possible extra amount that someone might get, even more than his or her account, because of a calculation the IRS required at the time of payment depending on interest rates.”' (Id. at ¶ 19; see also Glickfield Tr. 1400:5-23, 1402:4-8.)
Similarly, HR Department employee Sherry Flesses; who testified by deposition, thought she was “earning more pension benefits” and “had no idea that there was a freeze of [her] earning any pension benefit at the time”; she conceded that she would be “surprised” to learn that she had earned no new benefits. (Flesses 3/20/12 Tr. 127:17-128:3, 157:18-158:3.) Ms. Flesses “understood that you always were starting out with what you already earned,' and then moving forward, you earned more.” (Flesses 3/20/12 Tr. 154:18-22.) Ms. Flesses further testified that she “did not, in [her] wildest dreams, have any suspicion that Woolworth was creating opening account balances that were not of equal value to what somebody would have received the next day.” (Flesses 3/20/12 Tr. 119:2-6.)
E; Fiduciary Responsibilities
The plan administrator is an ERISA fiduciary. See, e.g., Ladouceur v. Credit Lyonnais,
Peck testified that she was a fiduciary of the Company. (Tr. 1280:10-14.) However, she had a poor understanding of her fiduciary duties. She testified that her responsibility included ensuring that funds were not misused; she did not express any understanding that she had a separate fiduciary duty as the plan administrator— though she conceded she was a plan administrator. (Tr. 1280:16-1281:4, 1282:2-4.) She testified that she did not consider either herself or the Company a fiduciary to the Participants when drafting and issuing communications relating to the Plan changes. (Tr. 1282:19-1283:4.)
Woolworth’s CEO at the time of the plan change, Roger Farah, testified live at trial. He was clearly annoyed at having to be present' at the trial and was short tempered and’ resistant. Remarkably for a man in his position, he denied understanding what a fiduciary’s obligations are and that he was a fiduciary with respect to Plan Participants. (Farah Tr. 539:14-20, 543:2-16.)
F. The Expert Witnesses
1. Deutsch
Deutsch is a very knowledgeable actuary. He testified as to a number of different topics—and the Court found his testimony highly credible in every respect.
Deutsch testified that “actuarial equivalent lump sum value” of a future payment is the amount which, when increased at an
With regard to mortality, Deutsch testified that any mortality discount used in calculating opening account balances needed to be accompanied by corresponding “survivorship” credits to the account over time—which was not done here. (Deutsch Tr. 183:12-184:2.)
Deutsch testified that a company’s contribution to fund a pension plan generally consists of- two parts: (1) the unfunded liability, which is the difference between the already earned liability and the assets, and (2) the annual normal cost. (Deutsch Tr. 132:16-133:25.) pnder the unit credit funding -method—which was used by the Plan both pre—and post-amendment—the unfunded liability is set as the value of the pension benefits earned to date, and the normal cost is set as the value of benefits earned during the year. (Deutsch Tr. 132:25-133:5; see also Sher Tr. 1459:3-10.) While unfunded liability is fixed and cannot be reduced, savings can be achieved in the normal cost by reducing future accrual of benefits.- (Deutsch Tr. 133:6-11; Sher Tr. 1459:11-25; see also PX 9.) Foot Locker did just that by choosing a conversion rate of 9%—'which automatically'resulted in.a temporary suspension of future accruals for almost all employees.
Deutsch disagreed with Foot Locker’s position that, under the new Plan, an employee only earned the right to a lump sum at the point that- it was paid; ‘according to Deutsch,- every employee possessed the-right to a lump sum on and after January 1, 1996, when the Plan was amended, even though the exact amount of that lump sum would not become known until it was paid. (Deutsch Tr. 161:13-163:18.) The Court agrees.
Deutsch testified that wear-away is, factually and by definition, equivalent to a temporary freeze. (Peutsch Tr. 169:6-12, 174:3-13.) Deutsch analyzed wear-away both in terms of “annuity” wear-away (analyzed by comparing -the opening account balance and the 'December 31, -1995 accrued benefit on an annuity-to-annuity basis) and in terms of “lump sum” wear-away (analyzed by performing á lump sum-to-lump sum comparison). According to Deutsche all Participants,' even those who received the enhancement, experienced annuity wear-away. (Deutsch Op. Report at 12, 15.) With respect to lump sum wear-away, Deutsch acknowledged that there were a few- people (only 223 out of
2. Sher
Sher is also a knowledgeable actuary. He is plainly a qualified expert in pension plan design. The Court found his testimony helpful. Ultimately, however, his testimony clarified rather than undercut the Class’s positions. 'That was ultimately due to the fact that the rationale for plan conversion—a topic on which Sher was articulate and clear—is ultimately irrelevant to the question of whether once the Plan was amended (for whatever reason), the Company fulfilled its fiduciary responsibilities to Participants and appropriately communicated the changes to them. .
Sher conceded that' there are a variety of ways in which cash balance plans can be designed. (Sher Tr. 1460:4-5.) The design can be adjusted to achieve whatever level of cost savings a company seeks to achieve—including none at all. (Tr. 1463:6-24.) Sher further agreed that wear-away is not a necessary part of the design of a cash balance plan (Tr. 1460:1-3), but that wear-away was. expected for some, period of time in connection with the design for the Foot Locker Retirement Plan. (Tr. 1459:11-21.) Sher’s analysis estimated that, at the time of conversion, a two—to three-year period of wear—away was expected for most Participants. (Tr. 1578:25-1579:19.)
Sher testified that “actuarial equivalence” is a conversion of a pension benefit from one form to another using actuarial factors—and that this conversion- should be cost-neutral from the perspective of the Plan. (Sher Tr. 1571:2-1573:1.) He testified that the 'January 1, 1996 Plan conversion had dual aspects from a cost perspective. On the one hand, wear-away resulted in normal cost savings: the normal costs for employees in wear-away would be zero until they got out of wear-away; ongoing normal costs were only attributable to the relatively small segment not in wear-away. (Tr. 1457:8-14, 1496:11-1497:1, 1500:4-12.) Normal cost savings from anticipated from wear-away directly reduced the Company’s out-of-pocket costs. (Tr. 1712:25-1713:8.) These amounts flowed through to the minimum required contribution. (Id) In other words, the anticipated wear-away resulted in an immediate bottom line cash savings to Foot Locker through normal cost reductions. (Tr. 1713:14-18.)
