Randal Andersen v. Dhl Retirement Pension Plan , 766 F.3d 1205 ( 2014 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
RANDAL ANDERSEN; QUIN ARNOLD; No. 12-36051
GILBERT ARTER; JAMES DEWEY
ASHBY, JR.; LYNN BATAYOLA; D.C. No.
CAROL BLANKFIELD; DAVID A. 2:12-cv-00439-
BOOZER; SHARON ANN BRAUN, MJP
AKA Sharon Ann Sanders; DAVID
BRENT; JACQUELINE BROWN;
RANDY BUCHANAN; LORETTA OPINION
BUCKHOLZ; ROBERT CASSIDY;
THOMAS CLARK; TRACY CLARK;
LAURA COCHRANE; PATRICK
CURRY; WALLACE DANIELSON;
KRISTEN DELARA; SHARON
DENISON; WILLIAM DENTON; JOSEPH
DINICOLA; BARBARA DREISOW;
BRENDA DREISOW, Estate of; JYL
EIDEMILLER; ELAINE ELLISON; LYNN
EPSTEIN; ELIZABETH FIELDS;
ROBERT FORST; CRAIG FUNCKE;
CAROLYNE GARRIS; THOMAS
GLADIS; STEVEN HALL; GERARD
HEMPSTEAD; MICHELLE
HIGHTOWER; RICHARD HOBT;
JUDITH KENNEDY; LYNN KNIGGE;
JENNIFER KRAUSE; GLORIA
MACINNIS; DEBORAH MAHANAY;
CAROL MANESS; DIANE MCCARTY;
JUNE MCGARVEY; STEVEN MEHL;
MEEGAN MOUTSAKAS; MARK NEILS;
2 ANDERSEN V. DHL RETIREMENT PENSION PLAN
JUDI O’HURLEY; DIANE ORMSTON;
LINDA PATCHELL; GLORIA PRINCE;
LYNN RAMSEY; CAROL RUDISUHLE;
JOYCE S SEIFERT; ROBERT SEVERINI;
ERNEST SHARPE; MICHAEL SHEA;
PAMELA SPRING; KATHRYN
TERLIZZI; ANTHONY THOMAS;
DOUGLAS THOMAS; PAMELA JEAN
THOMAS; JOHN VOGLER; KATHERINE
M. WAGGONER; MICHAEL WARD;
ROB WILDER; STEVEN WILLIAMS;
LESLIE WILLMAN; JOANNE WIND;
DEBRA ANN WINTER; NANCY
WRIGHT; DELOIS WYATT; ROXANNA
ZABORAC,
Plaintiffs-Appellants,
v.
DHL RETIREMENT PENSION PLAN;
DPWN HOLDINGS (USA), INC.; DHL
PENSION PLAN COMMITTEE, AKA
Employee Benefits Pension Plan
Committee of DPWN Holdings
(USA) Inc.,
Defendants-Appellees.
Appeal from the United States District Court
for the Western District of Washington
Marsha J. Pechman, Chief District Judge, Presiding
Argued November 8, 2013
ANDERSEN V. DHL RETIREMENT PENSION PLAN 3
Submitted September 8, 2014
Seattle, Washington
Filed September 15, 2014
Before: Mary M. Schroeder, Richard A. Paez,
and Marsha S. Berzon, Circuit Judges.
Opinion by Judge Berzon
SUMMARY*
Employee Retirement Income Security Act
Affirming the district court’s dismissal of an action under
the Employee Retirement Income Security Act, the panel held
that defendants’ decision to eliminate plaintiffs’ right to
transfer their account balances from a defined contribution
plan to a defined benefit plan did not violate ERISA’s anti-
cutback rule.
The anti-cutback rule prohibits any amendment of an
employee benefits plan that would reduce a participant’s
“accrued benefit.” Plaintiffs were former employees of
Airborne Express, Inc., who participated in both Airborne’s
defined benefit pension plan and its defined contribution plan.
The defined benefit pension plan was a floor-offset plan.
That is, its benefits were calculated on the basis of a
participant’s final average compensation and years of service,
*
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
4 ANDERSEN V. DHL RETIREMENT PENSION PLAN
with an offset for any account balance in the defined
contribution plan. Before the challenged amendment,
participants could transfer the funds from their defined
contribution plan accounts to the defined benefit plan’s
general pool before the participant’s benefits were calculated.
DHL acquired Airborne and merged the two companies’
retirement plans, amending the benefit plan to eliminate
participants’ right to transfer funds into that plan.
The panel agreed with the district court and the First
Circuit that the amendment did not violate the anti-cutback
rule, but it took a different path in reaching that conclusion.
The panel deferred to the amicus brief of the government
insofar as it interpreted Treasury Regulation A–2, which
provides that, without violating the anti-cutback rule, a plan
may be amended to eliminate provisions permitting the
transfer of benefits between and among defined contribution
plans and defined benefit plans. The panel also gave some
weight to the government’s statutory interpretation. The
panel held that the anti-cutback rule was not violated because
the plan amendment did not reduce a participant’s accrued
benefit in either the defined contribution plan or the defined
benefit plan. The panel declined to decide whether the
elimination of the transfer option was a “cutback” because the
transfer option was an “optional form of benefit” under the
anti-cutback rule. The panel concluded that if the transfer
option were an optional form of benefit, then it would fall
within the regulatory exception.
ANDERSEN V. DHL RETIREMENT PENSION PLAN 5
COUNSEL
Robert S. Catapano-Friedman (argued), The Catapano-
Friedman Law Firm, Albany, New York; Michael E. Withey,
Law Offices of Michael E. Withey, Seattle, Washington, for
Plaintiffs-Appellants.
Brian T. Ortelere (argued) and Jeremy P. Blumenfeld,
Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania;
Nicole A. Diller, Morgan, Lewis & Bockius LLP, San
Francisco, California; Michael P. Monaco, Song Mondress
PLLC, Seattle, Washington, for Defendants-Appellees.
