McCarthy v. Dun & Bradstreet Corp. , 482 F.3d 184 ( 2007 )

05-3828
McCarthy v. Dun & Bradstreet
1 UNITED STATES COURT OF APPEALS
2 FOR THE SECOND CIRCUIT
3
4 August Term 2005
5
6 (Argued February 15, 2006 Decided March 29, 2007
7 Errata Filed April 4, 2007)
8
9 -------------------------------------------------------x
10 Docket No.: 05-3828-cv
11
12 Mary McCarthy, Clayton Borowski, on behalf of others similarly
13 situated, and individually, Gail Adams, Donald Bakert, RoseMarie
14 Black, Albin Blom, Mike Blount, William Brady, Donna Cochran,
15 Steve Crowther, Michael Coughlin, Delia Coy, Paul Crowe, Cary
16 Elbaum, Lisa Farnsworth, Jack Finley, James Gabrys, Gregory
17 Gopodarek, Laura Gue, James Hadley, Gerald Hillard, Carl
18 Langbein, Thomas Majka, Frederick Markt, Doris Megesi, Steve
19 Miholics, Marleen Miller, Lewis Moore Jr., Philip Moscato, Brian
20 Neary, Karl Nicosia, Barry O’Neill, Roger Ruggieri, Philip
21 Salamone, Robert Short Jr., Ruth Stewart, Charles Szymanski,
22 Billie Thomas, Frank Tricoli, Bill Tuohy, Jerry Vincent, Walter
23 Waitz, Mark Weiss, Donald Wickersham, John Zimmer and Debbie K.
24 Lubonski, Exec. of the Est. of Katherine J. Lubonski,
25
26 Plaintiffs-Appellants,
27
28 –- v.–-
29
30 The Dun & Bradstreet Corporation, The Dun & Bradstreet
31 Corporation Retirement Account, and The Dun & Bradstreet Career
32 Transition Plan,
33
34 Defendants-Appellees,
35
36 Aldo Camerin, Terri Carpenter, Denise Cyphers and Katherine
37 Lubonski,
38
39 Plaintiffs.
40 -------------------------------------------------------x
41
42 B e f o r e : KEARSE and SACK, Circuit Judges, and STANCEU,
43 Judge.*
44
45 Appeal of grant of motion to dismiss count of complaint,
46 grant of summary judgment, and denial in part of motion to amend
* The Honorable Timothy C. Stanceu, United States Court of
International Trade, sitting by designation.
1 complaint, by the United States District Court for the District
2 of Connecticut (Stefan R. Underhill, J.), in favor of Defendants-
3 Appellees.
4 AFFIRMED.
5
6 Thomas G. Moukawsher, Esq.
7 Moukawsher & Walsh, LLC, Hartford,
8 Connecticut, for Plaintiffs-
9 Appellants.
10
11 Patrick W. Shea, Esq., Paul,
12 Hastings, Janofsky & Walker LLP,
13 Christine Button, of counsel,
14 Stamford, Connecticut, for
15 Defendants-Appellees.
16
17
18 Stanceu, Judge:
19 Plaintiffs-appellants are former employees of the Dun &
20 Bradstreet Corporation (“Dun & Bradstreet”) who were terminated
21 from the company when Dun & Bradstreet sold its “Receivables
22 Management Services” operations, conducted in the United States,
23 Canada, and Hong Kong, on April 30, 2001. Upon the sale,
24 plaintiffs-appellants became employees of a new corporation, “Dun
25 & Bradstreet Receivables Management Services,” which resulted
26 from the sale. Their change in employment did not qualify them
27 to receive severance benefits under the “Career Transition Plan,”
28 a Dun & Bradstreet benefit plan. It also affected the retirement
29 benefits that they could receive under another benefit plan, the
30 “Master Retirement Plan,” which on December 31, 2001 was replaced
2
1 by the “Dun & Bradstreet Corporation Retirement Account Plan.”
2 The new pension plan established as the Dun & Bradstreet
3 Corporation Retirement Account Plan created different retirement
4 benefits but assumed the vested obligations of the superseded
5 Master Retirement Plan, which is at issue in this appeal.
6 Plaintiffs-appellants, many of whom had nearly attained the
7 age of 55 at the time of the sale of the Receivables Management
8 Services operations, sued Dun & Bradstreet, the Dun & Bradstreet
9 Corporation Retirement Account Plan, and the Dun & Bradstreet
10 Career Transition Plan in the United States District Court for
11 the District of Connecticut, seeking individual and class action
12 relief. They alleged that they were wrongfully denied benefits
13 under the Dun & Bradstreet Corporation Retirement Account Plan
14 and the Dun & Bradstreet Career Transition Plan, contrary to the
15 requirements of the Employee Retirement Income Security Act of
16 1974 (“ERISA”), 29 U.S.C. § 1001 et seq. The district court
17 ruled against plaintiffs with respect to both benefit plans.
18 McCarthy v. Dun & Bradstreet Corp., 372 F. Supp. 2d 694
19 (D. Conn. 2005) (McCarthy II); McCarthy v. Dun & Bradstreet
20 Corp., No. 03CV431, 2004 WL 2743569, 2004 U.S. Dist. LEXIS 23996
21 (D. Conn. Nov. 30, 2004) (McCarthy I).
