Case Information
*2 BEFORE: FISHER, CHAGARES аnd GREENBERG, Circuit Judges (Filed: January 30, 2007) Bryan L. Clobes
Michael S. Tarringer
Miller, Faucher & Cafferty
18th & Cherry Streets
One Logan Square, 17th Floor
Philadelphia, PA 19103
David H. Weinstein (argued)
Andrea L. Wilson
Weinstein, Kitchenoff & Asher
1845 Walnut Street
Suite 1100
Philadelphia, PA 19103
Attorneys for Appellants
Alan J. Davis (argued)
William A. Slaughter
Arthur Makadon
Barry L. Klein
Allison V. Kinsey
Jamie B. Lehrer
Ballard, Spahr, Andrews & Ingersoll
1735 Market Street
51st Floor
Philadelphia, PA 19103
Attorneys for Appellees
Jay E. Sushelsky
AARP Foundation Litigation
Melvin Radowitz
American Association of Retired Persons 601 E Street, N.W.
Washington, D.C. 20049
Attorneys for Amicus Curiae
American Association of Retired Persons Stephen A. Bokat
Robin S. Conrad
Ellen Dunham Bryant
National Chamber Litigation Center, Inc.
1615 H Street, N.W.
Washington, D.C. 20062
Ann Elizabeth Reesman
McGuiness, Norris & Williams, LLP
1015 Fifteenth Street, NW
Suite 1200
Washington, D.C. 20005-2607
Attorneys for Amicus Curiae Equal
Employment Advisory Council and the Chamber of Commerce of the United States of America Jeffrey G. Huvelle
David H. Remes
John M. Vine
Covington & Burling
1201 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2401
Attorneys for Amicus Curiae
The ERISA Industry Committee
OPINION OF THE COURT GREENBERG, Circuit Judge
I. INTRODUCTION
This matter comes on before the court on an appeal by Sandra
Register, Grace B. Merchant, Susan L. Wilson, Kristina Beckman,
John J. Daggett, and Richard Rhoades, (“appellants”), from the
district court’s order entered on November 21, 2005, granting PNC
Financial Services Group, Inc., PNC Bank, NA, Pension Committee
of PNC Financial Services Group, Inc. Pension Plan, and PNC
Financial Services Group, Inc. Pension Plans’ (collectively “PNC”)
motion to dismiss appellants’ amended complaint. See Register v.
PNC Fin. Serv. Group, Inc., Civ. No. 04-6097,
II. FACTS AND PROCEDURAL HISTORY The relevant facts, except in one respect that we discuss later when dealing with the adequacy of a summary plan description that PNC supplied to plan participants, are not in dispute. Before 1999, PNC maintained a traditional defined benefit pension plan for its employees providing that a participant’s normal retirement (age 65) benefit was calculated by multiplying a fixed percentage (1.3% for service up to and including 25 years and 1.0% for service in excess of 25 years) with the participant’s years of service and final average pay. The plan also provided that if the employee retired after age 50 but before age 65, he could obtain early retirement benefits consisting of a portion of his normal retirement benefits.
As of January 1, 1999, PNC switched to a cash balance plan, which is a particular form of defined benefit plan. Under the cash balance plan, PNC established a bookkeeping account known as a cash balance account for every participant. The new plan took the benefits that accrued under the traditional plan and restated them as opening hypothetical cash balance accounts for each participant. The accounts were “hypothetical” because they did not reflect actual contributions to accounts or actual gains and losses allocable to the accounts, but, instead, reflected a value PNC imputed to the hypothetical accounts in the form of annual “credits.”
When PNC converted its traditional plan to a cash balance plan, the early retirement benefits of the old plan were frozen and the participants were given the option of either receiving the accrued (but frozen) early retirement benefits or the benefit they would have accrued under the cash balance plan, whichever was greater. The benefits for those participants that chose to receive the accrued early retirement benefits were frozen from the date of conversion until their account balances under the cash balance plan exceedеd the accrued early retirement benefits.
The PNC cash balance plan provides for two types of credits to participants: “earnings or pay credits” and “interest credits.” The plan states the earnings credit as a percentage of compensation determined by allocating points for combined age and years of service. The earnings credit ranges from 3% of compensation for participants with less than 40 years of combined age and years of service to 8% of compensation for participants with 70 years or more of combined age and years of service. The second component of the hypothetical account, the interest credit, is determined using an annual interest rate based on the 30-year Treasury rate. The interest credit accrues at the same time that the underlying earnings credit accrues and is projected through age 65 (to offset things such as increased cost of living, inflation, etc.). When a participant’s employment with [1]
PNC ends, the participant may withdraw his hypothetical account balance as a lump sum, convеrt the account balance into an immediate life annuity, or defer the receipt of a lump sum payment or life annuity until a later date.