Kathryn Keneally, Assistant Attorney General, Tamara W.
Ashford, Principal Deputy Assistant Attorney General,
Gilbert S. Rothenberg, Teresa E. McLaughlin, and Ivan C.
Dale, Attorneys, Tax Division, United States Department of
Justice, Washington, D.C., for Amicus Curiae United States.
OPINION
BERZON, Circuit Judge:
The “anti-cutback” rule of the Employee Retirement
Income Security Act of 1974 (“ERISA”), 29 U.S.C.
§ 1054(g), prohibits any amendment of an employee benefits
plan that would reduce a participant’s “accrued benefit.” Our
question is whether Defendants’ (collectively, “DHL”)
decision to eliminate Plaintiffs’ right to transfer their account
balances from DHL’s defined contribution plan to its defined
benefit plan violated the rule. We hold it did not.
6 ANDERSEN V. DHL RETIREMENT PENSION PLAN
I.
Plaintiffs are former employees of Airborne Express, Inc.
(“Airborne”) who participated in both Airborne’s defined
benefit pension plan (“the Retirement Income Plan”) and its
defined contribution plan (“the Profit Sharing Plan”).1 The
Retirement Income Plan is a so-called floor-offset plan. That
is, its benefits are calculated on the basis of a participant’s
final average compensation and years of service, with an
offset for any account balance in the Profit Sharing Plan.
A floor-offset feature works as follows:
The employee’s annual benefit in the defined
benefit pension — the floor — is offset by the
annual annuity value of the [defined]
contribution plan. (The annual annuity value
of a defined contribution plan . . . is the dollar
amount available each year if the account
balance at retirement were used to purchase
an annuity, using standard assumptions for
interest rates and life expectancy.) . . . .
Essentially, a . . . guaranteed benefit level is
established in the defined benefit plan —
based on age, service and/or compensation. If
1
“A defined contribution plan is one where employees and employers
may contribute to the plan, and the employer’s contribution is fixed and
the employee receives whatever level of benefits the amount contributed
on his behalf will provide. . . . A defined benefit plan . . . consists of a
general pool of assets rather than individual dedicated accounts. Such a
plan, as its name implies, is one where the employee, upon retirement, is
entitled to a fixed periodic payment.” Hughes Aircraft Co. v. Jacobson,
525 U.S. 432, 439 (1999) (citations and quotation marks omitted).
ANDERSEN V. DHL RETIREMENT PENSION PLAN 7
the annuity value of the defined contribution
plan is equal to or greater than the guaranteed
level of the [defined benefit] plan, all of the
benefit will come from the [defined
contribution] plan. However, if the annuity
value of the account balance of the [defined
contribution] plan is less than the guaranteed
benefit of the [defined benefit] plan, the
[defined benefit] plan will make up the
difference.
U.S. Dep’t of Labor, Bureau of Statistics, Employee Benefits
Survey, People Are Asking . . . What is a floor-offset plan?,
http://bls.gov/ncs/ebs/peopleboxfloorpl.htm (last modified
May 9, 2002). If, for example, a participant was entitled to
receive $5,000 in monthly benefits under the Retirement
Income Plan but had a balance in the Profit Sharing Plan that
would equate to a $3,000 monthly annuity, he would receive
a monthly benefit of $2,000 from the Retirement Income
Plan. If his balance in the Profit Sharing Plan would equate
to a $6,000 monthly annuity, he would receive nothing from
the Retirement Income Plan.
Before the amendment challenged here, participants could
transfer the funds from their Profit Sharing Plan accounts to
the Retirement Income Plan’s general pool before the
participant’s benefits were calculated. The transfer option
was described in section 7.11 of Airborne’s Retirement
Income Plan:
A Participant may transfer his/her
nonforfeitable Employer Profit Sharing Plan
account balance to this Plan in order to be
8 ANDERSEN V. DHL RETIREMENT PENSION PLAN
paid an annuity benefit from such transferred
account balance.
This transfer option, if exercised, provided increased funds
for the Retirement Income Plan. It also allowed participants
to drop their Profit Sharing Plan balances to zero, eliminating
any offset when the benefit payable from the Retirement
Income Plan was calculated. So, in the first example
provided above, if a participant transferred the entire balance
of his Profit Sharing Plan account to the Retirement Income
Plan when he retired, he would be entitled to (at least) the full
$5,000 monthly annuity from the Retirement Income Plan;2
2
Plaintiffs have described the effect of the transfer as reducing the offset
to zero, rather than increasing the amount of the benefit payable under the
Retirement Income Plan. DHL has not disputed this characterization. The
plain text of the Retirement Income Plan suggests otherwise. Section 7.11
provides, in full:
[a] Participant may transfer his/her nonforfeitable
Employer Profit Sharing Plan account balance to this
Plan in order to be paid an annuity benefit from such
transferred account balance. If a Participant elects to
transfer his/her nonforfeitable Employer Profit Sharing
Plan account balance to this Plan, the benefit payable to
the Participant shall be the Actuarial Equivalent,
pursuant to Section 4.01C (as determined under this
Plan), of the value of the Employer’s Profit Sharing
Plan account balance as transferred to this Plan for such
Participant.
This provision strongly suggests that the amount of a participant’s annuity
benefit under the Retirement Income Plan varied depending on the value
of the Profit Sharing Account balance transferred into the Retirement
Income Plan. As the exact mechanism by which the transfer affects the
Retirement Income Plan annuity value is not material to our decision, we
need not resolve the apparent discrepancy between the parties’ assertions
and the terms of the plan.
ANDERSEN V. DHL RETIREMENT PENSION PLAN 9
he would, of course, have nothing remaining in his Profit
Sharing Plan account, and would therefore be paid nothing
from that account.3
In 2003, DHL acquired Airborne and began a process of
merging the two companies’ retirement plans. All relevant
features of Airborne’s plans were preserved in the merger,
with one exception: on December 31, 2004, DHL eliminated
the right of participants to transfer their account balances
from the Profit Sharing Plan to the Retirement Income Plan.