22 Plaintiffs-appellants appeal the district court’s rulings on
23 three motions in favor of defendants-appellees: (1) the district
24 court’s grant of defendants’ motion to dismiss, under
3
1 Fed. R. Civ. P. 12(b)(6), plaintiffs-appellants’ claim that the
2 “Summary Plan Description” for the Master Retirement Plan
3 violated ERISA by inadequately disclosing the method by which a
4 benefit of the Master Retirement Plan (the “deferred vested
5 retirement benefit”) is reduced actuarially when paid to former
6 employees of Dun & Bradstreet, such as plaintiffs-appellants, who
7 elected to receive payments before reaching age 65; (2) the
8 district court’s grant of defendants-appellees’ summary judgment
9 motion to deny relief on plaintiffs-appellants’ claim that the
10 Master Retirement Plan used an unreasonably high discount rate of
11 6.75 percent to reduce actuarially the deferred vested retirement
12 benefit that the Master Retirement Plan paid to such former
13 employees; and (3) the district court’s denial in part of
14 plaintiffs-appellants’ motion to amend their complaint to
15 challenge as unlawful under ERISA the mortality table that the
16 Master Retirement Plan used in the actuarial reduction. For the
17 reasons discussed in this opinion, we affirm all three rulings of
18 the district court.
19 I. BACKGROUND
20 The facts underlying this appeal, as summarized below, are
21 undisputed. Plaintiffs-appellants ceased being employees of Dun
22 & Bradstreet on April 30, 2001, the date on which the company
23 sold its Receivables Management Services operations. As former
24 employees of Dun & Bradstreet who were terminated before reaching
4
1 the minimum early retirement age of 55, plaintiffs-appellants no
2 longer qualified for the early retirement benefit that was
3 available under the Master Retirement Plan to employees retiring
4 directly from Dun & Bradstreet. As former employees whose
5 pension benefits had vested by the accrual of a minimum of five
6 years of credited service with Dun & Bradstreet, but who were
7 separated from Dun & Bradstreet before reaching the age of 55,
8 plaintiffs-appellants remained eligible to receive a deferred
9 vested retirement benefit under the Master Retirement Plan.
10 Under the terms of this deferred vested retirement benefit,
11 pension-vested former employees such as plaintiffs-appellants
12 could receive, upon reaching the normal retirement age of 65, the
13 full retirement benefit for which they qualified under the plan.
14 The Master Retirement Plan calculated the full retirement
15 benefit according to a formula based on a participant’s years of
16 credited service and earnings with Dun & Bradstreet, with a
17 reduction designed to compensate for Dun & Bradstreet’s
18 contribution to the participant’s Social Security retirement
19 benefit (the “Social Security Offset”). The Social Security
20 Offset is based on a percentage of the estimated annual
21 retirement benefit the participant would be entitled to receive
22 at age 65 under the Social Security program.
23 The Master Retirement Plan provided that former employees,
24 i.e., employees who terminated their employment before reaching
5
1 the age of 55, instead of receiving their deferred vested
2 retirement benefit upon their reaching the age of 65, could
3 choose to receive payments as early as age 55. Under this early
4 payment option, a former employee’s deferred vested retirement
5 benefit was actuarially reduced from the amount that would have
6 been paid at age 65 in two respects. First, to reflect the time
7 value of money, the Master Retirement Plan reduced the benefit by
8 a 6.75 percent discount rate for each year prior to the age of 65
9 that payments began. Second, the benefit was reduced by a
10 mortality factor to adjust actuarially for the possibility that a
11 participant might not live to the age of 65.
12 Unlike former employees such as plaintiffs-appellants who
13 were eligible only for deferred vested retirement benefits,
14 employees retiring directly from Dun & Bradstreet were eligible
15 to receive an early retirement benefit under the Master
16 Retirement Plan. The Master Retirement Plan provided this early
17 retirement benefit to employees who accrued ten years of credited
18 service with Dun & Bradstreet, retired directly from Dun &
19 Bradstreet after reaching the age of 55, and chose to receive
20 payments before reaching the age of 65. This early retirement
21 benefit was a more desirable benefit than the deferred vested
22 retirement benefit as actuarially reduced under the early payment
23 option. Under the early retirement benefit, the accrued pension
6
1 was reduced by only three percent for each year that payments
2 began before the retiree reached the age of 65.
3 To apprise plan participants of the benefits available under
4 the Master Retirement Plan, Dun & Bradstreet, as required by
5 ERISA, provided plan participants with a summary plan description
6 (“Summary Plan Description”). The Summary Plan Description
7 contains both a “Vesting” section that explains the deferred
8 vested retirement benefits available to pension-vested former
9 employees and an “Early Retirement Benefit” section that
10 discusses the early retirement benefits available to
11 directly-retiring Dun & Bradstreet employees. Included in the
12 Early Retirement Benefit section is a reduction table that
13 illustrates the percentage of accrued retirement benefits a
14 direct retiree would receive for each year that payments begin
15 before age 65, based on the three percent annual reduction.
16 There is no table or discussion in the Vesting section of the
17 Summary Plan Description that sets forth the percentage by which
18 the actuarial reduction will reduce the benefit of a pension-
19 vested former employee who is terminated from employment with Dun
20 & Bradstreet before reaching the age of 55 but elects to receive
21 payments before the age of 65.
22 On March 12, 2003, plaintiffs sued in district court,
23 claiming that the provision of the Master Retirement Plan that
24 actuarially reduced benefits of former employees who elected to
7
1 receive payments prior to attaining the age of 65 could not be
2 enforced against them because, in their view, the Summary Plan
3 Description was inadequate under ERISA. They maintained that, as
4 a result of the deficiencies in the Summary Plan Description,
5 they should be held to qualify for unreduced benefits or,
6 alternatively, for the early retirement benefits they would have
7 received had they retired directly from Dun & Bradstreet. The
8 district court dismissed this count of plaintiffs’ complaint
9 under Fed. R. Civ. P. 12(b)(6) for failure to state a claim upon
10 which relief can be granted. The district court concluded that
11 the treatment of the actuarial reduction in the Summary Plan
12 Description was satisfactory under ERISA. Plaintiffs-appellants
13 raise the same issue on appeal.