In 2004, a group of plan participants who were current and former PNC employees and pension plan beneficiaries brought suit against PNC claiming that the PNC cash balance plan violated various ERISA provisions. First, they alleged that the plan violated the ERISA anti-backloading provision, 29 U.S.C. § 1054(b)(1)(B), because the participants that chose to retain the accrued (but frozen) early retirement benefits did not receive additional benefit accruals until the cash balance plan benefit caught up to their frozen prior plan benefit (Count I). Second, they contended that an employee’s benefit accrual decreases because of age in violation of the ERISA’s defined benefit plan anti-discrimination provision, id. at § 1054(b)(1)(H)(i) (Count II). Third, they alleged that PNC violated ERISA’s notice, id. at §§ 1054(h), 1022, and fiduciary duty requirements, id. at § 1104 (Counts III-V). [2]
*7 On May 23, 2005, PNC filed a motion to dismiss the amended complaint. The district court granted PNC’s motion to dismiss all counts for failure to state a claim under Fed. R. Civ. P. 12(b)(6). Appellants have appealed from that order to this court.
III. JURISDICTION AND STANDARD OF REVIEW
The district court had subject matter jurisdiction under 28
U.S.C. § 1331 and 29 U.S.C. § 1132(e)(1). We have jurisdiction
pursuant to 28 U.S.C. §§ 1291 and 1294(1). “In reviewing a district
court’s dismissal of a complaint pursuant to Rule 12(b)(6) for failure
to state a claim upon which relief may be granted, our review is
plenary and we apply the same test as the district court.” Maio v.
Aetna, Inc.,
IV. DISCUSSION
A. The PNC Cash Balance Plan Does Not Violate ERISA’s Anti-Discrimination Provision. 1. What is a cash-balance plan?
There are two general types of pension plans: defined
contribution plans and defined benefit plans. A defined contribution
plan is a pension plan in which an individual account is established
for an employee to which his employer (and sоmetimes the employee
too) contributes a specific amount. See 29 U.S.C. § 1002(34);
Hughes Aircraft Co. v. Jacobson,
A defined benefit plan, on the other hand, is any plan that is
not a defined contribution plan. 29 U.S.C. § 1002(35). It is generally
a pension plan where the employee is promised a retirement benefit
based on a formula the plan sets forth. The plan consists of a “general
pool of assets rather than individual dedicated accounts.” Hughes
Aircraft,
The pension plan at issue in this case is a cash balance plan. A
cash balance plan, by law, is a form of defined benefit plan and must
comply with the statutory regulations applicable to defined benefit
plans. See, e.g., Esden v. Bank of Boston,
A cash balance plan is classified as a defined benefit plan
because cash balance plans, like traditional defined benefit plans such
as the plan PNC maintained before January 1, 1999, “are required to
offer payment of an employee’s benefit in the form of a series of
payments for life . . . .” Burstein v. Ret. Account Plan for Employees
of Allegheny Health Educ. & Research Found.,
Cash balance plan accounts “are often referred to as
hypothetical accounts because they do not reflect actual contributions
to an account or actual gains and losses allocable to the account.” Id.
Instead, the employer imputes value to the hypothetical account in the
form of annual “credits.” Cooper v. IBM Pers. Pension Plan, 457
F.3d 636, 637 (7th Cir. 2006), cert. denied, U.S. , S.Ct. ,
Employers design cash balance plans so that when a participant receives a pay or earnings credit for a year of service, he also receives the right to future interest credits projected out until normal retirement age. When a participant becomes entitled to receive benefits under a cash balance plan, his benefits are defined in terms of an account balance, which then may be converted actuarially into an annuity at the option of the participant. As is true in the case of traditional defined benefit plans, the employer funding the plan bears the investment risks associated with the plan. This risk could be considerable because, unlike in the case of defined contribution plans, cash balance plans acсounts grow on the basis of a predetermined formula rather than on the basis of actual earnings.