On the other hand, Sher testified that Participants’ overwhelming seléction of the lump sum option after January 1, 1996 resulted in certain increased costs. (Tr. 1457:15-1458:1, ’ 1465:20-1466:13.) However, Sher agreed that these costs were to the Plan because the lump sums were paid out of the existing Plan assets (which were sufficient to cover them); the Company itself did not have to pay those amounts out of corporate cash flows. (Tr. 1468:3-18.) Moreover, the Company incurred savings through lower payroll costs as employees terminated and elected lump sum payments. (Tr. 1479:8-1480:15, 1493:24-1494:8.)
On cross-examination, Sher agreed that the Company did not have to increase the amount of cash that it put into the Plan in 1996 to pay for the costs of lump sum distributions. (Tr. 1716:15-19.) At that time, the Company’s assumption was that 100% of Participants would take an annui
Sher had worked on a survey of companies that had undergone cash balahce conversions. (Sher Tr. 1456:5-12; Sher Op. Report App’x. 3, ECF No. 338.) He testified that the survey showed that a significant majority of these companies highlighted the cash balance benefit in their annual benefit statements—and did not include information on the frozen protected benefit. (Sher Tr. 1596:11-25.) Sher also testified—based on his experience reviewing SPDs and advising companies undergoing cash balance conversions—that other companies’ SPDs included information on wear-away only in that they set forth a “greater of’ comparison between the benefit accrued under the prior Plan and the benefit accrued under the new formula. (Tr. 1609:12-1610:8.) Sher did not recall seeing any SPDs that told participants that additional periods of employment would not increase the frozen accrued benefit—or that additional work post-conversion would not result in growth of their pension benefit. (Tr. 1611:1-11; see also id. 1602:8-20.) Ultimately, these points are irrelevant to the Court’s determination to whether here, Foot Locker fulfilled its legal obligations. ■
This portion of Sher’s analysis was, in all events, flawed: in analyzing other companies’ communications, Sher did not distinguish between companies that had converted using a formula that resulted' in no wear-away or nominal wear-awáy and those whose conversion formulas did create wear-away. (Tr. 1598:25-1599:8.) Sher also did not track companies whose conversion formulas did not initially result in wear-away but created wear-away down the line. (Tr. 1599:9-1600:13.)' In addition, Sher did not have any information as to the educational level or sophistication of the population reading the other companies’ communications. (Tr. 1590:10-15, 1594:9-1595:5.) These flaws render Sher’s testimony as to the industry practice with regard to communications irrelevant. Without knowing whether or not other companies’ employees were of similar educational levels, and therefore could understand benefits information in a similar way to the class members here—and without knowing whether and when other companies’ conversions to cash balance plans resulted in wear-away—the Court cannot meaningfully compare the communications at issue here with the communications issued by other companies.
Sher also testified as to the volatility of interest rates. He testified that the post-conversion 30-year Treasury rates were “extremely volatile” (Tr. 1619:6-11) and opined that such volatility made predictions of the likely value of the frozen accrued benefit risky and perhaps mislead
However, .Sher acknowledged that, at least during 1996, even with the one-point swing referenced in an internal Foot Locker document as.a rationale for not disclosing the frozen lump sum benefit (PX 164), a Participant who did not receive an enhancement would nonetheless still remain in wear-away-that is, his frozen accrued benefit would be higher than his initial account balance. (Sher Tr. 1631:2-1633:12.)
Actual -interest rates are reflected in DX 417. The. .trend was downward—leading to an increase in the duration of the wear-away period. There is no evidence that Foot Locker or Mercer were predicting that rates would revert back to. where they were over the past 15 years. (Sher Tr. 1735:11-21.) Foot Locker and Mercer, as sophisticated business parties, knew that there could be variability in interest rates. (Tr. 1736:2-13.) Mathematically, any decrease in rates would prolong wear-away for certain Participants. Under such circumstances, it was a breach of fiduciary duty for Foot Locker to have shifted the risk of interest rate variability' to Participants.-
Sher also testified about' the effect that the enhancement that some Participants received under the new Plan on wear-away. To qualify for the enhancement to the opening account balance, Participants had to be age 50 and above and at least 15 years of service on December 31, 1995. The enhancement factor formula was as follows: the qualifying-Participant’s opening account balance was multiplied by 1 / [1-4% x (years to age 65, up to 10 years)]. The enhancement factor was highest for qualifying employees aged 50-55, who received a 66% increase in their account balances. (See Deutsch Op. Report at 8-9;- Sher Tr. 1507:20-14). According to Sher, because of the enhancement, certain Participants never entered lump sum wear-away.
In another example that Sher diseussed, a Participant received a distribution of her benefit on November 1, 1996. ' (DX 425.) While this Participant’s initial account bal-
G. The Appropriate Remedy
The parties’ experts disagree as to the appropriate remedy in the event that the Court finds that reformation is warranted.
According to Deutsch, the appropriate remedy is to convert the December 31, 1995 frozen accrued benefit into an initial account balance as of January 1, 1996 using a 6% interest rate with no pre-retirement mortality discount; increase the'initial account balance as provided in the SPD for those Participants entitled to an enhancement; credit the resulting account balance with pay and interest credits from January 1, 1996 through the date of benefit distribution; and projecting, this figure using the “whipsaw” calculation to account for changes in interest rates-.
Sher agreed that Deutsch’s approach eliminates wear-away-but testified that such an approach is ¡properly called an “opening balance approach,” not an “A plus B” approach. (Sher Tr.. 1768:17-1769:5.) According to Sher, in an A plus B approach, the A benefit is the usually frozen accrued benefit under the prior Plan- and it is usually payable in whatever form was available under the prior Plan (here, generally an annuity). (Tr. 1545:2-14.) In Sher’s version, there is no opening balance—and the B benefit consists of pay and interest credits starting in 1996. (Tr. 1545:13-1546:8.)