14 Plaintiffs-appellants argue, as a second issue on appeal,
15 that the district court erred in denying them the opportunity to
16 amend their complaint to raise a challenge to the mortality table
17 used in the Master Retirement Plan which, together with the 6.75
18 percent discount rate reduction, actuarially reduced the deferred
19 vested retirement benefit payable to former employees choosing to
20 receive payments before reaching age 65. The district court
21 denied the motion, concluding that the amendment would constitute
22 an entirely new claim that would have prejudiced defendants
23 because the amendment was sought at a late stage of the
8
1 litigation, after the close of discovery and after defendants had
2 moved for summary judgment.
3 Plaintiffs-appellants also claimed in district court, and
4 argue again on appeal, that the 6.75 percent discount rate that
5 the Master Retirement Plan used to reduce actuarially the
6 deferred vested retirement benefits of former employees renders
7 the actuarial reduction unreasonable. This discount rate, in
8 their view, “works a prohibited forfeiture of benefits under
9 ERISA Section 203(a).” Am. Compl. ¶ 95. The district court
10 awarded summary judgment to defendants-appellees, concluding that
11 ERISA does not require a “zero-risk” discount rate and that no
12 reasonable juror could find that the 6.75 percent discount rate
13 was unreasonable. McCarthy II, 372 F. Supp. 2d at 699 & n.2.
14 II. DISCUSSION
15 A. The District Court Did Not Err in Dismissing the Claim that
16 the Summary Plan Description Violates ERISA
17 Section 102 and related provisions of ERISA require that a
18 summary plan description be furnished to all participants and
19 beneficiaries of an employee benefit plan and that it reasonably
20 apprise participants and beneficiaries of their rights and
21 obligations under the plan. 29 U.S.C. §§ 1022(a),
22 1024(b) (2000). Before the district court, plaintiffs-appellants
23 claimed in their amended complaint that Dun & Bradstreet violated
24 ERISA Section 102 by “fail[ing] to include in the [Master
25 Retirement Plan] summary plan description the actuarial
9
1 assumptions and/or the reduction chart it intended to apply to
2 early retirement for former employees . . . .” Am. Compl. ¶ 93.
3 They sought as relief “unreduced benefits upon early retirement
4 or, in the alternative, early retirement benefits reduced for
5 former employees in the same manner as such benefits are reduced
6 for current Dun & Bradstreet employees.” Am. Compl. WHEREFORE
7 Cl. ¶ 3. The district court, concluding that the Summary Plan
8 Description satisfied the requirements of ERISA, granted
9 defendants’ motion to dismiss. McCarthy I, 2004 WL 2743569,
10 at *5, 2004 U.S. Dist. LEXIS 23996, at *15.
11 We review de novo determinations of a district court that
12 resolve a motion to dismiss a complaint. Miller v. Wolpoff &
13 Abramson, L.L.P., 321 F.3d 292, 300 (2d Cir. 2003). In reviewing
14 a motion to dismiss under Fed. R. Civ. P. 12(b)(6) for failure to
15 state a claim upon which relief can be granted, we accept as true
16 all factual statements alleged in the complaint and draw all
17 reasonable inferences in favor of the non-moving party. In re
18 Tamoxifen Citrate Antitrust Litig., 429 F.3d 370, 384
19 (2d Cir. 2005), amended by 466 F.3d 187, 200 (2d Cir. 2006). In
20 general, our review is limited to the facts as asserted within
21 the four corners of the complaint, the documents attached to the
22 complaint as exhibits, and any documents incorporated in the
23 complaint by reference. Taylor v. Vt. Dep’t of Educ., 313 F.3d
24 768, 776 (2d Cir. 2002).
10
1 The Federal Rules of Civil Procedure require that a pleading
2 contain “a short and plain statement of the claim showing that
3 the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2).
4 Under this simplified standard for pleading, “a court may dismiss
5 a complaint only if it is clear that no relief could be granted
6 under any set of facts that could be proved consistent with the
7 allegations.” Tamoxifen, 429 F.3d at 384 (quoting Swierkiewicz
8 v. Sorema N.A., 534 U.S. 506, 514 (2002) (quotation marks,
9 citation, and alteration omitted)). We therefore must construe
10 the complaint liberally to determine whether the district court
11 erred in concluding that plaintiffs could prove no set of facts
12 that would entitle them to relief on their claim that the Summary
13 Plan Description violates Section 102 of ERISA. See generally
14 Jaghory v. N.Y. State Dep’t of Educ., 131 F.3d 326, 329 (2d Cir.
15 1997). We find no error in the district court’s grant of the
16 motion to dismiss and agree with the underlying conclusion that
17 the Summary Plan Description did not violate Section 102 of
18 ERISA.
19 Section 102(a) of ERISA provides that a summary plan
20 description “shall be sufficiently accurate and comprehensive to
21 reasonably apprise such participants and beneficiaries of their
22 rights and obligations under the plan.” 29 U.S.C. § 1022(a).
23 ERISA Section 102(b) lists specific information that must be
24 included in every summary plan description, including the
11
1 “circumstances which may result in disqualification,
2 ineligibility, or denial or loss of benefits . . . .”