It did so by amending section 7.11 of the Retirement Income
Plan to “add[] the following to the end thereof:
Notwithstanding the foregoing, the [Retirement Income] Plan
shall not accept transfers of any Profit Sharing Plan account
balances after December 31, 2004.” The Profit Sharing Plan
was not amended; it continues to allow transfers to any
eligible retirement plan that will accept them. As we discuss
in Part III, due to differential actuarial assumptions used in
the two plans, the elimination of the right to transfer these
funds into the Retirement Income Plan caused many
participants in the two plans to receive reduced overall
periodic benefits.
The Tasker litigation. On February 11, 2009, former
Airborne employee Jeffrey R. Tasker sued DHL alleging that
the December 31, 2004 elimination of the transfer option
violated ERISA’s anti-cutback rule. Tasker’s case is
instructive in understanding the magnitude of the benefits
3
As we explain below, whether exercising the transfer option was
financially beneficial for any individual participant would depend on the
value and performance of the investments in his Profit Sharing Plan
account.
10 ANDERSEN V. DHL RETIREMENT PENSION PLAN
reduction Plaintiffs could experience as a result of the plan
amendment:
After more than thirty-two years of service,
Tasker retired on March 4, 2004. As of the
end of 2003, his [Profit Sharing Plan] balance
was $370,338.22. At his retirement, he
received a benefits estimate stating that his
single life annuity under the [Retirement
Income Plan] alone would be . . . $4,163.92
per month . . . if he transferred his [Profit
Sharing Plan] balance into the [Retirement
Income Plan]. Tasker selected . . . [that]
option, to begin payments upon his request on
or after October 1, 2008. In April 2008,
Tasker learned . . . that his expected monthly
benefits were approximately $2,200.00, not
$4,163.92. . . . [T]he 2004 figure was higher
because it contemplated Tasker’s exercise of
his transfer right — a right that was
subsequently eliminated.
Tasker v. DHL Ret. Sav. Plan, No. 09-CV-10198-NG, 2009
WL 4669936, at *2 (D. Mass. Nov. 20, 2009), aff’d, 621 F.3d
34 (1st Cir. 2010).
The district court dismissed Tasker’s complaint, holding
that a United States Department of the Treasury regulation
(“Regulation A–2”) specifically permits the elimination of a
transfer right, even when “such transfer may reduce or
eliminate protected benefits.” Id. at *5. Pursuant to
Regulation A–2, the court concluded, a transfer right “may be
eliminated without running afoul of the anti-cutback rule.”
Id. The First Circuit affirmed. Tasker, 621 F.3d at 40.
ANDERSEN V. DHL RETIREMENT PENSION PLAN 11
The current action. On March 12, 2012, Plaintiffs
brought this action against DHL, also alleging that DHL’s
elimination of the transfer option violated the anti-cutback
rule. The complaint alleges that “[s]ome of the Plaintiffs
[who] have already applied for their pension benefits” were
denied the right to transfer their Profit Sharing Plan account
balances to the Retirement Income Plan, and “are now
receiving . . . benefits of far less value than the amount to
which they were fully vested and to which they were
entitled.” Others have not yet applied for their benefits, but
assume that their benefits will likewise “be substantially
reduced because of [the] unlawful plan amendment.”
The district court granted DHL’s motion to dismiss the
complaint, citing the First Circuit’s analysis in Tasker. Ten
days later, Plaintiffs filed a motion for reconsideration
asserting, inter alia, that the Secretary of the Treasury
(“Secretary”) exceeded his statutory authority in
promulgating Regulation A–2. The district court denied the
motion, holding that “[n]either Rule 59(e) nor 60(b) of the
Federal Rules of Civil Procedure permit reconsideration when
a party simply fails to raise an argument it could have
previously.” It went on to state, however, that reconsideration
would also be denied on the merits because “[i]t is not
obvious that the Secretary’s broad authority falls short of
encompassing the regulation at issue here.” Plaintiffs filed a
timely notice of appeal.
Following oral argument, we invited the United States
Department of Labor and Department of the Treasury to
submit an amicus curiae brief addressing whether DHL’s
“elimination of Plaintiffs’ right to transfer their account
balances from the defined contribution plan to the defined
benefit plan violate[d] the anti-cutback rule . . . , where the
12 ANDERSEN V. DHL RETIREMENT PENSION PLAN
result of the elimination of the transfer option was
significantly to decrease the periodic benefits paid from the
defined benefit plan and in total.” The government filed a
brief answering that question in the negative and
recommending that the panel affirm the district court.
Plaintiffs filed a responsive brief.
We review de novo the district court’s dismissal for
failure to state a claim pursuant to Federal Rule of Civil
Procedure 12(b)(6). See Knievel v. ESPN, 393 F.3d 1068,
1072 (9th Cir. 2005).
II.
ERISA’s “anti-cutback rule is crucial to” the statute’s
“central[] . . . object of protecting employees’ justified
expectations of receiving the benefits their employers
promise them.” Cent. Laborers’ Pension Fund v. Heinz,
541 U.S. 739, 743–44 (2004). “‘Nothing in ERISA requires
employers to establish employee benefits plans. Nor does
ERISA mandate what kind of benefits employers must
provide if they choose to have such a plan. ERISA does,
however, seek to ensure that employees will not be left
emptyhanded once employers have guaranteed them certain
benefits.’” Id. at 743 (quoting Lockheed Corp. v. Spink, 517
U.S. 882, 887 (1996)).
The anti-cutback rule therefore provides that “[t]he
accrued benefit of a participant under a plan may not be
decreased by an amendment of the plan.” 29 U.S.C.