According to Sher, the appropriate remedy is to calculate the present value of a Participant’s December 31, 1995 frozen accrued benefit using the § 417(e) rate in effect in the year of termination (the “A”) and add in pay and interest credits (the “B”). (Sher Tr. 1743:22-1744:10.)
The Court finds that Deutsch’s approach—whether properly called an A plus B approach or, as Sher contends, an “opening balance” approach—is the appropriate approach here. Sher agreed that Deutsch’s approach—by which December 31, 1995 frozen accrued benefit was converted into cash as of January 1, 1996 and nominally placed in the Participant’s account—was the approach that was in fact promised to Participants, albeit using a 9% interest rate. (Sher Tr. 1769:7-13.) Sher also agreed that it was the prevalent approach in the 1980s and 1990s. (Tr. 1769:14-16.) Finally, Sher agreed that if Foot Locker promised employees that their opening account balance would at least replicate the December 31, 1995 accrued benefit, Deutsch’s approach would fulfill that promise (and, in some circumstances, do more). (Tr. 1776:6-1777:7.) As further explained below, Foot Locker did make that promise—and it must be fulfilled.
The Court also agrees that Deutsch’s calculation of the opening account balance—using a 6% interest rate and no further pre-retirement mortality discount—is appropriate. Sher testified that the determination of the interest rate used to calculate initial account balances is typically the result of significant analytical work by companies planning a conversion. (Sher Tr. 1700.T4-1701.T5.) Among the facts to which a company would look would be prevailing corporate bond rates and 30-year Treasury rates; the potential impact on the funding of the Plan; and the potential volatility of interest rates. (Id.) Here, the § 417(e) rate in effect at the time of the Plan conversion was 6.06%—reflecting the average of the 30-year Treasury rates—and the Plan’s interest crediting rate was 6%. Choosing 6% is therefore reasonable. Indeed, Sher agreed that any calculation that produced opening account balances that were smaller than those proposed by Deutsch would create a risk of wear-away. (Tr. 1770:11-20.) In particular, Sher agreed the use of a pre-retirement mortality discount in creating opening account balances would create wear-away in the absence of corresponding sur-vivorship credits (which were not made here). (Tr. 1771:22-1772:13.)
The enhancement. One of the main disagreements between the parties is whether the enhancement for employees of a certain age and with years of service at the time of conversion provided for under the new Plan should be included as part of the remedy. The Class’s position is that the enhancement should be included because it was expressly promised to Participants. According to the Class, once promised it cannot be withdrawn, even if Foot Locker would now prefer not to have made that promise. Foot Locker’s position is that the enhancement should not be included because Participants’ entitlement to the enhancement was tied to the use of a 9% discount rate; had Foot Locker used a 6% or 6.06% discount rate—that is, had the plan design not embodied wear-away—the enhancement likely would not have been included. (Sher Tr. 1744:15-20, 1746:12-14, 1755:5-13.) According to Foot Locker, if the Court orders the Plan reformation to eliminate wear-away, the justification for the enhancement disappears and its inclusion would therefore provide an inappropriate windfall to the Class.
Account balances for participants who were age 50 or older with at least 15 years of service for vesting purposes as of ,December 31, 1995 were enhanced by a one-time formula. The initial account balance for participants who met these requirements was increased by a factor. The factor was determined as follows:
1 minus 1/3 of one percent for each month from the later of your age on December 31, 1995 or the first day of the month nearest age 55 to normal retirement date.
(PX 5 at FLPL0031 (italicization omitted).) In other words, Foot Locker made a two-part promise to certain senior Participants: first, Foot Locker promised that these Participants would receive the same initial account balance calculation as the other Participants; second, Foot Locker promised that the (full) initial account balance would be multiplied by a factor (and the resulting sum deposited into the account). This clear promise must be enforced, regardless of whether Foot Locker would have made it had it decided not to build wear-away into the new Plan., See Amara v. CIGNA Corp.,
In any event, the evidence in the record contradicts Sher’s position that the enhancement is tied to the use of a 9% discount rate in creating opening account balances. Peck testified that the enhancement was to replace the early retirement subsidy that went away. (Peck Tr. 1150:24-1151:7.) Mercer—whose word Ki-ley took as “gospel” (Kiley Tr. 504:25-505:1)—similarly stated that “there was concern that [PJarticipants close to early retirement eligibility at the time of conversion to the cash balance format might have some slippage in their early retirement benefits, so a subsidy was added.” (PX 1522.) In other words, there is evidence in the record that the enhancement would have been provided in lieu of the early retirement subsidy even in the absence of the’structural wear-away that Foot Locker built into the Plan.
Whipsaw. The parties also disagree as to the Class’s entitlement' to so-called “whipsaw” payments. The Second Circuit defined'and discussed the whipsaw calculation—which comes ihto play when a vested employee ‘terminates before reaching normal retirement age—in its recent decision in Laurent v. PricewaterhouseCoopers LLP;
Prior to 2006, ERISA required whipsaw payments. See, e.g., Esden v. Bank of Boston,
The Class argues that whipsaw payments were indefeasibly part of the benefit that Foot Locker expressly promised Participants in the SPD. (Ltr. dated July 24, 2015, ECF No. 370.) By contrast, Foot Locker argues that, as a result of Con.gress’s elimination of whipsaw in the PPA, the Plan is no longer subject to any whipsaw requirement. (Ltr. dated July 24,2015, ECF No. 371.)
The Court finds that whipsaw payments are appropriately, part of the benefit that Foot Locker promised to Participants. The SPD states that Participants may re: ceive a lump sum that is higher than their account balance based on the requirements of “federal law and IRS regulations.” (SPD at FLPL0031, FLPL0033.) Sher agreed that this language provided for whipsaw payments. (Sher Tr. 1518:9ld; see also id. 1520:2-9.) Sher testified that whipsaw could cause a Participant’s benefits to be greater that the account balance—and that whipsaw would “of course” “apply to this type of calculation,” referring to page 14 of the SPD. (Sher Tr. 1617:515; see also id. 1617:13-15 (“I would have read [SPD page 14] to encompass ... whipsaw, that is what was intended here”).) While Sher initially testified that Participants may not have associated the reference, to “federal law and IRS regulations” with whipsaw, he later conceded that “[i]f the plan terms call for a payment to be made, it should be made,” regardless of whether Participants expected whipsaw payments. (Sher Tr. 1747:7-12, 1748:1-4.)