3 Id. § 1022(b).
4 The disclosure requirements ERISA imposes on summary plan
5 descriptions present two issues concerning the Summary Plan
6 Description for the Master Retirement Plan. The first, and more
7 general, issue is whether the Summary Plan Description, in
8 describing the deferred vested retirement benefit, is
9 sufficiently accurate and comprehensive to satisfy Section
10 102(a). Because plaintiffs do not claim that the Summary Plan
11 Description is inaccurate, the question is whether the Summary
12 Plan Description is insufficiently comprehensive to “reasonably
13 apprise” plaintiffs of their rights because it does not disclose
14 the method by which the deferred vested retirement benefit
15 available to former employees choosing to receive payments before
16 age 65 would be actuarially reduced. The second, and more
17 specific, issue is whether the Summary Plan Description, in not
18 disclosing that method of actuarial reduction, complies with the
19 Section 102(b) requirement to disclose “circumstances which may
20 result in disqualification, ineligibility, or denial or loss of
21 benefits.”
22 ERISA provides some guidance on the meaning of the
23 requirement in Section 102(a) to “reasonably apprise”
24 participants and beneficiaries by including a long list of
25 specifically-required disclosures in Section 102(b). That
12
1 statutory list does not include, specifically or by implication,
2 the method of actuarial reduction at issue in this case. The
3 Department of Labor has promulgated regulations that interpret
4 and expand the statutory list of required disclosures and, in so
5 doing, provide further guidance to drafters of summary plan
6 descriptions on what disclosures are required to meet the general
7 statutory requirement to reasonably apprise beneficiaries of plan
8 benefits. See 29 C.F.R. §§ 2520.102-2 - 102-4. The regulations,
9 like the statute, do not explicitly require disclosure of the
10 method of actuarial reduction at issue here. This omission,
11 while somewhat indicative, does not entirely resolve the issue
12 before us. It can be argued that the method of actuarial
13 reduction, even though not expressly required to be disclosed by
14 the statute or the regulations, is important enough to a
15 description of the deferred vested retirement benefit that any
16 such omission results in a summary plan description that is
17 insufficient under Section 102(a).
18 The Summary Plan Description for the Master Retirement Plan
19 addressed in separate sections the normal retirement benefit, the
20 early retirement benefit, and the deferred vested retirement
21 benefit. From our review of the Summary Plan Description and of
22 these three sections in particular, we conclude that the Summary
23 Plan Description reasonably apprised plan participants and
24 beneficiaries of their rights under the deferred vested
25 retirement benefit and thereby satisfied Section 102(a) of ERISA.
13
1 It did so by apprising participants and beneficiaries of the
2 deferred vested retirement benefit in general and by specifically
3 distinguishing that benefit from the early retirement benefit.
4 In a section under the heading “How the Retirement Plan
5 Works,” the Summary Plan Description explains that the normal
6 retirement date under the Plan is a participant’s 65th birthday,
7 that payment of benefits normally begins the first full month
8 thereafter, and that the retirement benefit is calculated based
9 on credited service and earnings at separation from service with
10 Dun & Bradstreet.1 The same section contains a reference to the
11 possibility of retirement as early as age 55, if certain
12 requirements are met. This early retirement option is discussed
13 in more detail in the “Early Retirement Benefit” section of the
14 Summary Plan Description, which explains that an employee with at
15 least 10 years of vesting service may choose to retire as early
1
The Summary Plan Description, under the heading How the
Retirement Plan Works, discusses the normal retirement benefit as
follows:
Your normal retirement date under the Plan is your
65th birthday and retirement benefits generally begin
with your first full month of retirement. The Plan
pays a monthly retirement benefit based on credited
service and earnings at separation from service with
the Company.
If you wish, you can retire as early as age 55
. . . provided you meet certain service requirements.
Your Retirement Plan benefit is reduced if you begin
receiving payments before age 65 or before age 60 if
you have at least 35 years of service.
Summ. Plan Description at 8-9.
14
1 as age 55. The section also explains that an early-retiring
2 employee may choose to delay receiving payment until age 65, in
3 which case the full accrued benefit would be paid. It further
4 explains that an employee retiring early may choose to receive
5 payments as early as age 55 but that, as a result, the accrued
6 benefit will be reduced by three percent for each year that
7 payments begin before age 65. The same section contains the
8 aforementioned reduction table setting forth the percentage of
9 accrued retirement benefits a direct retiree would receive for
10 each year that payments begin before age 65, based on the
11 reduction of three percent for each year that payments begin
12 before the participant reaches the age of 65.2
13 In discussing the ordinary and early retirement benefits
14 available to employees, the sections of the Summary Plan
2
The relevant text of the Early Retirement Benefit section
of the Summary Plan Description states as follows:
You can retire before age 65 -- as early as age 55
-- if you have completed at least 10 years of vesting
service. Your accrued benefit at early retirement is
calculated based on the same formula used for normal
retirement, but the amount payable to you is subject to
reduction as described below if payments begin before
you reach age 65. You also may retire early and delay
receiving payment until age 65. In this case, your
full accrued benefit is paid.
If payments start early, your Retirement Plan
accrued benefit is reduced 3% for each year that
payments begin before age 65. That’s because you’ll
receive benefits over a longer period of time. If you
are between any 2 of the ages shown in the following
table, the reduction is pro-rated.
Summ. Plan Description at 11.
15
1 Description entitled How the Retirement Plan Works and Early
2 Retirement Benefit do not expressly or impliedly refer to the
3 situation of an employee who is separated from employment before
4 reaching the minimum early retirement age of 55 and who chooses
5 to receive payments before reaching age 65. Deferred vested
6 retirement benefits are discussed in the separate section
7 entitled Vesting, which appears later in the Summary Plan
8 Description. The Vesting section, to which plaintiffs-appellants
9 direct their principal argument that the Summary Plan Description
10 is inadequate under Section 102 of ERISA, begins by defining the
11 concept of vesting, explaining that “[v]esting means earning the
12 right to receive a retirement benefit, at a future date –– even
13 if you leave the Company before you are eligible for retirement.”