2. The competing positions.
In order to understand this case it is essential to recognize that, as we already have indicated, cash balance plans are a type of defined benefit plan. This point is crucial because the classification of cash balance plans as defined benefit plans triggers a host of regulatory provisions applicable to defined benefit plans but not to defined contribution plans. Application of the provisions, however, may be difficult because Congress enacted ERISA and the administrative agencies adopted the defined benefit plan regulations before the creation of cash balance plans and thus before employers such as PNC *10 began converting their extant plans to cash balance plans. Thus, the original rules for defined benefit plans simply did not address the unique features and hybrid nature of cash balance plans. This circumstance has required courts, and no doubt persons designing and administering cash balance plans, to face the unenviable tаsk of trying to fit cash balance plans, pension plans with fundamental differences from traditional defined benefit plans and with many attributes of defined contribution plans, within the defined benefit plan framework, a process somewhat similar to placing a round peg into a square hole. As might be expected this task has proven not to be easy, and, as will be seen below, has led courts throughout the country to reach diametrically opposed conclusions with respect to applying ERISA provisions to cash balance plans.
One such troublesome provision is ERISA’s defined benefit plan age anti-discrimination provision which states:
[A] defined benefit plan shall be treated as not satisfying the requirements of this paragraph if, under the plan, an employee’s benefit accrual is ceased, or the rate of an employee’s benefit accrual is reduced, because of the attainment of any age.
29 U.S.C. § 1054(b)(1)(H)(i) (emphasis added).
This provision is the partial source of the disagreements in this case and, indeed, the outcome of this appeal largely is dependent on the meaning of “benefit accrual” within section 1054(b)(1)(H)(i). Appellants argue that the term “benefit accrual” refers to the employee’s retirement benefit (the age-65 annuity), i.e., the output from the plan. Appellants contend that the PNC plan is discriminatory because interest credits used to determine the annuity are based on future interest credits projected through the participant’s *11 normal retirement date. As such, they allege in their amended complaint that the interest credits decrease in value as participants move closer to the normal retirement date. Appellants argue that this consequence results in the reduction in the annuity based solely on age in violation of section 1054(b)(1)(H)(i).
A reader of this opinion might wonder how interest credits could be said to decrease in value with the passage of time as everybody knows that the longer a sum of money draws interest the greater the accumulated interest will be. Accordingly, we will explain appellants’ position by way of example. It really is quite simple. Someone who leaves PNC at age 50 after 20 years of service will have a larger annual benefit at аge 65 than someone whose 20 years of service conclude with retirement at age 65 because the former receives 15 years more interest than the latter. See Cooper, 457 F.3d at 638.
For support of their definition of “benefit accrual,” appellants
point to 29 U.S.C. § 1002(23)(A), which defines “accrued benefit” as
“an annual benefit commencing at normal retirement age.”
Appellants ask us to equate the terms “benefit accrual” and “accrued
benefit.” Thus, the argument goes, when the definition of “accrued
benefit” is inserted into section 1054(b)(1)(H)(i), the anti-
discrimination provision invalidates cash balance plans (the PNC plan
as well as any other conceivable cash balance plan) because interest
credits, which are projected to age 65, will have reduced value in
terms of the age-65 annuity for older employees because they have
less time to accrue interest. It should be obvious that the potential
impact of this appeal therefore is enormous with respect to cash
balance plans. Indeed, the district court stated its view, with which
we agree, thаt appellants’ argument, if accepted, would mean “that all
*12
cash balance plans violate the ERISA age discrimination provision by
virtue of their design.” Register,
“allocat[ions]” as used in the defined contribution plan provision refers to contributions or inputs and Congress used a different phrase (“benefit accrual”) in the defined benefit plan provision to refer to something else, i.e., the age-65 annuity or outputs. In addition, appellants emphasized at oral argument that defining “benefit accrual” in terms of the age-65 annuity is consistent with “employee expectations.”
PNC, on the other hand, argues that “benefit accrual” refers to the employer’s contributions in the form of credits to the hypothetical accounts, i.e., the inputs to the plan. Thus, according to PNC, because all participants receive the same interest credit, there is no discrimination against older participants and any increase in the value of the annuity results from the time value of money, not discrimination, and thus is entirely appropriate.