While the' PPA eliminated mandatory whipsaw payments in 2006; the law is clear that the PPA is not retroactivé. See Laurent,
II.. CONCLUSIONS OF LAW
ERISA § 502(a)(3) entitles plan participants to “appropriate equitable relief’ as redress for “any act or practice which violates any provision of [ERISA].” 29 U.S.C. § 1132(a)(3).- The Class claims that Foot Locker has violated sections 404(a) and 102(a) of ERISA by issuing materially false and misleading statements in the December 1996 SPD and various Summaries of Material Modifications (“SMMs”)—including the September 1995 Announcement Letter, the November 1995
To ’obtain reformation, plaintiff must show: (1) violations of ERISA §§ 404(a) and 102(a), based on the preponderance of the evidence; (2a) mistake or ignorance by employees of “the truth about their retirement benefits,” based on clear and convincing evidence; and (2b) “fraud or similar inequitable conduct” by the plan fiduciaries, based on clear and convincing evidence. Amara v. CIGNA Corp.,
A. The Amara Litigation
The Amara litigation arose from the 1998 conversion of CIGNA’s defined retirement benefit plan (“Part A”) to a cash balance plan (“Part B”). CIGNA’s original plan—Part A—granted beneficiaries defined benefits upon retirement, generally in the form of an annuity determined based on a number of factors, such as the employee’s salary, years of service, and age at retirement. CIGNA’s new plan— Part B—provided benefits in the form of a cash balance, calculated on the basis of defined annual contributions. Employees who participated in the Part B plan
Because of how opening balances were calculated under Part B, an employee’s opening account balance was not always equivalent to the value of the employee’s Part A accrued benefit, resulting in wear-away for “many, though by no means all, employees.”. Id. at 303. The wear-away effect was due to fluctuating interest rates, as well as the fact that Part B benefits opening account balances were “discounted to account for the risk of pre-retirement mortality and did not include the value of certain benefits,” such as a Social Security supplement. Id. Unlike . here, however, wear-away was not structurally built into the conversion.
Through various communications, including two SPDs, CIGNA told employees that the new plan would “significantly eri-hance its retirement program,” that “your benefit will grow steadily throughout your career,” and that' the opening balance in the new Part B plan was “equal” to the lump sum value of the pension benefit earned through December 31, 1997. Amara v. CIGNA Corp.,
In 2001, several plan participants filed a putative class action against CIGNA and the CIGNA pension plan. Plaintiffs claimed, inter alia, that defendants violated ERISA §§ 102(a) and 204(h), 29 U.S.C. §§ 1022(a) and 1054(h), by failing to give them proper notice of their benefits and misleading them regarding the nature of their benefits.
The district court granted plaintiffs’ motion for class certification and, after trial, agreed that CIGNA had violated ERISA. Amara I,
The district court issued a separate decision regarding the appropriate relief. Amara v. CIGNA Corp.,
The Supreme Court granted defendant’s petition for certiorari and, in a decision issued on May 16, 2011, vacated the Second Circuit’s judgment and remanded the case—concluding that it was inappropriate to grant the “A. plus B” remedy under § 502(a)(1)(B) because documents summarizing the plan could not “constitute the terms of the plan for purposes of § 502(a)(1)(B).” CIGNA Corp. v. Amara,
On remand, the district court denied CIGNA’s motion to decertify the class and again ordered CIGNA to provide plaintiffs with A plus B benefits and new or corrected notices, this time under § 502(a)(3). Amara v. CIGNA Corp.,
On appeal, the Second Circuit affirmed. Amara v. CIGNA Corp.,
The Second Circuit explained that equitable fraud' “generally consists of ‘obtaining an undue advantage by means of some act or omission which is unconscientious or a violation of good faith.’ ” Id. at 526 (citation omitted). In that regard, the Second Circuit cited the district court’s findings in Amara I that (1) CIGNA employees experienced a lack of accurate information about the new plan, (2) CIGNA was aware of this fact, and (3) “CIGNA’s misbehavior was designed to ‘ease the transition to a less favorable retirement program.’ ” Id. at 526-27 (citations omitted). Based on these findings, the Second Circuit held that- “the district court did not err in finding that defendants obtained .undue advantage through these actions by avoiding adverse employee reactions.” Id. at 527 (citation omitted). The Second Circuit noted that CIGNA had “concealed the possibility of wear-away from its employees and misled them about the conversion of their accrued benefits into the Part B plan”-and that “[b]y hiding the truth about the plan, CIG-NA prevented all of its employees from becoming disaffected, spreading knowledge regarding the plan to others who stood to lose more from the benefit conversion; and from planning for their retirement.” Id. (emphasis in original).
As to mistake, the Second Circuit rejected CIGNA’s argument that determining mistake required an'individualized inquiry into each class member’s state of mind. Id. at 529. Rather, mistake could be proven through generalized circumstantial evidence, particularly where “defendants have made uniform misrepresentations about an agreement’s contents and have
The Court will now address each of the elements that the Class is required .to prove in order to obtain reformation of the Plan.
B. ERISA’s Fiduciary Duty and Dis- . closure Standards (§§ k0h(a), 102)
Section 404 sets forth the fiduciary duty standards under ERISA. It providés, in pertinent part:
(a) Prudent man standard of care
(1) Subject to sections 1103(c) and (d), 1342, and 1344 of this title, a fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and—
(A) for the exclusive purpose of:
(i) providing benefits to participants and their beneficiaries; and
(ii) defraying reasonable expenses of administering the plan;
(B) with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims ...
