Kathleen Stewart v. AT&T Inc. , 354 F. App'x 111 ( 2009 )


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  •            IN THE UNITED STATES COURT OF APPEALS
    FOR THE FIFTH CIRCUIT  United States Court of Appeals
    Fifth Circuit
    FILED
    November 17, 2009
    No. 09-50381                      Charles R. Fulbruge III
    Summary Calendar                            Clerk
    KATHLEEN A. STEWART, Individually and on behalf of all others similarly
    situated,
    Plaintiff - Appellant
    v.
    AT&T INC; AT&T PENSION BENEFIT PLAN-NONBARGAINED
    PROGRAM,
    Defendants - Appellees
    Appeal from the United States District Court
    for the Western District of Texas
    USDC No. 5:08-cv-272
    Before KING, STEWART and HAYNES, Circuit Judges.
    PER CURIAM:*
    This appeal arises under the Employee Retirement Income Security Act
    (ERISA). 
    29 U.S.C. § 1001
     et seq. Appellant Kathleen A. Stewart asserts that
    her employer’s plan administrator failed to pay her the full amount of the
    lump–sum       payment      that    she   was    entitled    to   under     the   company’s
    defined–benefit pension plan.              Specifically, she argues that the plan
    *
    Pursuant to 5TH CIR . R. 47.5, the court has determined that this opinion should not
    be published and is not precedent except under the limited circumstances set forth in 5TH CIR .
    R. 47.5.4.
    No. 09-50381
    administrator abused its discretion by using a pre–retirement mortality discount
    to calculate her lump–sum retirement payment. The parties filed cross–motions
    for summary judgment. The district court held that the plan administrator did
    not abuse its discretion, and granted the employer’s motion for summary
    judgment. Stewart appeals. We AFFIRM.
    I. FACTS & PROCEDURAL HISTORY
    Appellant Kathleen A. Stewart worked for Ameritech Services, Inc.
    (Ameritech) from 1971 to 1996.1            As an employee, she participated in the
    Ameritech Management Pension Plan (AMPP), a defined–benefit pension plan.2
    Prior to her termination, Stewart’s accrued benefit under the AMPP was
    expressed as a defined lump sum.3 AMPP § 5.1(a). When her employment was
    terminated in 1996, the defined lump–sum amount was converted into an
    age–65 annuity, the standard means of receiving retirement benefits under the
    plan. AMPP § 5.1(b). However, the plan allowed Stewart to elect—within 60
    days of her termination—to receive her retirement benefit in a lump–sum
    payment. AMPP § 7.3(b). Stewart exercised this option.
    To calculate the lump–sum payment due to Stewart, the plan
    administrator converted the defined lump–sum amount into the age–65 annuity.
    The amount of the annuity was determined by calculating the future value of
    Stewart’s defined lump sum, in recognition of the fact that Stewart was not then
    65, and thus the annuity would only be payable in the future. In doing so, the
    plan administrator applied pre– and post–retirement mortality discounts, as
    1
    Ameritech is now known as AT&T Inc., the appellee in this action.
    2
    In 2004, the AMPP merged into AT&T Pension Benefit Non-Bargained Program, the
    appellee in this action. Co-appellee AT&T administers the AT&T Pension Benefit Non-
    Bargained Program or the ATTP.
    3
    The defined lump sum was calculated based on Stewart’s final average compensation
    multiplied by her aggregate lump–sum percentage.
    2
    No. 09-50381
    well as the applicable interest rates set by the Pension Benefit Guaranty
    Corporation (PBGC). The mortality discounts accounted for the probability that
    Stewart would either die before reaching the age of 65, in which case her annuity
    would be forfeited, or the probability that Stewart would die after her annuity
    payments had commenced, in which case the payments would cease.4
    After determining the amount of Stewart’s annuity, the plan administrator
    converted the figure into a lump–sum amount based on its present value. In
    reducing the annuity to its present value, the plan administrator relied upon the
    same PBGC interest rates and mortality tables used to calculate the future value
    of the annuity.       As a result, when her employment was terminated in 1996,
    Stewart received a lump–sum payment of $110,450.36. This amount is equal to
    the amount of her defined lump sum.