For support, PNC relies on the fact that a cash balance plan,
while classified as a defined benefit plan, differs from a traditional
defined benefit plan in that an employee’s benefit in a cash balance
*13
plan is set forth in terms of a stated account balance while a traditional
defined benefit plan is defined in terms of an age-65 annuity. See
Burstein,
3. Caselaw
Last year the Court of Appeals for the Seventh Circuit became
the first court of appeals to confront squarely the discrimination issue
raised on this appeal. See Cooper,
*14
The court of appeals compared the parallel anti-discrimination
provisions applicable to defined contribution plans and defined
benefit plans, and concluded that they proscribe the same conduct
even though the rule for defined benefit plans indicates what is
prohibited and the rule for defined contribution plans indicates what is
permitted, i.e., “the employer can’t stop making allocations (or
accruals) to the plan or change their rate on account of age.” Id. at
638. The court reasoned that given the similarity of the subsections in
both function and expression, it would be incongruous to say that the
differences in the accumulation of interest on equal employer cash
contributions made to defined contributions plans are not
discriminatory while the differences in interest that accumulates on
equal credits made to hypothetical cash balance accounts are
discriminatory. Id. at 638-39. Rather, the court concluded that the
computation of interest in both situations is not indicative of age
discrimination as nothing “suggests that Congress set out to legislate
against the fact that younger workers have (statistically) more time left
before retirement, and thus a greater opportunity to earn interest on
each year’s retirement savings. Treating the time value of money as a
form of discrimination is not sensible.” Id. at 639 (citing Hazen Paper
Co. v. Biggins,
Yet the court of appeals’ view in Cooper is not unanimous as
certain district courts within the Second Circuit disagree with the
result that the court of appeals reached in Cooper, and these courts
have held that cash balance plans are discriminatory. See Parsons v.
AT&T Pension Benefit Plan,
The Second Circuit district courts that found discrimination in the circumstances that we face relied on three basic rationales in reaching their conclusion. First, they relied on either the statutorily defined term of “accrued benefit” or the dictionary definition of “benefit accrual” in cоncluding that “benefit accrual” refers to the outputs of the cash balance plan, i.e., the age-65 annuity. Second, they found it significant that as a form of defined benefit plan, participants in a cash balance plan are promised a benefit upon retirement, not contributions in an account, and thus, the court in considering the discrimination issue should focus on the plan’s outputs. Lastly, they believed that Congress, in choosing to prohibit discriminatory “allocat[ions]” in the defined contribution plan provision but discriminatory “benefit accrual[s]” in the defined benefit plan provision, must have intended to proscribe different conduct. Appellants’ arguments here echo these considerations.
4. Analysis.
It is well-settled that “[t]he role of the courts in interpreting a
statute is to give effect to Congress’s intent.” Rosenberg v. XM
Ventures,
The requirement that “[s]tatutes must be interpreted to receive
a sensible construction, limiting application so as not to lead to
injustice and oppression . . .” also guides us. Evcco Leasing Corp. v.
Ace Trucking Co.,
With these principles in mind, we again set forth the defined benefit plan anti-discrimination provision at issue:
[A] defined benefit plan shall be treated as not satisfying the requirements of this paragraph if, under the plan, an employee’s benefit accrual is ceased, or the rate of an employee’s benefit accrual is reduced, because of the attainment of any age.
29 U.S.C. § 1054(b)(1)(H)(i) (emphasis added). As we discussed at length above, the age discrimination component of this case comes down to the meaning of “benefit accrual” as applied to cash balance plans. ERISA does not define the phrase, and its plain meaning is not evident from the particular language at issue. However, while the meaning of that phrase may not be evident from a reading of the words “benefit accrual” in isolation, a consideration of the context in which Congress used the words and the object of the ERISA anti- discrimination provisions makes its meaning clear.
By engaging in this exercise in considering context, we reach
the same conclusion as that of the court of appeals in Cooper for the
reasons that follow. First, as we have explained, “cash balance plans
define the benefit in terms of a stated account balance,” not “as a
series of monthly payments for life to begin at retirement” like a
traditional defined benefit plan. Burstein,
Second, a comparison of the parallel defined benefit plan and
defined contribution plan anti-discrimination provisions reinforces our
interpretation. This comparison is particularly relevant in that both
cash balance plans and defined contribution plans are defined in terms
of their stated account balances, albeit one is hypothetical and the
other is cash. In comparing the two anti-discrimination provisions,
we agree with the analysis and conclusion reached by the court of
*18
appeals in Cooper. The provisions are nearly identical and prohibit
the same behavior, i.e., “the employer can’t stop making allocations
(or accruals) to the plan or change their rate on account of age.”