14 Summ. Plan Description at 17. It adds that “[y]ou are fully
15 vested in your accrued Retirement Plan benefits after you
16 complete 5 years of vesting service.” Id. The next paragraph
17 describes the deferred vested retirement benefit in general,
18 i.e., as it applies absent the early payment option, stating that
19 “[i]f you terminate employment after becoming vested, you will be
20 entitled to receive a deferred vested retirement benefit from the
21 Plan” and that “[y]our deferred vested benefit is calculated in
22 the same way as a normal retirement benefit assuming benefit
23 payments begin at age 65.” Id. Finally, in a third paragraph
24 consisting of a single sentence, the Summary Plan Description
25 discusses the consequence of electing early payment of the
16
1 deferred vested retirement benefit. The sentence reads as
2 follows: “If you choose, the payment of your deferred vested
3 benefit can begin as early as age 55, but the amount of the
4 benefit will be reduced actuarially, resulting in a lower Plan
5 benefit than if the reduction table in the ‘Early Retirement
6 Benefit’ section was used.” Id.
7 The Summary Plan Description might have been more
8 informative in discussing the early payment option of the
9 deferred vested retirement benefit. However, neither ERISA nor
10 the Labor Department’s regulations require a summary plan
11 description to describe or illustrate every method by which a
12 plan benefit may be limited under an early payment option or
13 similar such limitation. The Labor Department’s regulations
14 expressly allow a Summary Plan Description to summarize, rather
15 than describe in every detail, the benefits available under an
16 employee pension benefit plan. “Such plan benefits shall be
17 described or summarized.” 29 C.F.R. § 2520.102-3(j)(1). For
18 these reasons, we are unable to agree with plaintiffs-appellants’
19 argument that the Summary Plan Description is inadequate under
20 Section 102(a) of ERISA, 29 U.S.C. § 1022(a).
21 We turn next to the second issue presented, i.e., whether
22 the Summary Plan Description complied with Section 102(b) of
23 ERISA, 29 U.S.C. § 1022(b). As the district court observed,
24 § 1022(b) “specifically says that the [Summary Plan Description]
17
1 must set out ‘circumstances which may result in . . . loss of
2 benefits.’” McCarthy I, 2004 WL 2743569, at *4, 2004 U.S. Dist.
3 LEXIS 23996, at *12 (quoting 29 U.S.C. § 1022(b)) (emphasis added
4 by district court). The Summary Plan Description, in the section
5 entitled “Vesting,” discloses the circumstances in which the
6 actuarial reduction would occur, i.e., when a participant whose
7 employment terminates after the participant’s benefits become
8 vested but before the participant becomes eligible for retirement
9 chooses to receive payments before reaching the normal retirement
10 age of 65. As did the district court, we decline to construe
11 Section 102(b) of ERISA to require disclosure of more detail,
12 e.g., the specific method of actuarial reduction, than the
13 circumstances resulting in the reduced benefits.
14 The Labor Department’s regulations expand on the statutory
15 obligation of Section 102(b) to disclose in a summary plan
16 description “circumstances which may result in disqualification,
17 ineligibility, or denial or loss of benefits . . . .”
18 29 U.S.C. § 1022(b). The regulations, in this regard, require
19 that the summary plan description disclose the “circumstances
20 which may result in disqualification, ineligibility, or denial,
21 loss, forfeiture, suspension, offset, reduction, or recovery
22 (e.g., by exercise of subrogation or reimbursement rights) of any
23 benefits that a participant or beneficiary might otherwise
24 reasonably expect the plan to provide on the basis of the
18
1 description of benefits required by paragraphs (j) and (k) of
2 this section.” 29 C.F.R. § 2520.102-3(l) (emphasis added). The
3 Summary Plan Description at issue satisfies this requirement of
4 the regulations, both by disclosing the circumstances in which
5 the actuarial reduction will occur, and by distinguishing the
6 early payment option of the deferred vested retirement benefit
7 from the early retirement benefit. As the district court
8 observed, “[t]here is simply no way that a former employee
9 reading [the Vesting] section could be under the impression that
10 he was to receive the same benefits as current employees.”
11 McCarthy I, 2004 WL 2743569, at *4, U.S. Dist. LEXIS 23996,
12 at *13.
13 The Labor Department’s regulations, in addressing the
14 contents of a summary plan description, provide that
15 [t]he format of the summary plan description must not
16 have the effect to [sic] misleading, misinforming or
17 failing to inform participants and beneficiaries. Any
18 description of exception [sic], limitations,
19 reductions, and other restrictions of plan benefits
20 shall not be minimized, rendered obscure or otherwise
21 made to appear unimportant. Such exceptions,
22 limitations, reductions, or restrictions of plan
23 benefits shall be described or summarized in a manner
24 not less prominent than the style, captions, printing
25 type, and prominence used to describe or summarize plan
26 benefits.
27
28 29 C.F.R. § 2520.102-2(b) (emphasis added). Here also, the
29 Summary Plan Description does not run afoul of the regulatory
30 requirements. The regulations permit a summary plan description
19
1 to summarize a limitation on a benefit, so long as the other
2 requirements of the regulations are observed.
3 Plaintiffs-appellants argue that the Summary Plan
4 Description is inadequate because, in failing to disclose the
5 method of actuarial reduction in the Vesting Section, it does
6 not disclose “what their age 55 retirement benefits are.”