§ 1054(g)(1). It further establishes that “a plan amendment
which has the effect of . . . eliminating an optional form of
benefit, . . . shall be treated as reducing accrued benefits.” Id.ANDERSEN V. DHL RETIREMENT PENSION PLAN 13
§ 1054(g)(2)(B).4 ERISA, however, explicitly authorizes the
Secretary to make exceptions to the anti-cutback rule’s broad
mandate:
The Secretary of the Treasury shall by
regulations provide that this paragraph shall
not apply to any plan amendment which
reduces or eliminates benefits or subsidies
which create significant burdens or
complexities for the plan and plan
participants, unless such amendment
adversely affects the rights of any participant
in a more than de minimis manner. The
Secretary of the Treasury may by regulations
provide that this subparagraph shall not apply
to a plan amendment described in
subparagraph (B)[, concerning an “optional
form of benefit”].
Id. § 1054(g)(2)(B).
The Internal Revenue Code contains a “substantially
identical” provision, Heinz, 541 U.S. at 746, conditioning
eligibility for tax breaks on a pension plan’s compliance with
ERISA’s anti-cutback rule. See 26 U.S.C. § 411(d)(6).5 The
Secretary has “the ultimate authority to interpret these
4
We discuss whether the transfer option was an “optional form of
benefit” in Part II(C) of this opinion.
5
Though the substance of the ERISA and Internal Revenue Code
versions of the anti-cutback rule is the same, the numbering systems are
different. For example, Paragraph (1) in ERISA is Paragraph (A) in the
Internal Revenue Code. To avoid confusion, we cite to ERISA’s anti-
cutback rule.
14 ANDERSEN V. DHL RETIREMENT PENSION PLAN
overlapping anti-cutback provisions.” Heinz, 541 U.S. at
747. Where “regulations refer only to the Internal Revenue
Code version of the anti-cutback rule, they apply with equal
force to” ERISA’s version of the rule. Id.Pursuant to his authority, the Secretary promulgated
Regulation A–2, which addresses transfer rights:
Q–2: To what extent may [anti-cutback rule]
protected benefits under a plan be reduced or
eliminated?
A–2: . . . A plan may be amended to eliminate
provisions permitting the transfer of benefits
between and among defined contribution
plans and defined benefit plans.
26 C.F.R. § 1.411(d)–4, Q & A–2(b)(2)(viii). Plaintiffs
contend that although “the elimination of the transfer option
. . . by itself did not violate the anti-cutback rule under [this]
regulatory exception,” the fact that the amendment resulted
in a reduction of “the total monthly annuity amount
guaranteed to pensioners” did violate the anti-cutback rule.
The First Circuit in Tasker and the district court in this
case held that the plain language of Regulation A–2
foreclosed this argument. Tasker noted that “[t]he question
posed [in this case] directly tracks Q–2 of the regulation: did
the defendants violate the anti-cutback rule . . . by eliminating
the transfer option, when that elimination had the incidental
effect of significantly lowering the plaintiff’s projected
benefit?” 621 F.3d at 40. “The answer, a clear ‘no,’ directly
tracks the teachings of A–2: [DHL may eliminate the transfer
ANDERSEN V. DHL RETIREMENT PENSION PLAN 15
right] even if that elimination reduces an accrued (but
unclaimed) benefit.” Id.The district court in this case likewise reasoned that
Regulation A–2 “can only logically be read to mean the
regulation allowing the elimination of the ability to transfer
funds contemplates that such a transfer may reduce or
eliminate protected benefits.” The district court held that
Plaintiffs’ interpretation — that Regulation A–2 allows
elimination of a transfer benefit only if it results in no
monetary reduction of retirement benefits — ignores the
question posed by the regulation: “to what extent may . . .
protected benefits . . . be reduced or eliminated?” 26 C.F.R.
§ 1.411(d)–4, Q–2. For this reason, the district court agreed
with the First Circuit that Regulation A–2 provides a “clear
grant of safe passage for plan amendments that eliminate
transfer options (even when the elimination may have the
incidental effect of reducing benefits).” Tasker, 621 F.3d at
39.
We agree with the First Circuit and the district court here
that DHL’s 2004 plan amendment did not, as a matter of law,
violate the anti-cutback rule. But, with the guidance of the
government’s amicus brief, we take a different path in
reaching that conclusion. Additionally, we note below that
although the result reached here is disturbing given the
negative impact on Plaintiffs’ periodic retirement benefits,
that impact is primarily the result of the actuarial assumptions
used by the Retirement Income Plan to calculate the offset,
assumptions which have not been challenged.
16 ANDERSEN V. DHL RETIREMENT PENSION PLAN
A.
Before we proceed, we explain briefly our treatment of
the government’s amicus brief. Insofar as the government’s
brief interprets Regulation A–2, we defer to it. See Chase
Bank USA, N.A. v. McCoy, 131 S. Ct. 871, 880 (2011) (“[W]e
defer to an agency’s interpretation of its own regulation,
advanced in a legal brief, unless that interpretation is ‘plainly
erroneous or inconsistent with the regulation.’” (quoting Auer
v. Robbins, 519 U.S. 452, 461 (1997))). “[T]here is no reason
to believe that the interpretation advanced by the
[government] is a ‘post hoc rationalization’ taken as a
litigation position. The [United States] is not a party to this
case,” and it filed a brief only at our request. Id. at 881.
“[T]here is,” therefore, “no reason to suspect that the position
the [government] takes in its amicus brief reflects anything
other than the agency’s fair and considered judgment as to
what the regulation required at the time this dispute arose.”
Id.