Cooper,
Contrary to appellants’ assertions, there is simply no evidence that, by prohibiting discriminatory “allocat[ions]” in one provision and “accrual[s]” in the other, Congress intended to provide different metrics for detecting discrimination. Such a construction would lead to a result that is not sensible. The effect of the cash balance design that appellants challenge (the accumulation of interest) is identical to the accumulation of interest on employer contributions under defined contribution plans. Accordingly, employer contributions in both instances ultimately are more valuable when those contributions are made to younger employees as the contributions have a longer time to grow. That unremarkable consequence of a contribution growing in value because of earnings on it is no different than that when a bank deposit is drawing interest. The longer the deposit remains in the bank in an interest bearing account, the more it is worth. We do not find any support for appellants’ argument that Congress wanted to prohibit such a consequence with respect to cash balance plans, but legitimize it for defined contribution plans. Rather, the similarities of the anti-discrimination provisions governing defined benefit and defined contribution plans suggest that Congress was not seeking to prohibit the consequences of the time value of money in either circumstance, and appellants have not offered a reasonable explanation of why Congress would have wanted to do so.
While we agree with appellants that we are not permitted to
rewrite a statute and we must adhere to the statutory text applicable to
defined benefit plans, we have not rewrittеn anything here. The fact is
*19
that even though a cash balance plan’s classification as a defined
benefit plan is important, it is also important that it be understood that
cash balance plans include attributes of both defined benefit and
defined contribution plans. It seems to us that when dealing with a
hybrid plan subject to defined benefit plan rules, a court should look
to the parallel defined contribution plan anti-discrimination provision
to clarify the meaning of “benefit accrual” within the cash balance
plan context. Contrary to appellants’ assertions, in doing so, we are
not reclassifying cash balance plans as defined contribution plans nor
are we ignoring the language of the statute, but, instead, we are
looking to the parallel anti-discrimination provisions because “the
plain meaning of statutory language is often illuminated by
considering not only the particular statutory language at issue, but also
the structure of the section in which the language is found, the design
of the statute as a whole and its object . . . .” Alaka,
Finally, in our analysis of the discrimination issue we address
appellants’ remaining arguments (and those accepted by the minority
courts). First, contrary to appellants’ contention, “accrued benefit,”
which section 1002(23)(A), defines as “an annual benefit
commencing at normal retirement age,” is simply not the same thing
as “benefit accrual.” We find no indication that Congress intended
that courts and administrators use these phrases interchangeably.
Additionally, we agree with the court of appeals in Cooper that “[t]he
phrase ‘benefit accrual’ reads most naturally as a reference to what the
employer puts in . . . , while the defined phrase ‘accrued benefit’
refers to outputs after compounding.” Cooper,
In applying the anti-discrimination provision in the context of cash balance plans, which defines the benefit in terms of the cash balance account, we are concerned with what PNC puts into an employee’s account, not what the employee eventually may obtain from the plan on retirement. In evaluating the plan’s inputs, PNC does not reduce contributions (in the form of either earnings or interest credits) to older employees. The circumstance that the same contribution in the form of interest credits may result in a more valuable annuity for a younger employee is not discrimination in whole or in part based on age; rather it is the completely appropriate consequence of the application of an age-neutrаl principle to an accumulating account of the time value of money. The fact is that rather than we rewriting the statute, it is the appellants that are doing so in order to accommodate their position. As is our obligation we are honoring the intent of Congress in reaching our result.
B. The PNC Cash-Balance Plan Does Not Violate ERISA’s Anti-Backloading Rules. ERISA contains three alternative anti-backloading tests, each of which specifies how much of the pension benefit must accrue each year: the 3% rule, the 133 1/3% rule, and the fractional accrual rule. 29 U.S.C. § 1054(b)(1)(A). In this case, it is undisputed that the only test that applies is the 133 1/3% rule because the PNC cash balance plan is calculated using a career pay history. The applicable *21 provision states:
A defined benefit plan satisfies the requirements of this paragraph of a particular plan year if under the plan the accrued benefit payable at the normal retirement age is equal to the normal retirement benefit and the annual rate at which any individual who is or could be a participant can accrue the retirement benefits pаyable at normal retirement age under the plan for any later plan year is not more than 133 1/3 percent of the annual rate at which he can accrue benefits for any plan year beginning on or after such particular plan year and before such later plan year. For purposes of this subparagraph--
(i) any amendment to the plan which is in effect for the current year shall be treated as in effect for all other plan years . . . .