29 U.S.C. § 1104(a) [ERISA § 404(a) ].
ERISA provides that a person is a ‘fiduciary with respect to a plan—and therefore subject to ERISA fiduciary duties—“to the extent that he or she exercises any discretionary authority or discretionary control respecting management of the plan, or has any discretionary authority or discretionary responsibility in the administration of the plan,” Bouboulis v. Transp. Workers Union of Am.,
Here, the SPD explicitly provides that Foot Locker is the plan administrator (PX 5 at FLPL0026) and enjoys discretionary authority in the administration of the Plan:
The company and the Éetirement Investment Committee (“RIC”) and Retirement Administration Committee (“RAC”) of its Board of Directors administer the operation of the Plan. RIC is responsible for the selection of the investments of the Plan. RAC, on behalf of the company, is responsible for the general administration of the Plan. In carrying out its duties with respect to Plan administration, RAC has the exclusive right, power and authority, in its sole and absolute discretion, to administer, apply and interpret the Plan, RAC’s decisions will be final, conclusive and binding on all parties."
(PX 5 at FLPL0037 (italicization omitted).) Thus, Foot Locker was a fiduciary by virtue of being plan administrator and having discretionary authority as set forth in the SPD. Moreover, there is an additional ground to find that Foot Locker owed the Class a fiduciary duty because reasonable employees would have believed that Foot Locker communicated with them as both an employer and a plan administrator in informing them about the changes to the Plan. See Bouboulis,
ERISA imposes duties upon the people who are responsible for the operation of an employee benefit plan. The people who operate your Plan, called “fiduciaries” of the Plan, have a duty to. do so prudently and in the interest of you and other Plan participants and beneficiaries. No one, including your employer, your union, or any other person, may fire you or otherwise discriminate against you in any way to prevent you from obtaining a benefit or exercising your rights under ERISA.
(PX 5 at FLPL0040 (italicization omitted).)
ERISA’s fiduciary standards of conduct are “the highest known to the law.” LaScala v. Scrufari,
ERISA § 404(a) also imposes a “duty of care” that requires fiduciaries to act “with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.” 29 U.S.C. § 1104(a)(1)(B). Prudence is “measured according to the objective prudent person standard developed in the .common law of . trusts.” Chao v. Meri
Proper execution of fiduciary duties requires that fiduciaries’ decisions “be made with an eye single to the interests of the participants and beneficiaries.” Donovan v. Bierwirth,
“The most important way in which the fiduciary complies with its duty of care is to provide accurate and complete written explanations of the benefits available to plan participants and beneficiaries.” Kenseth v. Dean Health Plan, Inc.,
A court should not find that a fiduciary acted imprudently in violation of ERISA § 404(a)(1)(B) merely because, with the benefit of hindsight, a different decision might have turned out better. See DiFelice v. U.S. Airways, Inc.,
“While a trustee has a duty to seek independent advice where he lacks the requisite education, experience and skill, the trustee, nevertheless, must make his own decision based on that advice.” United States v. Mason Tenders Dist. Council of Greater N.Y.,
(a) A summary plan description of any employee benefit plan shall be furnished to participants and beneficiaries as provided in section 1024(b) of this title [ERISA § 104(b) ]. The summary plan description shall include the information described in subsection (b) of this section, shall be written in a manner calculated to be understood by the average plan participant, and shall be sufficiently accurate and comprehensive to reasonably apprise such participants and beneficiaries of their rights and obligations under the plan. A summary of any material modification in the terms of the plan and any change in the information required under subsection (b) of this section shall be written in a manner ■ calculated to be understood by the average plan participant and shall be furnished in accordance with section 1024(b)(1) of this title [ERISA § 104(b)(1) ].
(b) The summary plan description shall contain the following information: ... the plan’s requirements respecting eligibility'for participation and benefits; a description of the provisions providing for-nonforfeitable pension benefits; circumstances which may result in disqualification, ineligibility, or denial or loss of benefits....
29 U.S.C. § 1022 [ERISA § 102] (emphases added).
“SPDs are central to ERISA.” Frommert v. Conkright,
The same standards apply to SMMs which are required to be provided to employees when there is a “material modification in the terms of the plan and any change in the information required under [ERISA § 102(b) ].” 29 U.S.C. § 1022(a). See Amara III,
Department of Labor regulations ..explain the role of SPDs and SMMs in accurately .and accessibly educating, participants about how their plan works. . See 29 C.F.R. § '2520.102-2, 102-3. In fulfilling the requirements of ERISA § 102, fiduciaries are required to “exercise considered judgment' and discretion by taking into account such factors as the level of comprehension and education of typical participants in the plan and the complexity of the terms of the plan.” 29 C.F.R. § 2520.102-2(a). Consideration of these factors will usually require fiduciaries to limit or avoid “technical .jargon” and include “clarifying examples and illustrations” of how the plan works in practice.. Id.
The regulations are insistent as to the fiduciaries’ affirmative duty to make participants clearly “see” circumstances under which they will not receive the benefits described in the summary that they might otherwise reasonably expect to receive. The SPD thus must:
clearly identify] circumstances which may result in disqualification, ineligibility, or denial, loss, forfeiture, suspension, offset, [or] reduction, or recovery ... of any benefits that a participant or beneficiary might otherwise reasonably expect the plan to provide on the basis of the description of benefits [provided elsewhere in the summary].
29 C.F.R. § 2520.102-3(l).
Underscoring this affirmative duty to warn participants of the circumstances when they might not actually receive benefits the summary otherwise seems to be telling them they can expect, the regulations specifically direct that “[a]ny description of exception, limitations, reductions, and other restrictions of plan benefits' shall not be minimized, rendered obscure or otherwise made to appear unimportant.” 29 C.F.R. § 2520.102-2(b); see also id. (requiring further that “[s]uch exceptions, limitations, reductions, or restrictions of plan benefits shall be described or summarized in a manner hot less prominent than the ... prominence used to describe or summarize plan benefits”). Restrictive plan provisions must be clearly cross-referenced with the description of the benefit. See id. The regulations expressly forbid fiduciaries from either playing up the positive features of the plan or downplaying the negative: “[t]he advantages and disadvantages of the plan shall be presented without either exaggerating the benefits or minimizing the limitations.” Id.; see also id. (warning that the format of the SPD “must not have the effect to misleading, misinforming or failing to inform participants and beneficiaries”).