7 Br. of Pls.-Appellants 12. They argue further that the Summary
8 Plan Description “misleads the plaintiffs by highlighting what
9 Dun & Bradstreet says are the subsidized benefits of current
10 employees and obscuring the stunning difference between
11 subsidized (70 percent of normal retirement) and unsubsidized
12 (38 percent of normal retirement) early retirement benefits,”
13 id., and “minimizes” the effect of benefit limitations and
14 restrictions, id. at 5. They argue that the Summary Plan
15 Description causes confusion by omitting discussion of the
16 “fate” of terminated early retirees in the Early Retirement
17 Benefit section in the Summary Plan Description and by
18 discussing this type of former employee “only briefly” in a
19 “vaguely titled” section called Vesting. Id. In their view,
20 the Summary Plan Description should have included a reduction
21 table, statement, or illustration to explain the extent of the
22 actuarial reduction. Id. at 20.
23 We find no reason to conclude that the Vesting section of
24 the Summary Plan Description confuses, misleads, or misinforms
20
1 plan participants whose employment is terminated prior to their
2 reaching the minimum early retirement age of 55 such that they
3 would believe that they will receive the early retirement
4 benefit. To the contrary, the Vesting section expressly informs
5 the reader that a plan participant who leaves Dun & Bradstreet
6 before becoming eligible for retirement and who receives the
7 deferred vested retirement benefit prior to the age of 65 will
8 not receive the early retirement benefit determined according to
9 the reduction table in the Early Retirement Benefit section but
10 instead, as a result of actuarial reduction, will receive a
11 lower benefit. Moreover, because the Vesting section is
12 sufficiently prominent within the context of the Summary Plan
13 Description as a whole, we do not conclude that the text or
14 format of the Summary Plan Description minimized, rendered
15 obscure, or otherwise made to appear unimportant the limitation
16 resulting under the early payment option of the deferred vested
17 retirement benefit that was available to employees leaving Dun &
18 Bradstreet before reaching the age of 55 and choosing to receive
19 payments prior to age 65.
20 Plaintiffs-appellants maintain that the failure of the
21 Summary Plan Description to disclose the size of the actuarial
22 reduction violates ERISA as construed in Layaou v. Xerox Corp.,
23 238 F.3d 205 (2d Cir. 2001). We disagree that our holding in
24 Layaou compels the conclusion that the Summary Plan Description
21
1 at issue in this appeal violates ERISA. Layaou does not hold
2 that to satisfy ERISA requirements a summary plan description
3 invariably must describe or illustrate the method by which a
4 specific retirement benefit is actuarially reduced in a
5 particular circumstance, such as this case, where the employees
6 separated before reaching the minimum early retirement age and
7 elected to receive a vested benefit before reaching the ordinary
8 retirement age.
9 The plaintiff Layaou, upon voluntarily leaving the employ
10 of Xerox in 1983, had received under a retirement plan lump-sum
11 distributions totaling $22,353.88. Layaou, 238 F.3d at
12 206 & n.2. Layaou was re-employed by Xerox in 1987, began
13 earning retirement benefits for this second employment period,
14 and was laid off in 1994 during a reduction-in-force.
15 Id. at 206. Each year, Layaou had received from Xerox a
16 brochure to fulfill the ERISA obligation for a summary plan
17 description as well as a form listing the estimated individual
18 retirement benefits Layaou had earned to date. Id. at 206-07.
19 The summary plan description brochure stated,“[t]he amount you
20 receive may also be reduced if you had previously left the
21 Company and received a distribution at that time.” Id. at 210.
22 The form issued to Layaou in 1994 estimated for Layaou a monthly
23 retirement benefit of $924 as calculated under the Retirement
24 Income Guarantee Plan guaranteed annuity calculation method
22
1 (“RIGP method”), which was one of three methods used by the
2 Xerox retirement plan to calculate retirement benefits; the
3 Xerox retirement plan paid benefits upon retirement in an amount
4 equal to the highest result of three different calculation
5 methods. Id. at 206, 210. The $924 estimated monthly benefit
6 was based on retirement at age 65. See id. at 206-07. As did
7 the brochure, the form stated that the benefits as calculated
8 under the RIGP method “may be reduced if you receive amounts
9 before age 65 or receive amounts from another Xerox retirement
10 plan.” Id. at 207. The 1994 form notified Layaou that under
11 the Cash Balance Retirement Account method (“CBRA method”) of
12 calculating his benefits, he would receive a lump sum payment of
13 $18,403 and that under the Transitional Retirement Account
14 method (“TRA method”), his lump sum benefit would be $9,244.
15 Id.
16 When Layaou’s retirement became effective in 1995, by which
17 time Layaou had reached the age of 55, the plan administrator
18 calculated Layaou’s benefit as a lump sum and converted it to a
19 monthly payment of $145; this amount was calculated not under
20 the RIGP method but under the CBRA method, which under the plan
21 administrator’s calculation yielded the highest of the three
22 benefit calculation methods. Layaou, 238 F.3d at 207-08. The
23 final calculation of Layaou’s monthly retirement benefit
24 reflected a reduction for what Xerox referred to as a “phantom
23
1 account” offset, under which earned benefits were reduced by the
2 value of a hypothetical account containing the original
3 distributed sum (in this case, $22,353.88) and an amount based
4 on an estimate of what that distribution would have earned had
5 it been invested. Id. at 206-07.
6 The brochure constituting the summary plan description did
7 not inform Layaou about the “phantom account” offset other than
8 by stating that “[t]he amount you receive may also be reduced if
9 you had previously left the Company and received a distribution
10 at that time.” Id. at 210. The form containing the annual
11 estimate, in referring to the benefit calculated under the RIGP
12 method, alluded generally to the possibility of a reduction “if
13 you . . . receive amounts from another Xerox retirement plan.”
14 Id. The form did not include such a qualification in presenting
15 the estimated lump-sum distributions calculated under the CBRA
16 and TRA methods.