    Stewart filed an administrative claim challenging the plan administrator’s
    calculation of her lump–sum payment. She argued that the plan administrator
    erred by using a pre–retirement mortality discount to calculate the amount of
    her lump–sum payment. Specifically, she asserted that the pre–retirement
    mortality discount applies only to the disbursement of the age–65 annuity, but
    does not apply when a participant elects a lump-sum payment. As a result,
    Stewart sought to recover over $21,000.00 in benefits.5
    The plan administrator denied her claim. After exhausting her
    administrative remedies, Stewart brought a civil action under 
    29 U.S.C. § 1132
    (a)(1)(B) to recover the amount of money discounted based on the
    4
    The plan provides certain exceptions to the general rule that the annuity payment
    may be forfeited if the participant dies before reaching the age of 65. Because those exceptions
    are not before this court, we do not address them here.
    5
    Specifically, Stewart argues that she should have received $132,358.66.
    3
    No. 09-50381
    pre–retirement mortality calculation.6             The parties filed cross–motions for
    summary judgment in the district court. The district court granted AT&T’s
    motion for summary judgment and held that the lump–sum payment awarded
    to Stewart complied with the terms of the plan. Accordingly, the district court
    held that the plan administrator did not abuse its discretion by using a
    pre–retirement mortality discount.
    On appeal to this court, Stewart argues that the district court erred by
    concluding that the plan administrator did not abuse its discretion. She argues
    that § 7.4(d) of the AMPP prohibits the plan administrator from using a
    pre–retirement mortality discount to compute lump–sum pension benefits.
    Because the plan provides that the lump sum will still be paid in the event that
    the employee dies in the short time between electing the lump sum and receiving
    the payment, Stewart argues that the plan administrator violated ERISA’s
    anti–forfeiture rule by applying a discount for the probability that Stewart
    would die before reaching age 65. See 
    29 U.S.C. § 1053
    (a).
    II. STANDARD OF REVIEW
    We review a district court’s grant of summary judgment de novo, applying
    the same standard as the district court. Crowell v. Shell Oil Co., 
    541 F.3d 295
    ,
    312 (5th Cir. 2008). Because the terms of the AMPP give the plan administrator
    discretionary authority to construe the terms of the plan and apply its
    provisions, we review the plan administrator’s decision for an abuse of
    discretion.7 Firestone Tire & Rubber Co. v. Bruch, 
    489 U.S. 101
    , 115 (1989); see
    6
    Stewart initially filed this case in the United States District Court for the Southern
    District of Ohio; the case was later transferred to the United States District Court for the
    Western District of Texas.
    7
    Section 11.1(c) of the AMPP confers discretion upon the plan administrator to
    interpret the terms of the plan. Stewart briefly asserts that the plan administrator failed to
    exercise any discretion in the administrative proceedings, but this argument is without merit.
    The administrative record shows that the plan administrator interpreted the plan provisions
    to require a computation of Stewart’s lump–sum benefit by using a pre–retirement mortality
    4
    No. 09-50381
    also Stone v. UNOCAL Termination Allowance Plan, 
    570 F.3d 252
    , 257 (5th Cir.
    2009) (“Because the Plan gives the Committee discretionary authority to
    construe Plan terms and apply its provisions, its decision is reviewed under an
    abuse of discretion standard.”). In reviewing the plan administrator’s decision,
    we limit our review to the administrative record and ask “only whether the
    record adequately supports the administrator’s decision.” Jenkins v. Cleco
    Power, LLC, 
    487 F.3d 309
    , 314 (5th Cir. 2007) (quotation marks and citation
    omitted).8
    This court applies a two–step process to determine whether a plan
    administrator has abused its discretion. Stone, 
    570 F.3d at 257
    .                     First, this
    court asks whether the plan administrator’s decision was legally correct. 
    Id.
     If
    the decision was legally correct, our inquiry ends there. But if we determine
    that the administrator’s decision was not legally correct, we ask whether the
    decision was an abuse of discretion. 
    Id.
                   “A plan administrator abuses its
    discretion where the decision is not based on evidence, even if disputable, that
    clearly supports the basis for its denial.” Holland v. Int’l Paper Co. Ret. Plan,
    
    576 F.3d 240
    , 246 (5th Cir. 2009) (quotations and citations omitted). An abuse
    of discretion occurs if the plan administrator has acted arbitrarily or
    capriciously. 
    Id.
           We make a finding of arbitrariness only if the decision is
    “made without a rational connection between the known facts and the decision
    or between the found facts and the evidence.” Bellaire Gen. Hosp. v. Blue Cross
    Blue Shield of Michigan, 
    97 F.3d 822
    , 828 (5th Cir. 1996).9
    discount.