The SPD must explain the “full import” of the plan’s material terms. See Layaou,
There is no doubt here that the SPD was not written clearly; Participants from a CFO level down failed to understand how their actual benefits would be calculated. The “actuarial equivalence” language on which Foot Locker relies, (PX 5 at FLPL 0025), is sufficiently removed from the comprehension of the average Plan Participant that Foot Locker could not have expected it to awaken them to the full import of what was occurring. Indeed, as Deutsch testified and this Court has credited, the conversion methodology did not, in any event, result in actuarial equivalence. (Deutsch Op. Report at 3; Deutsch Tr. 153:2-25, 179:4-180:8, 184:6-25.)
The Class has shown by a preponderance of the evidence that- Foot Locker, acting as plan administrator, violated ERISA §§ 404(a) and 102 by providing participants materially false, misleading, and incomplete descriptions of the amended Plan. Foot Locker knew that virtually every Participant’s pension earnings would be effectively frozen for a period of time as a result of the.wear-away effect built-in to the January 1, 1996 Plan amendment. (See, e.g,, Peck ¶ 6; PX 84; Peck Tr. 1121:11-16, 1128:4-8, 1130:9-14, 1130:21-1131:4.) Wear-away was certainly a material fact regarding the amended Plan, as virtually all Participants suffered from the phenomenon, and many employees’ pension benefits did not grow for several years. Having knowingly created a pension plan that mathematically locked in wear-away, Foot Locker had a duty to disclose and explain the wear-away effect “in a manner calculated to be understood by the average plan participant.” ERISA § 102(a); see also Amara I,
Foot Locker’s disclosures in the SPD and other company-wide communications fell far short of the statutory requirements. The Court finds that not only did commonly available documents such as the SPD created class-wide misrepresentation, individualized communications with Participants also did nothing to disabuse Participants of the idea that their benefits were growing with their time of service. In fact, individualized plan statements reinforced the idea that the ever-changing account balance was—or at least was the basis of—what a Participant could expect to receive upon retirement. Individual communications with Participants also did not clarify the issued.
As, inter alia, Kanowicz and Peck’s testimony demonstrated, Foot Locker knew that employees would have the mistaken belief that a growing account balance meant a growing benefit; it knew that it was leaving out wear-away, a concept that
C. Class-Wide Reliance
The Court has already ruled that proof of class-wide misrepresentation does not require proof of individualized reliance.
The Court credits plaintiffs strong evidence' of generalized reliance. No Participant would'have ignored the fact that their benefits were frozen without their knowledge. Indeed, Foot Locker admitted at trial that the very purpose of keeping wear-away a secret was to avoid negative publicity, loss of morale, and inability to hire and retain employees. The Court further credits Class members’ testimony that they read the Plan change announcements and believed that their benefits were growing, and that credits—including compensation credits based on their service—were contributing to that growth. Indeed, the fact that Foot Locker issued annual individualized account statements portraying the same picture is strong evidence that Participants were expected to use the growing account balance as an indication that their continued service yielded growing benefits.
As a result of the company’s failure to communicate wear-away, no employees lodged complaints against Foot Locker.
D. Class-Wide Mistake
Proving mistake for purposes of reformation requires showing that a party entered a contract “in ignoranee or mistake of facts material to its operation.” Amara V,
The Class has proven by clear and convincing evidence that, as a result of Foot Locker’s false, misleading, and incomplete Plan descriptions, employees were ignorant of ‘‘the truth about their retirement benefits.” Amara V, 775 F.3d at 529. Specifically, class members’ testimony and other evidence demonstrated that the class members reasonably but mistakenly believed that growth in their cash balance benefit equaled growth in their pension benefit. In other words, Participants reasonably but mistakenly believed that their pension benefits were equal to the sum of (A) the benefit each Participant earned under the Plan’s traditional “defined benefit” annuity formula for service through December 31, 1995, plus (B) the benefits Foot Locker told Participants they were earning under the Plan’s “cash balance” account formula for service after January 1, 1996.
E. Fraud or Inequitable Conduct
To obtain plan reformation under ERISA § 502(a)(3), the Class must show that Foot Locker engaged in “fraud or inequitable.conduct.” See Amara V, 775 F.3d at 525.
Equitable fraud, la-Amara V, the Second Circuit explained that equitable fraud “generally consists of obtaining an undue advantage by means of some act or omission which is unconscientióus or a violation of good faith.” Id. at 526 (internal quotation marks and citation omitted); see also Sec. & Exch. Comm’n v. Capital Gains Research Bureau, Inc., 375 U.S. 180, 194,
The law is clear that equitable fraud does not require a showing of intent to deceive or defraud. See Capital 'Gains,
The equitable fraud doctrine is not equivalent to strict liability because there is an -“undue'advantagé” requirement. Compare Hay v. Star Fire Ins. Co., FI N.Y. 235, 240 (1879) (holding an insurer committed equitable fraud and plaintiff was entitled to reformation when, without proper notice’ to plaintiff, the insurer renewed but changed the policy-contract in a way that reduced the plaintiffs coverage and advantaged the insurer), with AMEX Assurance Co. v. Caripides,
Inequitable conduct. “Inequitable conduct includes deception or even mere awareness of the other party’s mistake combined with superior knowledge of the subject of that mistake.” DS Parent, Inc. v. Teich, No. 5:13-CV-1489 LEE/ DEP,
Thé Second Circuit applied the “inequitable conduct” doctrine in Tokio Marine & Fire Ins. Co. v. Nat’l Union Fire Ins. Co.,
The district court ordered reformation, and the Second Circuit affirmed. The Second Circuit explained that “the change made was such as to raise a reasonable inference of knowledge by the appellant of the mistake committed by the appellee”—
The Class has proven by clear and convincing evidence that Foot Locker has engaged in equitable fraud or inequitable conduct with respect to the January 1, 1996 Plan amendment.
F. Statute of Limitations
Foot Locker argues that before relief may be imposed, the Class must be reduced to exclude class members whose claims are not within the applicable statute of limitations. As further explained below, no exclusions are warranted.