29 U.S.C. § 1054(b)(1)(B). It is clear from this section that ERISA
“requires that the value of the benefit accrued in any year may not
exceed the value of a benefit accrued in any previous year by more
than 33%.” Esden,
The purpose of the anti-backloading provision is to “prevent
an employer from avoiding the vesting requirements through minimal
accrual of benefits in early years of employment, followed by larger
benefit accruals as an employee nears retirement.” Hoover v.
Cumberland, Md. Area Teamsters Pension Fund,
reprinted in 1974 U.S.C.C.A.N. 4639, 4688).
Appellants argue that the PNC cash balance plan violates section 1054(b)(1)(B) for the following reasons. Under the prior defined benefit plan, participants age 50 and older were entitled to an early retirement benefit which included an early retirement subsidy. When PNC converted its prior plan to a cash balance plan, the participants were given the option of either receiving the accrued early retirement benefits or the benefit they would have accrued under the cash balance plan, whichever benefit is greater. For those participants that chose to receive the accrued early retirement benefits, their hypothetical benefits were frozen from the date of conversion until their hypothetical account balances exceeded that amount. Then, once the cash balance exceeded the accrued early retirement benefit under the prior plan, the credits into the cash balance account would commence.
Appellants contend that the period in which the early retirement benefits remains level (often called the “wear-away”) followed by a resumption of accruals once the cash balance exceeds the frozen amount violates section 1054(b)(1)(B) “[s]ince the previous growth rate of benefits had been zero [and] this new increase will automatically be at a rate greater than 133 1/3% of the previous growth rate.” Appellants’ br. at 43. Appellants reach this conclusion because they believe that the court should use two separate formulas to make a determination under section 1054 for those participants that chose to retain their early retirement benefits: the prior plan formula to determine their previous accrued benefits including the early- retirement subsidy and the cash balance formula once the account exceeds the benefits under the prior plan.
Appellants cite to Treasury Regulation § 1.411(b)-1(a) for support. That regulation states:
A defined benefit plan may provide that accrued benefits for participants are determined under more than one plan formula. In such a case, the accrued benefits under all such formulas must be aggregated in order to determine whether or not the accrued benefits under the plan for participants satisfy one of the alternative methods.
26 C.F.R. § 1.411(b) - 1(a).
Appellants’ argument fails, however, because it cannot
surmount the barrier that the regulation they cite does not apply in
cases of plan amendments. Rather, it applies in cases where there are
two co-existing formulas under a single plan. The governing
provision is section 1.411(b)-1(b)(2)(ii)(A), 26 C.F.R. 1.411(b)-
1(b)(2)(ii)(A), 29 U.S.C., § 1054(b)(1)(B)(i), the plan amendment
provision under the 133 1/3% rule, which states, “any amendment to
the plan which is in effect for the current year shall be treated as in
effect for all other plan years.” Thus, once there is an amendment to
the prior plan, only the new plan formula is relevant when
ascertaining if the plan satisfies the 133 1/3% test. A participant’s
election to retain his early retirement bеnefits from the old plan is not
relevant to this calculation. If we treat the amended plan as in effect
for all other plan years, as Congress directs us to do, appellants never
would have accrued a benefit under the old plan and would have
started to accrue benefits under the cash balance formula from the
beginning of their employment. Accordingly, there is no violation of
the anti-backloading provisions under appellants’ aggregate-formula
theory. Moreover, the objective of the anti-backloading provisions, to
prevent a plan “from being unfairly weighted against shorter-term
employees,” Langman,
C. PNC Did Not Violate ERISA’s Notice Requirements.
At the time of the PNC amendment, 29 U.S.C. § 1054(h)(1)(A) provided that a plan,
may not be amended so as to provide for a significant reduction in the rate of the future benefit accrual, unless, after adoption of the plan amendment and not less than 15 days before the effective date of the plan amendment, the plan administrator provides a written notice, setting forth the plan amendment and its effective date, to . . . each participant in *24 the plan . . . .
The Treasury Regulations thаt existed at the time of the amendment
indicated that the notice need not contain an exact quotation of the
text of the amendment, but may contain “a summary of the
amendment . . . if the summary is written in a manner calculated to be
understood by the average plan participant and contains the effective
date. The summary need not explain how the individual benefit of
each participant . . . will be affected by the amendment.” Scott v.