We do not, however, afford the same level of deference
to the government’s interpretation of the statutory anti-
cutback rule or ERISA’s other provisions. Indeed, McCoy
acknowledged that the same level of “deference [i]s [not]
warranted to an agency interpretation of what [a]re, in fact,
Congress’ words.” Id. at 882. McCoy distinguished in this
regard Gonzales v. Oregon, 546 U.S. 243 (2006), where “the
regulation in question did ‘little more than restate the terms
of the statute’ pursuant to which the regulation was
promulgated.” Id. at 881–82 (quoting Gonzales, 546 U.S. at
257). Just as an agency’s litigating position is not entitled to
deference when the regulation it seeks to interpret does
“‘little more than restate the terms of the statute,’” id.(quoting Gonzales, 546 U.S. at 257), the government’s brief
ANDERSEN V. DHL RETIREMENT PENSION PLAN 17
here is not entitled to deference pursuant to Chevron, U.S.A.,
Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837(1984), insofar as it interprets the statutory text directly. See
Alaska v. Fed. Subsistence Bd., 544 F.3d 1089, 1095 (9th Cir.
2008).
Nonetheless, the government’s position “is entitled to a
measure of deference proportional to its power to persuade,
in accordance with the principles set forth in Skidmore v.
Swift & Co., 323 U.S. 134 [] (1944).” Tablada v. Thomas,
533 F.3d 800, 806 (9th Cir. 2008). “Even where not binding,
. . . agency choices ‘certainly may influence courts facing
questions the agencies have already answered.’ In such an
instance, ‘[t]he fair measure of deference to an agency
administering its own statute has been understood to vary
with circumstances.’” Tualatin Valley Builders Supply, Inc.
v. United States, 522 F.3d 937, 941 (9th Cir. 2008) (quoting
United States v. Mead Corp., 533 U.S. 218, 228 (2001)).
“[T]he weight given to the agency’s interpretation depends on
‘the degree of the agency’s care, its consistency, formality,
and relative expertness, and to the persuasiveness of the
agency’s position.’” Id. (quoting Mead, 533 U.S. at 228).
For the reasons discussed below, we find the government’s
interpretation of the anti-cutback rule reasonable and
persuasive, and so give it some weight.
B.
DHL and the government contend that the elimination of
the transfer option did not violate the anti-cutback rule
because “in neither plan was the participant’s accrued benefit
reduced or eliminated.” To the degree that the anti-cutback
rule prohibits amendments that reduce “[t]he accrued benefit
of a participant under a plan,” 29 U.S.C. § 1054(g)(1)
18 ANDERSEN V. DHL RETIREMENT PENSION PLAN
(emphasis added), if Plaintiffs’ complaint alleges no such
reduction, it fails as a matter of law in that respect.
ERISA defines “accrued benefit” as follows:
(A) in the case of a defined benefit plan, the
individual’s accrued benefit determined under
the plan and . . . expressed in the form of an
annual benefit commencing at normal
retirement age, or
(B) in the case of a [defined contribution] plan
. . . , the balance of the individual’s account.
29 U.S.C. § 1002(23).
Plaintiffs have not alleged that the elimination of the
transfer option reduced the balance of their Profit Sharing
Plan accounts. Accordingly, there has been no reduction of
Plaintiffs’ “accrued benefit” in the defined contribution plan.
With regard to the Retirement Income Plan — the defined
benefit plan to which DHL’s 2004 amendment directly
applies — the statutory definition of “accrued benefit” is not
as clear, providing only “(1) a tautological reference to the
individual’s accrued benefit; and (2) a somewhat more
enlightening reference to the plan.” Shaw v. Int’l Ass’n of
Machinists & Aerospace Workers Pension Plan, 750 F.2d
1458, 1463 (9th Cir. 1985). We therefore look to the
Retirement Income Plan document itself to determine what
“accrued benefit” means in the context of that plan.
ANDERSEN V. DHL RETIREMENT PENSION PLAN 19
We begin with section 4.01 of the Retirement Income
Plan, entitled “Accrued Benefit.”6 It is contained within
Article IV of the plan, also entitled “Accrued Benefits.”
Section 4.01 states that “[a] Participant who qualifies for
participation in the Plan shall earn an Accrued Benefit,
payable in the normal form of benefit at Normal Retirement
Age determined as follows . . . .” Paragraphs (A) and (B) of
that section initially describe the “formula” for calculating “a
Participant’s Accrued Benefit” as a multiple of the
participant’s years of service by a percentage of his average
monthly compensation. But those paragraphs specifically
note that the “Accrued Benefit” is to be calculated “[s]ubject
to the benefit offset under paragraph C of this Section 4.01.”
Paragraph (C) establishes the offset feature of the plan,
stating that “[a] Participant’s benefit determined under
paragraphs A and/or B above shall be reduced by the
Participant’s Profit Sharing Plan Annuity Benefit, if any, as
determined under this paragraph.” It then goes on to describe
how “a Participant’s Profit Sharing Plan Annuity Benefit” is
calculated. Section 4.01 was not altered by DHL’s 2004
amendment, and is not here challenged.
Section 4.01 does not mention the transfer option. The
transfer option is described, instead, in section 7.11 of the
Retirement Income Plan, a section entitled “Transferred
6
DHL filed copies of the Retirement Income Plan and Profit Sharing
Plan documents along with its appellate brief. Although these documents
were not attached to the complaint, they were incorporated by reference
therein, and were part of the record before the district court. Plaintiffs did
not object to the introduction of these documents below or on appeal. We
therefore consider them to the extent they are useful in resolving this case.
See United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003) (discussing
the doctrine of incorporation by reference in Rule 12(b)(6) cases).
20 ANDERSEN V. DHL RETIREMENT PENSION PLAN
Profit Sharing Account.”7 Section 7.11 is contained within
Article VII, entitled “Payment of Benefits.” Section 7.11
alone was amended in 2004, by eliminating participants’ right
to transfer their Profit Sharing Account balances to the
Retirement Income Plan.
The anti-cutback rule prohibits any reduction of an
“accrued benefit.” 29 U.S.C. § 1054(g). If that term means,
in the context of DHL’s plan, benefits calculated in
accordance with the formula described in section 4.01, then
eliminating the transfer option did not reduce participants’
accrued benefit. The 2004 amendment did not change the
formula for calculating benefits in the Retirement Income
Plan — they are, and have always been, calculated on the
basis of a participant’s final average compensation and years
of service, with an offset for an attributed annuity amount
based on the participant’s account balance, if any, in the
Profit Sharing Plan. Furthermore, there is no textual support
for Plaintiffs’ contention that section 7.11’s transfer option
should be treated as part of a participant’s statutory “accrued
benefit.”