This Court previously determined that an SPD claim is subject to a three-year statute of limitations. See Osberg v. Foot Locker, Inc.,
A breach of fiduciary duty claim must be brought within six years from the date of the breach, or, if a plaintiff has actual' knowledge of the breach, within three years from such knowledge. 29 U.S.C. § 1113. This rule is subject to an exception in cases of fraud or concealment, in which case the limitations period runs six years from when the participant discovered the breach. See id. The fraud or concealment exception applies in “cases in which a fiduciary: (1) breached its' duty by making a knowing misrepresentation or omission of a material fact to induce ah employee/beneficiary to act to his detriment; or (2) engaged in acts to hinder the discovery of a breach of fiduciary duty.” Caputo v. Pfizer, Inc.,
G. Remedy
In sum: The Class has proven by a preponderance of the evidence that Foot Locker violated ERISA §§ 404(a) and 102 by issuing false, misleading, and incomplete Plan descriptions. The Class has also proven by clear and convincing evidence that, as a result of Foot Locker’s ERISA violations, employees reasonably but mistakenly believed that growth in their cash balance benefit equaled growth in their pension benefit—and that Foot Locker obtained an undue advantage vis-avis its workforce.
To remedy Foot Locker’s misrepresentations, the Plan must be reformed to actually provide the A plus B benefit that the misrepresentations inequitably caused Class members to reasonably expect.
Starting with the A benefit, the September 1995 Announcement Letter, the November 1995 Highlights Memorandum, the January 1996 Plan Statement, the December 1996 SPD, and other Plan summaries promised that each Participant’s December 31,1995 accrued benefit would be fully preserved in the form of an account balance. The only way for the Plan to fulfill that promise is to give Participants an initial account balance as of January 1, 1996 equal to the December 31, 1995 ac
As to the B benefit, to fulfill Foot Locker’s promise that a Participant’s pension benefit would include all of the benefits earned under the cash balance formula, the Plan must add to each Participant’s initial account balance (the “A” benefit) the sum of: (1) any one-time enhancement to which the Participant is entitled under the terms of the Plan, applying the enhancement formula to the Participant’s initial account balance as determined above; (2) compensation credits that the Participant was promised; (3) interest credits at the annual 6% rate promised under the Plan; and (4) any adjustments required by “federal law and IRS regulations” at the time of payment as described on pages 12 and 14 of the SPD. (See PX 5; PX 38; Deutsch Op. Report at 43-44.)
With respect to class members who have already retired, the Court orders that retirees and former employees shall be entitled to receive the difference in value between the full value of the A plus B benefit to which they are- entitled and the benefit they received; and orders that any class member who has retired is entitled to prejudgment interest at a rate of 6% per annum (because it would be treated as an unpaid account- balance, which would be credited with interest at 6%). (Deutsch Op. Report at 45.) Retirees and former employees shall receive past-due benefits in the same form the Participant elected at the time his or her benefit originally commenced.
For Class members who elected an annuity, the full value of the A plus B benefit would be equal to the A benefit (determined as the larger of the protected benefit or the A benefit converted to an annuity under the post amendment terms) and the B benefit (converted to an annuity under the post amendment terms). (Id. at 45-46.)
Accordingly, the Court orders that the-Foot Locker Retirement Plan be reformed to provide the pension benefits described above, and orders and enjoins Foot Locker to enforce the Plan as thus reformed. The Court orders that all of the remedies provided in this Opinion & Order are to be stayed to allow.the parties to pursue an appeal, if they so choose.
III. CONCLUSION
For the reasons set forth above, the Court finds in favor of the Class on' all claims. The appropriate remedy is reformation of the Plan as discussed above. The parties shall submit an appropriate form of order not later than October 13, 2015. The Clerk of Court is directed to terminate this action.
SO ORDERED.
. This Opinion and reflected in letters from counsel on October 2, 2015,
. On September 24, 2014, the Court certified a class defined as follows:
All persons who were participants in the Foot Locker Retirement Plan as of December 31, 1995, who had at least one Hour of Service on or after January 1, 1996 (as defined under the Plan), and who were either paid a benefit from the Plan after December 31, 1995 or are still entitled to a benefit from the Plan; and the beneficiaries and -estates of such persons and alternate payees under a Qualified Domestic Relations Order.
(Opinion & Order dated September 24, 2014 at 12, ECF No. 186.)
After the Court made its initial determination granting certification (ECF No. 186), Foot Locker moved for reconsideration. The Court then reconsidered its decision and issued an additional decision confirming its initial determination. (ECF No. 220.) The Court notes that the evidence presented at trial overwhelmingly supports the Court’s determination. Foot Locker has urged that issues of reliance and the statute of limitations
. . Named plaintiff Geoffrey Osberg and class members Ada Cardona, Michael Steven, Richard Schaeffer, Russell Howard, Ralph Campuzano, and Doris Albright testified via declaration and- were subject to live cross-examination and re-direct.
. Foot Locker contends that it would have been too confusing to describe wear-away to Participants. The Class’s position is that Participants would have understood the information if appropriately disclosed, but instead Foot Locker deliberately obfuscated it.
. The Court makes its findings of fact based on the preponderance of the evidence. See Scientific Components Corp. v. Sirenza Micro-devices, Inc.,
. The Court received the experts’ reports and declarations as their direct testimony. They were then subject to cross-examination and redirect.
. To the extent that Defendants object to portions of the Deutsch expert report, this Court has already resolved the admissibility issues at pretrial conferences in pretrial orders. Any further objections merely go to the weight of the evidence, which this Court has considered.
. There was a "de minimis” exception: if, at a Participant’s termination, the present value of the Participant’s pension benefit was less than $5,000 (or before July 1, 1998, $3,500), the benefit would be paid out in a single lump sum. (Deutsch Op. Report at 5 n. 5; Deutsch Tr. 118:11-119:1.)
. The Court uses the terminology "A” and “B” benefits as a specifically defined in this Opinion. The literature on pension plans and case law may use those terms to describe a base benefit (the A) plus additional growth (the B). Here, as used in relation to the Plan conversion, the A and B benefits are defined differently; the A benefit is the old benefit and the B benefit is the new. As discussed below, Foot Locker did not intend the A and B benefits to be added together.
. . "Tr. P:X-Y” or “[Last name] Tr. P:X-Y” refers to page P, íines X to Y of the trial transcript in this case. Where transcript dates are included, those citations refer to deposition transcripts.