Admin. Comm. of the Allstate Agents Pension Plan,
This brochure represents notification as required under section 204(h) of [ERISA, 29 U.S.C. § 1054(h)] with respect to the amendments to the Pension Plan. The amendments to the Pension Plan effective January 1, 1999 described in this brochure may affect the future rate of benefit accruals under the Pension Plan and in some instances may reduce the rate of future Pension Plan benefit accruals.
App. at 237.
Appellants challenge one aspect of the notice. They believe that the notice was flawed because it failed to explain to the participants that the conversion would “significantly reduce[ ] the rate of future pension plan benefit accruals for each plan participant.” Appellants’ br. at 49. Appellants believe that PNC should have done *25 more than tell the participants that the new plan “may affect the future rate of benefit accruals” and “in some instances may reduce the rate of future Pension Plan benefit accruals.”
The district court concluded that PNC satisfied the section 1054(h) notice requirements applicable at the time of the conversion and we agree. The brochure set forth the plan amendment and the effective date. That explanation was all that was required. Contrary to appellants’ argument, the Treasury Regulations at the time of the amendment were clear that PNC was not required to discuss “how the individual benefit of each participant or alternate payee will be affected by the amendment.”
D. Appellants Fail to State a Claim With Respect to the Insufficiency of the Summary Plan Description.
Appellants allege in Count IV of their amended complaint that the summary plan description is insufficient under 29 U.S.C. § 1022(a), because it fails to disclose (1) that the cash balance plan reduces accrual rates based on a participant’s age, and (2) that the cash balance plan does not retain the early retirement subsidy available under the old plan. 29 U.S.C. § 1022(a) provides,
[t]he summary plan description . . . 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 pаrticipant and shall be furnished in accordance with section *26 1024(b)(1) of this title. [16]
With respect to appellants’ first contention set forth above, PNC’s allocations to participants under the cash balance plan are not reduced on account of age, and thus it hardly would have been appropriate to say that they were. The district court dismissed appellant’s second contention as it concluded that the average plan participant would recognize that the early retirement subsidy, by its omission from the summary plan description, was being terminated. This conclusion gives rise to the single factual matter in dispute in this litigation to which we made reference at the outset of this opinion. But even assuming that appellants are correct that this conclusion required factual findings the making of which was inappropriate at the motion to dismiss stage of the litigation, appellants nevertheless fail to state a claim upon which relief may be granted with respect to nondisclosure of the termination of the early retirement subsidy because there would not be a remedy availablе under ERISA to them even if the district court’s conclusion with respect to the plan participants’ perception was incorrect. Indeed, at oral argument before us appellants could not identify with specificity the appropriate relief for this violation if there was one.
In the “Prayer for Relief” section of their amended complaint, appellants seek relief under 29 U.S.C. §§ 1132(a)(2) and (a)(3). However, section 1132(a)(2) is not applicable to the summary plan description allegations in Count IV because (a)(2) applies only to liability for breach of fiduciary duty, a matter not at issue on this appeal. Under section (a)(3), participants may seek “(A) to enjoin [17]
any act or practice which violates any provision of this subchapter or
the terms of the plan, or (B) to obtain other appropriate equitable
relief (i) to redress such violations, or (ii) to enforce any provisions of
this subchapter or the terms of the plan.” While (A) does not apply as
there is no act or practice to enjoin with respect to the allegedly
misleading summary plan description, appellants arguably can ask for
“appropriate equitable relief . . . to redress [the disclosure] violations,”
*27
under section 1132(a)(3)(B)(i). However, we have indicated that
“substantive remedies are generally not available for violations of
ERISA’s reporting and disclosure requirements” except “where the
plaintiff can demonstrate the presence of extraordinary
circumstances.” Jordan v. Fed. Express Corp.,
In this case, viewing the allegations in the light most favorable to appellants, Count IV of the amended complaint is devoid of any allegation that even approaches “extraordinary circumstances” as we defined it in Jordan. Rather, paragraph 67 of the amended complaint states, “On information and belief, Defendants distributed to participants a Summary Plan Description (“SPD”) of the Plan, as amended by the new Cash Balance Formula. The SPD, however, fails to disclose the Cash Balance Formula’s failure to include the protected early retirement subsidy . . . .” The allegation does not assert that PNC acted in bad faith, nor does it allege that PNC attempted to “actively conceal” the termination of the early retirement subsidy or that PNC committed fraud. Instead, according to the amended complaint, PNC merely “fail[ed] to disclose” the termination of the subsidy and the alleged reduction of future benefit accruals. Thus, appellants have not set forth an “extraordinary circumstance” that triggers equitable remedies under section 1132(a)(3)(B)(i). Accordingly, we will affirm the order dismissing Count IV.