    8
    The parties make numerous arguments that were not presented during the
    administrative proceedings. We limit our review of the administrator’s decision to the
    evidence contained in the administrative record. Jenkins, 
    487 F.3d at 314
    .
    9
    Stewart does not assert that the plan administrator operated under a conflict of
    interest. If she did, we would “weigh the conflict of interest as a factor in determining whether
    there is an abuse of discretion in the benefits denial.” Metro. Life Ins. Co. v. Glenn, 
    128 S. Ct. 5
    No. 09-50381
    III. ANALYSIS
    We begin our analysis by asking whether the plan administrator’s decision
    was legally correct. In making this determination, we consider
    (1) whether the administrator has given the plan a
    uniform construction,
    (2) whether the interpretation is consistent with a fair
    reading of the plan, and
    (3) any unanticipated costs resulting from different
    interpretations of the plan.
    Crowell v. Shell Oil Co., 
    541 F.3d 295
    , 312 (5th Cir. 2008) (quotation marks and
    citation omitted).      The second question—whether the plan administrator’s
    interpretation is consistent with a fair reading of the plan—is the “most
    important factor to consider.” 
    Id.
     (citation and quotation omitted).
    A. The Terms of the Plan
    The plan administrator concluded that the terms of the plan authorize the
    application of a pre–retirement mortality discount when computing the amount
    of the lump–sum payment. The administrator based its decision on §§ 5.1 and
    7.3(b) of the plan. See AR 000000088. Section 5.1(a) of the plan defines a
    participant’s accrued benefit as a defined lump sum prior to termination.
    Section 5.1(b) states that at and after a participant’s termination date, the
    accrued benefit is converted into an age–65 annuity based on the applicable
    PBGC interest rates and the plan mortality tables. When an employee elects to
    receive a lump–sum payment, § 7.3(b) states that the payment will be calculated
    based on the present value of the age–65 annuity, determined using the PBGC
    interest rates and the plan mortality tables.10             The plan administrator
    2343, 2350-51 (2008).
    10
    Section 7.3(b) states that a participant may—within 60 days of the participant’s
    termination date—elect to receive a
    6
    No. 09-50381
    interpreted the plan language to require the same actuarial factors to be used
    in calculating the age–65 annuity under § 5.1(b) and § 7.3(d).11 Thus, the plan
    administrator applied the same pre– and post–retirement mortality discounts
    to make the lump–sum calculation as it did to make the age–65 annuity
    calculation.
    Stewart argues that the use of a pre–retirement mortality discount is
    prohibited when an employee elects to receive a lump–sum payment. She does
    not dispute the use of a post–retirement mortality discount to calculate the
    lump–sum payment; rather, Stewart argues only that a pre–retirement
    mortality discount may not be used. She asserts that § 7.4(d) of the AMPP
    makes the lump-sum payment non–forfeitable in the event that she dies before
    turning 65.
    Section 7.4(d) states:
    If a Participant who has filed a valid distribution
    election dies prior to his Annuity Starting Date, such
    election shall be void and his Accrued Benefit shall be
    paid in accordance with subsection 9.2 or 9.3, whichever
    is applicable. If a Participant who has properly elected
    Lump Sum payment which is the present value of the
    Participant’s Accrued Benefit under paragraph 5.1(b),
    determined using (i) the applicable PBGC rate for the January 1
    of the calendar year in which the Participant’s Annuity Starting
    Date occurs and (ii) the Plan’s Mortality Table. Except as
    expressly provided in subsection 7.4 a Lump Sum payment will
    only be made to the Participant as of his Termination Date.
    11
    Stewart asserts that the plan administrator never performed a present-value
    computation, but this assertion is in error. The plan administrator communicated its
    calculations to Stewart by letter during the administrative proceeding, and explained that it
    converted Stewart’s defined lump sum into an annuity payment by determining the
    “actuarially equivalent benefit to her age 65 benefit.” The administrator then converted this
    sum into a lump–sum payment. AR 000000089.
    7
    No. 09-50381
    a Lump Sum dies after his Annuity Starting Date 12 but
    prior to actual receipt of such distribution, the Lump
    Sum shall be paid to his estate when it would otherwise
    have been paid to the Participant or as soon as
    practicable thereafter.
    Stewart     asserts    that    this   provision    prevents     application     of   a
    pre–retirement mortality discount—which discounts for the probability that the
    benefit will be forfeited by death prior to age 65—to lump–sum payments under
    §7.3(b). This is not so.