That the formula set forth in section 4.01 fully defines the
scope of what constitutes an “accrued benefit” under the
Retirement Income Plan is further evidenced by the language
and structure of that Plan as a whole, considered in light of
ERISA’s definition of an “accrued benefit.” ERISA defines
an “accrued benefit” as “the individual’s accrued benefit
determined under the plan and . . . expressed in the form of an
7
Section 7.11 provides that “[a] Participant may transfer his/her
nonforfeitable Employer Profit Sharing Plan account balance to this Plan
in order to be paid an annuity benefit from such transferred account
balance.”
ANDERSEN V. DHL RETIREMENT PENSION PLAN 21
annual benefit commencing at normal retirement age.”
29 U.S.C. § 1002(23)(A) (emphasis added). Section 4.01
describes how “an Accrued Benefit, payable in the normal
form of benefit at Normal Retirement Age” is “determined,”
under the Retirement Income Plan. Such language indicates
that section 4.01 defines a participant’s “accrued benefit.”
Moreover, the transfer option’s placement in Article VII,
concerning “Payment of Benefits,” rather than Article IV,
which covers “Accrued Benefits,” further demonstrates that
section 7.11 describes something other than an “accrued
benefit.”
Plaintiffs disagree, arguing that the term “accrued
benefit” is defined differently with regard to a floor-offset
plan like DHL’s. Plaintiffs cite a portion of an Internal
Revenue Service Revenue Ruling that discusses the
conditions a floor-offset plan must satisfy to meet the Internal
Revenue Code’s minimum vesting requirements. The Ruling
states that an “accrued benefit” in a floor-offset plan will
meet minimum vesting requirements only if:
(1) the accrued benefit under the defined
benefit plan determined without regard to the
offset derived from the profit-sharing plan
satisfies the [minimum vesting] requirements
. . . ; and (2) the offset to the benefit otherwise
payable is equal to the amount deemed
provided on the determination date by the
vested portion of the account balance in the
profit-sharing plan . . . .
Rev. Rul. 76-259, 1976-2 C.B. 111 (1976) (emphasis added).
Plaintiffs rely on the italicized language to suggest that
DHL’s two plans should be treated as a “fully integrated
22 ANDERSEN V. DHL RETIREMENT PENSION PLAN
arrangement,” and thus any amendment that affects the
combined take-home monthly benefits under the plans, as
DHL’s elimination of the transfer option did here, should be
treated as reducing an “accrued benefit” in violation of the
anti-cutback rule.
But the Revenue Ruling does not change the definition of
an “accrued benefit” established in 29 U.S.C. § 1002(23), or
the general notion that an accrued benefit for a floor-offset
plan is defined by reference to the terms of each of the two
plans at issue. Instead, it confirms that the “accrued benefit”
of a defined benefit plan is separate from the offset applied;
and it adds, for minimum vesting purposes, an independent
requirement regarding the offset — that it be equal to the
vested portion of the defined contribution plan — that
Plaintiffs do not contend has been violated here.
Further, 26 U.S.C. § 414(k), which Plaintiffs also cite,
states that for purposes of the provision defining “accrued
benefit,”8 floor-offset plans are “treated as consisting of a
defined contribution plan to the extent benefits are based on
the separate account of a participant and as a defined benefit
plan with respect to the remaining portion of benefits under
the plan.” 26 U.S.C. § 414(k). With regard to DHL’s plans,
then, § 414(k) means that the “accrued benefit” of the offset
(which is “based on the separate account,” id.) is defined as
“the balance of the individual’s account,” and the “accrued
benefit” of the remainder is defined as “the individual’s
accrued benefit determined under the plan and . . . expressed
8
Section 414(k) cites 26 U.S.C. § 411(a)(7), the Internal Revenue Code
provision defining “accrued benefit.” The Internal Revenue Code
definition is substantively identical to the definition contained in ERISA,
29 U.S.C. § 1002(23), which we quote throughout this opinion.
ANDERSEN V. DHL RETIREMENT PENSION PLAN 23
in the form of an annual benefit commencing at normal
retirement age,” 29 U.S.C. § 1002(23). Neither of the
provisions Plaintiffs cite indicates that the transfer option
described in section 7.11 should be considered part of the
“accrued benefit” under the particular terms of DHL’s
defined benefit plan.
In sum, after the 2004 plan amendment, the “accrued
benefits” of both the defined contribution and the defined
benefit plans remained intact. We therefore conclude that the
reduction of periodic benefits paid from the Retirement
Income Plan that resulted from DHL’s elimination of the
transfer option did not violate 29 U.S.C. § 1054(g)(1). That
conclusion does not, however, entirely resolve this case.
C.
Even if no “accrued benefit” was otherwise reduced, the
2004 amendment eliminated the transfer option. The anti-
cutback rule “treat[s] as reducing accrued benefits” any “plan
amendment which has the effect of . . . eliminating an
optional form of benefit.” 29 U.S.C. § 1054(g)(2). If the
transfer option was an “optional form of benefit,” as Plaintiffs
suggest, then eliminating it alone could be a “cutback” under
ERISA, regardless of the effect of that elimination on
participants’ other benefits under each of the two plans.
Whether Airborne’s transfer option was an “optional form
of benefit” has vexed the other courts to consider the
question, as well as the government. The district court in
Tasker expressly declined to “decide whether the right to
transfer benefits from one account to another . . . is an
optional form” because Regulation A–2 “alone requires
dismissal of [Tasker’s] claim, even if the transfer right is an
24 ANDERSEN V. DHL RETIREMENT PENSION PLAN
optional form of benefit.” 2009 WL 4669936 at *4. The
First Circuit, by contrast, held the transfer right to be an
“ancillary benefit,” not an “optional form of benefit.” Tasker,
621 F.3d at 41–42. The district court in this case simply
failed to mention whether the transfer option was an “optional
form of benefit.” And the government asserts briefly, without
citation, that it was not.