V. CONCLUSION
For the foregoing reasons, we will affirm the order of November 21, 2005 granting PNC’s motion to dismiss appellants’ amended complaint.
Notes
[1] The plan assumed a benefit commencement date ranging from age 62 to 65.
[2] Appellants sought to bring the action on behalf of a class and subclass of current and former employees but in view of the court’s disposition of the case the court never considered whether to certify the classes.
[3] Of course, in some cases the loss may be shifted to another party. See 29 U.S.C. § 1132(a).
[4] Of course, as will become apparent, our opinion in this case applies settled principles of law and, once we blow away the smoke, is not particularly complex. Nevertheless we point to Internal Revenue Service Notice 2007-06, posted at http://www.irs.gov/ pub/irs drop/n- 07-06.pdf dealing with the adoption of the Pension Protection Act of 2006 (“PPA’06”) to demonstrate how complex questions with respect to cash balance plans can be. We discuss PPA’06 below. See infra n.8.
[5] Appellees cite materials in their brief suggesting that almost one half of the assets in defined benefit pension plans are in cash balance plans. Appellees contend that the impact of our opinion in this case if the court adopts appellants’ arguments “would have wide ranging ramifications, sweeping away twenty years of guidance, practice and thought, and invalidating hundreds of pension plans affecting millions of employees and billions” of dollars of benefits.” Appellees’ br. at 7. Even though we have learned from many years of judicial and legal experience in both the public and private sectors to be skeptical when a litigant suggests the “horribles” that can follow from the result of a case, still it is obvious that much is at stake here.
[6] Actually the district court here was making reference to an
observation in Tootle v. ARINC, Inc.,
[7] Section 1054(b)(2)(A) provides: A defined contribution plan satisfies the requirements of this paragraph if, under the plan, allocations to the employee’s account are not ceased, and the rate at which amounts are allocated to the employee’s account is not reduced, because of the attainment of any age.
[8] We recognize that section 701(a)(1) of the Pension Protection Act of 2006, H.R. 4, 109th Cong. § 701 (2006), (“PPA’06”) provides that the accrued benefit for the purposes of cash balance plans may be expressed as the balance of a hypotheticаl account and significantly modified the application of the ERISA anti-discrimination provisions to cash balance plans, thus apparently settling the age discrimination dispute at issue here prospectively from June 29, 2005. However, PPA’06 specifically indicates that nothing in the amendments “shall be construed to create an inference” with respect to the ERISA’s defined benefit plan anti-discrimination provision, section 1054(b)(1)(H), “as in effect before such amendments.” Section 701(d). Thus, we cannot draw any inference from Congress’s decision to recognize the legality of cash balance plans with respect to certain ERISA anti-discrimination provisions prospectively and seemingly insulate such plans from the anti-discrimination provision at issue in this case.
[9] Unfortunately for appellants, their brief on this appeal relied in
part on the district court opinion in Cooper,
[10] It seems to us to be inevitable that the Court of Appeals for the Second Circuit ultimately will decide the discrimination issue for that circuit. But pending that day we think that we should consider the conflicting views of the district courts within that circuit and have done so.
[11] The district court in this case pointed out the advantages to both
employees and employers of cash balance plans as compared to
traditional defined benefit plаns. Register,
[12] The PNC plan is different from some plans in that earnings credits take into account both age and years of service, and thus older employees actually are rewarded because of their age in this respect.
[13] In their brief appellants state that the “District Court correctly held that the PNC Plan must comply with the 133 1/3 % rule of §
[14] Congress amended ERISA in 2002 to provide that an amendment must “be written in a manner calculated to be understood by the average plan participant and shall provide sufficient information . . . to allow applicable individuals to understand the effect of the plan amendment.” 29 U.S.C. § 1054(h)(2).
[15] We express no opinion on whether the notice would satisfy current law.
[16] Subsection (b) requires that the summary plan description contain certain categories of information, all of which the PNC summary plan description included. 29 U.S.C. § 1022(b).
[17] The district court dismissed appellants’ breach of fiduciary duty claims and they have not raised the dismissal of the claims as an issue on this appeal.