    A plain reading of §§ 5.1(b) and 7.3(d) supports the plan administrator’s
    interpretation of the plan.
    First, both § 5.1(b) and § 7.3(d) contain the same language authorizing use
    of the applicable PBGC interest rates and plan mortality tables to calculate the
    amount owed to the participant.13 Stewart acknowledges that the language of
    § 5.1(b) allows the plan administrator to apply a pre–retirement mortality
    discount to calculate the future value of her annuity. The plan administrator
    interpreted the plan language to require the same actuarial factors to be used
    in calculating the age–65 annuity under § 5.1(b) and § 7.3(d).                          This
    interpretation provides a uniform construction of the plan.14
    12
    As relevant here, the “Annuity Starting Date” “means the day [s]he retires or
    otherwise terminates employment.” AMPP § 7.1.
    13
    Stewart correctly points out that the plan mortality tables do not state which
    mortality decrements should be used; rather, that determination depends on whether the
    benefit may be forfeited. Nonetheless, the language used in § 7.3(d) does not suggest a
    different calculation than the one performed under § 5.1(b).
    14
    Stewart argues that the plan administrator provided divergent rationales for denying
    her benefits in the administrative proceedings and the district court. To the extent that both
    of the parties raised new arguments in the district court, we confine our review to the
    administrative record and ask only whether the record evidence shows that the plan
    administrator’s decision was legally correct.
    8
    No. 09-50381
    Second, the plan administrator’s interpretation is consistent with a fair
    reading of the plan. Section 7.3(d) states that the lump–sum payment should
    equal the present value of the age–65 annuity.     Stewart was not yet 65 when
    she elected to receive her lump–sum payment. Because it was still possible for
    Stewart to die prior to reaching the age of 65, it makes logical sense for the plan
    administrator to discount for the probability that Stewart would forfeit her
    annuity before reaching the age of 65. Thus, the plan administrator took this
    probability into account in determining the present–value of Stewart’s annuity.
    Stewart’s reliance on § 7.4 is unavailing. Section 7.4 states only that the
    lump–sum payment will be made to the participant’s estate in the event the
    participant dies during the relatively short time period after electing a
    lump–sum payment but before the payment is actually received. It addresses
    the happenstance of, for example, a participant making the election one morning
    and then dying in a car accident that afternoon. Thus, this provision deals with
    payment, but it has no bearing on the method by which the lump sum is
    calculated. Section 7.3 governs the computation of the lump–sum payment, and
    provides that the amount due must be the present value of the age–65 annuity.
    It also provides that the present value must be determined by using the
    applicable PBGC interest rates and the plan mortality tables.
    Third,   § 7.4(d) does not preclude a participant’s benefits from being
    forfeited by death as a general matter, but only in limited circumstances. The
    parties agree that a participant who elects the standard monthly age–65 annuity
    payment may forfeit the annuity if he or she dies before reaching the age of 65.
    Stewart acknowledges this but argues that lump–sum payments are made
    non–forfeitable under § 7.4(d). But that provision does not provide a different
    mechanism of valuing the participant’s annuity. For example, § 7.4 does not
    provide that, by electing a lump–sum payment, the participant becomes entitled
    to the full value of the age–65 annuity without regard to the probability of the
    9
    No. 09-50381
    participant dying before reaching the age of 65. Nor does such an argument
    make sense. The lump–sum payment is intended to be the present value of the
    annuity, which remains subject to forfeiture if the participant dies before
    reaching normal retirement age.         Section 7.4 simply does not entitle a
    participant to the full value of an age–65 annuity when that participant has yet
    to turn 65.
    Put another way, the pre–retirement mortality table discounts for the
    probability that the annuity will be forfeited if Stewart dies before reaching the
    age of 65; it does not discount for the probability that the lump–sum payment
    will be forfeited upon election of that option.     Thus, the application of the
    pre–retirement mortality discount does not result in a forfeiture of the
    lump–sum payment. It merely calculates the present value of the participant’s
    annuity, and reduces that to a lump–sum payment.              Once vested by the
    participant’s election and calculated according to § 7.3, the lump sum is not
    forfeitable – as § 7.4 provides, the sum goes to the participant’s estate should the
    participant die between election and receipt. In sum, the plan administrator’s
    interpretation produces a fair reading of the plan that accords with common
    sense.
    Finally, AT&T urges that Stewart’s interpretation would result in a more
    costly payout because the lump–sum payment would become more valuable than
    the age–65 annuity. This argument, while clearly insufficient on its own, also
    demonstrates why Stewart’s interpretation of the plan is illogical.