A Treasury regulation defines an “optional form of
benefit” as
a distribution alternative . . . that is available
under the plan with respect to an accrued
benefit or . . . a retirement-type benefit.
Different optional forms of benefit exist if a
distribution alternative is not payable on
substantially the same terms as another
distribution alternative. The relevant terms
include all terms affecting the value of the
optional form, such as the method of benefit
calculation and the actuarial factors or
assumptions used to determine the amount
distributed.
26 C.F.R. § 1.411(d)–3(g)(6)(ii)(A). A different Treasury
regulation addresses whether the “transfer of benefits
between and among defined benefit plans and defined
contribution plans (or similar transactions) violate[s] the
requirements of” the anti-cutback rule. Id. § 1.411(d)–4,
Q–3. That regulation states clearly that “[a] right to a transfer
of benefits from a plan pursuant to the elective transfer rules
of this paragraph (c) is an optional form of benefit under” the
anti-cutback rule. Id. at A–3(c)(2)(ii) (emphasis added); see
also id. at A–2(a)(2)(ii) (“[A]n elective transfer of an
ANDERSEN V. DHL RETIREMENT PENSION PLAN 25
otherwise distributable benefit is treated as the selection of an
optional form of benefit”).
With respect to the plans at issue, these regulations make
clear that a participant’s right to transfer his benefits “from”
the Profit Sharing Plan is an optional form of benefit. Id. at
A–3(c)(2)(ii) (emphasis added). But the 2004 amendment did
not modify the Profit Sharing Plan; that plan continues to
allow transfers to any eligible retirement plan that will accept
them. DHL amended only section 7.11 of the Retirement
Income Plan, stating that it “shall not accept transfers of any
Profit Sharing Plan account balances after December 31,
2004.” The 2004 amendment would thus constitute a cutback
only if the Retirement Income Plan’s acceptance of transfers
is a “distribution alternative,” i.e., an “optional form of
benefit.” 26 C.F.R. § 1.411(d)–3(g)(6)(ii)(A). Although the
government’s amicus brief seems to suggest it is not, it
provides no analysis meriting deference, and Plaintiffs
provide no answer to this question.9
9
The government also suggests in passing that because a different
statutory provision not mentioned in the parties’ briefing, 26 U.S.C.
§ 401(a)(31)(A), now requires defined contribution plans to allow
participants to transfer their balances to any “eligible retirement plan”
willing to accept transfers, id., a transfer option “no longer constitutes a
separate optional form of benefit if it is also provided for under broader
plan terms.” Regardless whether the government’s interpretation is
correct, it is irrelevant to this appeal. Section 401 requires defined
contribution plans to allow transfers, but only to other defined contribution
plans. See 26 U.S.C. § 401(a)(31)(E) (defining “eligible retirement plan”
by reference to another statutory provision, except that “a qualified trust
shall be considered an eligible retirement plan only if it is a defined
contribution plan” (emphasis added)). Although a defined contribution
plan may by regulation allow transfers to defined benefit plans, see 26
C.F.R. § 1.401(a)(31)–1, the statute does not required it to do so. And
nothing in 26 U.S.C. § 401(a)(31) requires any plan to accept transfers.
26 ANDERSEN V. DHL RETIREMENT PENSION PLAN
We need not decide whether the Retirement Income
Plan’s acceptance of a transfer was an “optional form of
benefit” to resolve this appeal. If the transfer option was not
an “optional form of benefit,” then DHL could have
eliminated it without being considered to have reduced or
eliminated an “accrued benefit” in violation of the anti-
cutback rule. And even if the transfer option was an
“optional form of benefit,” and was thus protected by the
anti-cutback rule, paragraph (2) of the anti-cutback statute
explicitly authorizes the Secretary to waive its application for
plan amendments eliminating an “optional form of benefit.”
See 29 U.S.C. § 1054(g)(2) (“The Secretary of the Treasury
may by regulations provide that this subparagraph shall not
apply to a plan amendment described in subparagraph (B),”
concerning the elimination of “an optional form of benefit”).
That is precisely what Regulation A–2 accomplishes. See 26
C.F.R. § 1.411(d)–4, Q& A–2(b)(2)(viii) (“A plan may be
amended to eliminate provisions permitting the transfer of
benefits between and among defined contribution plans and
defined benefit plans.”).
In short, this case fits squarely within the regulatory
exception for elimination of an “optional form of benefit,”
even if the transfer option was such a benefit. We therefore
agree with the district court that the 2004 amendment did not,
As the only change wrought by the 2004 amendment was the defined
benefit plan’s refusal to accept transfers from the defined contribution
plan, that amendment is not affected by § 401(a)(31).
ANDERSEN V. DHL RETIREMENT PENSION PLAN 27
as a matter of law, violate the anti-cutback rule. We affirm
the dismissal of Plaintiffs’ complaint.10
III.
Like the First Circuit, we are deeply troubled by this case.