. All four of these individuals testified live or via videotaped deposition at trial. The Court found Patricia Peck to be particularly credible. She was forthcoming, careful, and appeared in all ways to be honest. The Court
. At trial, Kiley testified that he originated the idea of a cash balance plan before cost cutting was even raised. (Kiley Tr. 943 ;3-21.) The Court does not credit this testimony. The Court credits the testimony of benefits manager Marion Derham and Peck, both of whom viewed Mercer as the originator of the idea. (Derham Tr. 1409:1-24, 1410:23-1412:7; Peck Tr. 1116:1-19; 1294:23-1295:6.)
. The Court reviewed Kanowicz’s videotaped deposition designations, which allowed the Court to make a credibility assessment based on her demeanor as well as the substance of her remarks. The Court found that Kanowicz, who was a defense witness, was forthright in her testimony. Her testimony supports ' rather than undercuts the Class’s position in this case,
. Italicized terms are ones that are defined in the "Definition of Terms” section of the SPD.
. Cardona continues to work at another store for a different company today.
. On cross-examination, Sher testified that he was no longer sure thát the Company had made a 100% annuity assumption. (Sher Tr. 1720:16-1722:19.) However, the 5500s—a required filing that ERISA plans must make to the U.S. Department of Labor—for 1996 (PX 995), 1997 (PX 211), and 1998 (PX 1546) indicate an assumed 100% annuity election. (See Shér Tr. 1723:19-1726:8.) Kanowicz signed the 5500s' as the plan administrator-signing off on this assumption. The assumption changed in 1999 to 100% immediate lump sum. (PX 966 at FLOSB 16903; Sher •Tr. 1726:9-1727:3, 1727:19-24.)
. Deutseh’s position, on the other hand, is that all Participants were in annuity wear-away, even if some were not in lump sum wear-away as a result of the enhancement. (Deutsch Op. Report at 12, 15.)
. A “whipsaw” calculation accounts for the "difference between the hypothetical value of a cash balance plan account at any given time and the value of the account as an annuity payable at normal retirement age.” Laurent v. PricewaterhouseCoopers LLP,
. Converting to Sher’s version of an A plus B plan here would have locked in the frozen accrued benefit and required all new interest and pay credits to be additive to the overall Plan liability. (Sher Tr, 1547:17-1548:10.) Similarly, if the full value , of the frozen accrued balance was used ás the starting account balance, all interest and pay credit additions would add to overall Plan liability. By contrast, creating, as Foot Locker did here, an opening account balance that was lower than the full value of the frozen accrued benefit resulted in a period of wear-away during which the .Plan liability did not increase. (Sher Tr. 1548:11-20.)
. Sher agreed that "[i]f the distribution was made pre-PPA, the [P]lan had whipsaw, the [P]lan would have to abide by it,” (Sher Tr. 1750:3-4.) The disagreement between the parties thus appears to be as to Participants who signed the distribution paperwork pre-PPA but whose actual distribution took place post-PPA. The Court does not know how many such Participants there are, but the Class is correct that they are entitled to whipsaw payments. Signing the paperwork was the last step to effectuate the distributions. At that point, the employer made a commitment to a set distribution amount governed by the prevailing federal law at the time. Once the distribution paperwork was signed, the Participant was entitled to receive the amount provided for in that paperwork and required by law at the time, including any whipsaw payments—even if the actual distribution were delayed and the law changed' in the meantime.
. Some employees were "grandfathered” under the old Part A plan. See Amara v. Cigna Corp.,
. ERISA § 502(a)(1)(B) allows a plan “participant or beneficiary” to bring an action “to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan.” 29 U.S.C. § 1132(a)(1)(B).
. On May 23,. 2011, the Supreme Court also granted plaintiffs’ petition for certiorari, see Amara v. CIGNA Corp.,
. The Second Circuit held that "[traditional equitable principles, do not require a separate showing of harm for reformation.” Amara V,
. The Second Circuit also affirmed the district court’s decision denying CIGNA’s motion to decertify the class, Amara V,
. Even those who received communications that there existed a minimum lump sum payment that may exceed their account balance were not told that the minimum lump sum was merely the equivalent of what they were entitled to under the old Plan. Indeed, testimony from those class members who received this information indicated that they were led to believe the minimum lump sum was based on the account balance plus a federal actuarial calculation. (See, e.g., Steven Decl. ¶ 15; Tr. 1369:20-1370:7.)
. In any event, the Court also finds that the Class has demonstrated by a preponderance of the evidence that class members relied detrimentally on Foot Locker’s misrepresentations.
. The Court also finds persuasive the idea-shared by Foot Locker—that retirement benefits are part and parcel with the totality of the employee’s compensation. (See Peck Tr. 1135:24-1136:4.) It is simply incredible to believe that any employee would not rely upon a representation that their compensation was growing with their continued service.
. The Court notes that it makes this finding solely based oh the evidence adduced at trial. While the Court had previously found that Foot Locker had spoliated documents, and determined that imposition of an adverse inference is warranted, the Court has not applied such an inference in reaching its determinations.
. On appeal, the Second Circuit did not reach the question of whether an SPD claim is subject’to a three- or six-year statute of limitations. See Osberg v. Foot Locker, Inc.,
. Foot Locker contends that "Ada Cardona requested a clarification of her annuity benefit in 2003, six years after her employment terminated, and in response received a detailed explanation that put her fully on notice of the fact that her benefit had been calculated based on the pre-1996 accrued benefit and that her compensation and interest credits that had accumulated in her account did not contribute to her benefit.” (Defs.' Proposed Findings of Fact & Conclusions of Law at 75, ECF No. 339.) However, at trial, Cardona credibly testified that she did not understand the calculations in the 2003 communication. (Cardona Tr. 438:16-439:11, 443:9-16; PX 160.)
. Foot Locker also argues that any class members who terminated employment with Foot Locker before the SPD was distributed should be removed from the class for purposes of awarding relief. This argument also fails. The SPD was only one of the false and misleading communications that class members received; class members who left before the SPD was distributed are still entitled to relief on their claim for breach of fiduciary duty based on other false and misleading communications, such as the September 1995 Announcement Letter and the November 1995 Highlights Memo.