17 We concluded in Layaou that the summary plan description
18 contravened ERISA by “fail[ing] to provide notice to Layaou and
19 other similarly situated employees that their future benefits
20 would be offset by an appreciated value of their prior lump-sum
21 benefits distributions.” Id. We found that the summary plan
22 description failed to satisfy Section 102 of ERISA and the Labor
23 Department’s regulations, noting that the summary plan
24 description did not clearly identify the loss of benefits caused
24
1 by a prior lump-sum distribution. Id. at 211 (citing 29 C.F.R.
2 § 2520.102-3(l)).
3 In contrast to the summary plan description at issue in
4 Layaou, the Vesting section of the Summary Plan Description for
5 the Master Retirement Plan is definite in informing a
6 participant that a reduction will occur under the early payment
7 option and gives some information, albeit limited, about the
8 method of reduction, stating that “the amount of the benefit
9 will be reduced actuarially, resulting in a lower Plan benefit
10 than if the reduction table in the ‘Early Retirement Benefit’
11 section was used.” Summ. Plan Description at 17. The
12 information provided about the method of reduction, although
13 presented only in brief summary form, is sufficient under
14 Section 102 of ERISA and the Labor Department’s regulations,
15 which permit some details about a particular option associated
16 with a particular benefit to be summarized. The Summary Plan
17 Description reasonably apprises participants of their rights
18 concerning the deferred vested retirement benefit provided by
19 the Master Retirement Plan and discloses the circumstances under
20 which that benefit will be reduced.
21 Plaintiffs-appellants point to dicta in Layaou in which we
22 noted that a statement such as “‘[a]ny future benefit will be
23 offset by the appreciated value of any prior distribution
24 assuming that amount remained in the plan’” would have sufficed
25
1 to provide employees with sufficient notice of the plan’s offset
2 provision, and in which we indicated that a clarifying example
3 calculating the benefits of an employee who had received a prior
4 distribution could have provided adequate notice. Layaou,
5 238 F.3d at 211. We do not consider the dicta in the Layaou
6 opinion to signify that ERISA imposes a blanket requirement
7 under which a Summary Plan Description invariably must describe
8 the method of calculating an actuarial reduction or must use a
9 clarifying example to illustrate how a benefit is actuarially
10 reduced when a participant who has vested rights to receive a
11 particular plan benefit chooses to receive payments before
12 reaching normal retirement age.
13 Plaintiffs-appellants’ reliance on various other precedents
14 is also misplaced. Plaintiffs-appellants argue that in Feifer
15 v. Prudential Insurance Co. of America, 306 F.3d 1202
16 (2d Cir. 2002), this court refused to allow a plan sponsor to
17 reduce disability plan benefits by the amount of participants’
18 social security benefits where the reduction was not properly
19 disclosed in a summary plan description. Id. at 1212. Feifer,
20 however, does not support this argument. In Feifer, the
21 employer had distributed a “Program Summary” with an
22 accompanying booklet announcing a new benefits plan that did not
23 exist in written form at the time the Program Summary was
24 distributed. Id. at 1205. We concluded that the Program
25 Summary and the booklet, at the time they were distributed,
26
1 constituted the actual retirement plan for ERISA purposes and
2 that no summary plan description of the retirement plan existed
3 at that time. Id. at 1209-10. As a result, the Program Summary
4 controlled the amount of permissible reductions to an employee’s
5 benefits. Id. Feifer did not involve the question of the
6 adequacy of a disclosure of a benefit reduction in a summary
7 plan description associated with a retirement plan and therefore
8 has no bearing on the issue before us.
9 Plaintiffs-appellants also rely on Burke v. Kodak
10 Retirement Income Plan, 336 F.3d 103 (2d Cir. 2003). They argue
11 that pursuant to the holding in Burke, an employer may not
12 enforce a plan requirement where that requirement was not
13 clearly set forth in the section of the summary plan description
14 that dealt with the benefits at issue. However, Burke is
15 distinguishable because it involved a conflict between the
16 employer’s summary plan description and the retirement plan.
17 See id. at 110-11. In Burke, a plaintiff sued for survivor
18 income benefits under a retirement plan that conditioned
19 eligibility for receipt of such benefits on the filing of an
20 affidavit. Id. at 106. The “Survivor Income Benefits” section
21 of the summary plan description omitted any reference to the
22 affidavit requirement, to which the summary plan description
23 made reference in sixteen other sections. Id. Accordingly, we
24 held that the summary plan description violated ERISA, applying
25 the well-established principle that “[w]here the terms of a plan
27
1 and the [summary plan description] conflict, the [summary plan
2 description] controls.” Id. at 110. Plaintiffs-appellants are
3 not alleging a conflict between Dun & Bradstreet’s Summary Plan
4 Description and the Master Retirement Plan.
5 Plaintiffs-appellants argue that the common-law principle
6 of Gediman v. Anheuser Busch, Inc., 299 F.2d 537 (2d Cir. 1962),
7 a pre-ERISA case, requires us to reject a summary plan
8 description that conceals the size of a benefit reduction. We
9 do not find this argument persuasive. Gediman involved benefits
10 owed on behalf of a deceased beneficiary of a pension plan who
11 previously had received negligent advice from an employer’s
12 pension consultants. Id. at 541. H. James Gediman, the
13 executor of an estate, brought the action on behalf of the
14 deceased former employee, James Barsi, to recover amounts
15 allegedly due under the employer’s pension plan. Id. at 538-39.
16 Barsi, who had arranged for an early retirement date and had
17 elected to receive deferred cash benefits instead of an annual
18 pension benefit, died as a result of a car accident prior to
19 receiving the payments under the deferred cash benefit option.