    Based on our review of the record, we conclude that the plan
    administrator’s interpretation of the plan is legally correct.        We base this
    conclusion on our finding that the administrator gave the plan a uniform
    construction, and that interpretation is consistent with a fair reading of the
    plan’s language. Accordingly, we affirm the district court’s conclusion that the
    plan administrator’s interpretation of the plan is legally correct.
    10
    No. 09-50381
    B. ERISA Compliance
    Stewart asserts that use of a pre–retirement mortality discount to
    determine her lump–sum payment violates ERISA because it results in a partial
    forfeiture of her benefits.   ERISA provides that, once a retirement benefit is
    fully vested, a plan participant may not forfeit their benefits unless the plan
    expressly provides for such forfeiture upon the death of the participant. 
    11 U.S.C. § 1053
    (a); see also 
    Treas. Reg. § 1.411
    (a)-4 (stating that a right to an
    accrued benefit is non–forfeitable if it is expressed as an unconditional right).
    Here, the terms of the plan make clear that the age–65 annuity are
    forfeited if the participant dies before reaching the age of 65. Stewart again
    relies on § 7.4 to argue that the lump–sum payment may not be forfeited upon
    death, even if the annuity payments may be. But this argument fails for the
    reasons set forth above. As a result, the use of a pre–retirement mortality
    discount was permissible under ERISA because the plan expressly conditioned
    receipt of the annuity payments upon reaching the age of 65. See 
    Treas. Reg. § 31.3121
    (v)(2)-1(c)(2)(ii) (stating that “present value [of an annuity] means the
    value as of a specified date of an amount or series of amounts due thereafter,
    where each amount is multiplied by the probability that the condition or
    conditions on which payment of the amount is contingent will be satisfied, and
    is discounted according to an assumed rate of interest to reflect the time value
    of money”) (emphasis added).        Accordingly, the plan administrator was
    authorized to discount for the probability that Stewart would die before the
    annuity benefits commenced in calculating the lump–sum payment. 
    Id.
    Stewart argues that the district court’s decision is contrary to West v. AK
    Steel Corp. Retirement Accumulation Plan, 
    484 F.3d 395
     (6th Cir. 2007), and
    Berger v. Xerox, 
    338 F.3d 755
     (7th Cir. 2003). In West and Berger, the courts
    found that the plan administrators erred in calculating the lump–sum payments
    11
    No. 09-50381
    owed to beneficiaries under the terms of the cash–balance benefit plans.15 Those
    cases addressed plans with different terms than the one at issue here.
    In contrast to the plans in Berger and West, the annuity in the present
    case may be forfeited if the participant dies before reaching the age of 65.
    Consequently, applying a pre–retirement mortality discount in the present case
    does not cause a participant to forfeit an already accrued benefit. Instead, the
    plan administrator used the pre–retirement mortality discount to reduce the
    annuity—which is subject to forfeiture—to its present value by taking into
    account the probability that Stewart would not reach the age of 65.
    In sum, the plan administrator’s use of a pre–retirement mortality
    discount was permissible under ERISA.                   Stewart is thus not entitled to
    monetary or equitable relief under ERISA.16
    IV. CONCLUSION
    We conclude that the plan administrator’s interpretation of the AMPP
    plan was legally correct and did not violate any provision of ERISA. The district
    court did not err in granting summary judgment in favor of the appellees.
    AFFIRMED.
    15
    Cash balance plans differ substantially from the plan at issue in this case. A cash
    balance plan “entitles the employee to a pension equal to (1) a percentage of his salary every
    year that he is employed (5 percent, in the case of the Xerox plan) plus (2) annual interest on
    the ‘balance’ created by each yearly ‘contribution’ of a percentage of the salary to the
    employee’s ‘account,’ at a specified interest rate . . . These annual increments of interest are
    called future interest credits.” Berger, 
    338 F.3d at 758
    . In contrast, the AMPP is more aptly
    characterized as a standard defined benefit plan because it entitles the participating employee
    to a pension equal to percentage of his or her final years’ salary multiplied by years of service.
    16
    In her complaint, Stewart also sought equitable injunctive relief under § 502(a)(3).
    Because we determine that the plan administrator’s decision was legally correct, we find that
    Stewart is not entitled to any relief under ERISA, and do not reach the issue of whether she
    preserved a claim for equitable relief.
    12