See Tasker, 621 F.3d at 43. The Plaintiffs “worked for many
years, planned for [their] retirement, and now find[] that the
annuity [they] can collect is[, for some,] roughly half the size
that [they] had anticipated.” Id. To the extent that ERISA’s
anti-cutback rule is designed to “protect[] employees’
justified expectations of receiving the benefits their
employers promise them,” it has failed to do so here. Heinz,
541 U.S. at 743.
We note that what we see as the real source of the
problem is referred to only obliquely in the briefs: the
differential actuarial assumptions used to calculate
participants’ benefits under the Retirement Income Plan and
the Profit Sharing Plan. Under the Profit Sharing Plan,
participants are entitled to take their account balances as a
lump sum payment or as an annuity. In calculating the
10
As we conclude that the complaint fails to state a claim, we need not
consider DHL’s alternative arguments that the complaint is time-barred
and that Plaintiffs’ breach of fiduciary duty claim is not cognizable under
29 U.S.C. § 1132(a)(3).
Nor need we decide whether the district court abused its discretion in
denying Plaintiffs’ motion for reconsideration. In that motion, Plaintiffs
sought to argue that, to the extent Regulation A–2 permitted DHL to
eliminate the transfer option and the result of that elimination was a
reduction in participants’ other “accrued benefit[s],” the Secretary
exceeded his statutory authority in promulgating Regulation A–2. We
have concluded that the elimination of the transfer right did not result in
a reduction of other “accrued benefit[s]” under the terms of either plan.
28 ANDERSEN V. DHL RETIREMENT PENSION PLAN
annuity value, it appears that the Profit Sharing Plan uses one
set of actuarial assumptions about, e.g., a participant’s
lifespan, market conditions, etc. As Plaintiffs’ counsel
explained at oral argument, however, in calculating the
amount of offset, the Retirement Income Plan takes the same
Profit Sharing Plan account balance, and applies a different,
more favorable, set of actuarial assumptions, resulting in an
offset that is considerably higher than the annuity actually
payable from the aggregated defined contribution funds.11
For example, imagine Mr. Andersen retires with $350,000
in his Profit Sharing Plan account.12 The Profit Sharing Plan
will allow him to take his benefit as either a lump sum or a
monthly annuity, which the plan calculates as $3,000, using
one set of actuarial assumptions. But suppose Mr. Andersen
has also been guaranteed, under the terms of the Retirement
Income Plan, a defined monthly benefit of $5,000. Before
paying him the $5,000 benefit, the Retirement Income Plan
11
As we discuss above, supra n. 2, the language of the Retirement
Income Plan indicates that participants who chose to exercise the transfer
right received an additional benefit — beyond simply eliminating the
effect of the offset — because they were paid annuities from the
Retirement Income Plan calculated using that plan’s favorable actuarial
assumptions, but based on the value of their Profit Sharing Plan accounts.
Although Plaintiffs did not mention this additional benefit in their briefs
or at oral argument, it appears to us that the significant reduction in
participants’ take-home periodic benefits after the 2004 amendment was
therefore caused by the combination of (1) participants’ inability to drop
their Profit Sharing Plan account balances to zero, thus eliminating the
effect of the offset; and (2) the fact that they would no longer receive with
their Profit Sharing Plan accounts an annuity calculated using the
assumptions of the Retirement Income Plan.
12
All numbers are entirely hypothetical, both in actual and relative
amounts.
ANDERSEN V. DHL RETIREMENT PENSION PLAN 29
looks to Mr. Andersen’s account balance in the Profit Sharing
Plan to determine the amount of the offset. Using the same
$350,000 but applying more favorable actuarial assumptions,
the Retirement Income Plan calculates a monthly annuity of
$6,000 for Mr. Andersen. As a result, once offset, Mr.
Andersen receives no benefit from the Retirement Income
Plan.
Pursuant to the terms of the Retirement Income Plan, Mr.
Andersen is not entitled to a benefit because the “floor” —
the “guaranteed benefit level is established in the defined
benefit plan” — has been met by the “annuity value of the
defined contribution plan.” People Are Asking . . . What is a
floor-offset plan?. But in reality, all Mr. Andersen will get,
if he takes his Profit Sharing Plan benefit in annuity form, is
the $3,000 monthly annuity calculated by the Profit Sharing
Plan. The Retirement Income Plan is thus offsetting Mr.
Andersen’s guaranteed defined benefit by a hypothetical
annuity amount that will never in fact be available to him
under the terms of the Profit Sharing Plan.
Within this system, it is clear why most, if not all,
participants would have chosen to exercise the transfer option
prior to its elimination. It was far better for Mr. Andersen to
transfer the full amount of his Profit Sharing Plan account,
which would drop that balance to zero and eliminate the
effect of the offset. Were he to do that in the example we
provided, he would be entitled to (at least, see supra n. 2) the
full $5,000 guaranteed benefit from the Retirement Income
Plan instead of the $3,000 monthly annuity from the Profit
Sharing Plan. The only participant who would have chosen
not to exercise the transfer option would be one who had
amassed enough money in his Profit Sharing Plan account
that he would be entitled to a monthly annuity exceeding
30 ANDERSEN V. DHL RETIREMENT PENSION PLAN
$5,000, even with the unfavorable actuarial assumptions. The
complaint alleges that Plaintiffs are not in that fortunate
situation.
Notwithstanding our concerns, Plaintiffs have not
challenged the differential actuarial assumptions used by the
two plans, and DHL’s 2004 amendment did not alter them.
So what we see as the inequity occasioned by this procedure
is of no legal significance in this case.13 For the reasons
stated above, we must affirm the district court.
AFFIRMED.
13
It appears that the Secretary might be able to correct this problem,
should he choose to do so. A current Treasury regulation regarding floor-
offset plans requires that “the accrued benefit . . . that would otherwise be
provided to an employee under the defined benefit plan must be reduced
solely by the actuarial equivalent of all or part of the employee’s account
balance attributable to employer contributions under a defined
contribution plan maintained by the same employer.” 26 C.F.R.
§ 1.401(a)(4)–8(d)(i) (emphasis added). Several regulations require
that “actuarial equivalence must be determined in a uniform manner
for all employees using reasonable actuarial assumptions.” Id.§ 1.401(a)(4)–3(f)(5)(ii)(e)(7). Given that the Secretary already requires
that actuarial assumptions be “uniform” and “reasonable,” to the extent he
views the use of different, unrealistic actuarial assumptions to calculate
the offset in a floor-offset plan as undermining ERISA’s objectives, he
may have the regulatory discretion to put an end to the practice.