20 Id. at 540-41. Just before he elected to receive the deferred
21 cash benefits, Barsi wrote a letter to his employer, seeking
22 advice regarding his retirement benefit options. Id. He
23 received written advice in the form of a memorandum from the
24 employer’s pension consultants that failed to inform him that,
25 as a result of an election to receive the cash benefits, the
28
1 value of his benefits would be greatly reduced in the event of
2 his death before the deferral date for the cash payments.
3 Id. at 545. The employer was held liable in tort for the
4 negligent advice of the pension consultants. Id. at 547-48.
5 Gediman is distinguishable from this case in two ways.
6 First, because the case did not arise out of ERISA, it does not
7 involve the statutory and regulatory requirements imposed on a
8 summary plan description. Instead, the case involved the
9 application of common-law principles regarding the fiduciary
10 duty of care that arose when the pension consultants voluntarily
11 undertook to give advice to Barsi. Second, the facts of Gediman
12 are inapposite. In Gediman, the court held that the defendant
13 misinformed Barsi as to the consequences of the election that he
14 made upon retirement. Id. at 539. The opinion explains that
15 the memorandum from the pension consultants failed to disclose
16 that the retirement plan would provide a greatly reduced benefit
17 if Barsi should die before rather than after his deferral date
18 and also failed to disclose that the retirement plan, in that
19 event, provided a benefit under a “wholly different regime.”
20 Id. at 545 (“[T]he ‘death benefit’ described in paragraph 3 of
21 their memorandum differed from that in paragraph 2 not just in
22 degree but in kind.”). The court even went so far as to
23 conclude that the defendants had misled Barsi. Id. at 547.
24 In contrast to the situation in Gediman, the Summary Plan
25 Description at issue here did not misinform or mislead the
29
1 plaintiffs-appellants. It disclosed the circumstances that
2 would result in a reduction of their benefits and, as set forth
3 above, was not required by statute or regulation to disclose the
4 specifics of how the reduction would occur.
5 Plaintiffs-appellants also direct our attention to Wilkins
6 v. Mason Tenders District Council Pension Fund, 445 F.3d 572
7 (2d Cir. 2006), which was decided after briefing and oral
8 argument in this appeal. Plaintiffs-appellants argue that the
9 holding in Wilkins supports their claim that the Summary Plan
10 Description violates ERISA because it fails to disclose relevant
11 information regarding the size of benefits due to former
12 employees electing to receive early payment of deferred vested
13 retirement benefits. We disagree. Wilkins involved the failure
14 of a summary plan description to disclose “‘circumstances which
15 may result in disqualification, ineligibility, or denial or loss
16 of benefits.’” Id. at 580-81 (quoting 29 U.S.C. § 1022(b)).
17 The plaintiff in Wilkins was a union employee who, over a
18 period of thirty years, worked in the construction industry for
19 several different employers. Id. at 575. The employers were
20 required by collective bargaining agreements with the union to
21 contribute to the union pension fund based on their employees’
22 covered employment. Id. In Wilkins’s case, there were
23 significant discrepancies between the earnings that the
24 employers reported to the pension fund and those the employers
25 reported to the Social Security Administration. Id. at 575-76.
30
1 Following his receipt of a lump sum benefit in 1999, Wilkins
2 claimed additional benefits based on work that was not reflected
3 in the records of the fund but was reflected in his Social
4 Security Administration statement of earnings. Id. at 576. The
5 pension fund maintained a policy that employees seeking benefits
6 based on work that was not reported by employers must submit
7 “proof of covered employment as a condition of receiving the
8 benefits to which they are entitled under the terms of the plan
9 . . . .” Id. at 584. Social Security earning statements did
10 not suffice under the policy. Id. at 576-77. Additionally,
11 this policy was not set forth in the summary plan description.
12 Id. at 581. Because Wilkins did not produce proof of covered
13 employment, his claim was denied. Id. at 576-77.
14 The district court denied relief on other grounds.
15 Id. at 577-78. On appeal, Wilkins argued that his benefits were
16 wrongfully denied due to the failure of the summary plan
17 description to comply with 29 U.S.C. § 1022(b), and we agreed.
18 Id. at 584. “It seems to us obvious that the Policy, by
19 erecting an additional, mandatory prerequisite to the receipt of
20 promised benefits, may result in disqualification,
21 ineligibility, or a denial or loss of benefits. It must,
22 therefore, be disclosed in the [summary plan description].” Id.
23 Because “no provision of the [summary plan description] even
24 arguably gives notice of the Policy,” the summary plan
25 description violated ERISA. Id. at 582.
31
1 Unlike the summary plan description at issue in Wilkins,
2 the Summary Plan Description for the Master Retirement Plan
3 adequately discloses the circumstances under which the actuarial
4 reduction will occur. As we stated previously, the relevant
5 circumstances are those of a participant whose employment
6 terminates after the participant becomes vested but before the
7 participant becomes eligible for retirement, and who chooses to
8 receive payments before reaching the normal retirement age
9 of 65.
10 B. The District Court Did Not Abuse its Discretion in Denying
11 in Part Plaintiffs-Appellants’ Motion to Amend the Complaint to
12 Challenge the Mortality Table
13
14 Before the district court, plaintiffs moved under Fed. R.
15 Civ. P. 15(a) to amend their previously amended complaint to
16 add, inter alia, a claim that the mortality table used by the
17 Master Retirement Plan to calculate the actuarial reduction for
18 deferred vested retirement benefits is outdated and unreasonable
19 when combined with the 6.75 percent discount rate. Br. of
20 Pls.-Appellants 29, 32. The district court denied the motion in
21 part, declining to allow plaintiffs to add the claim concerning
22 the mortality table, which the district court considered to be
23 an entirely new claim that was being raised at a late stage in
24 the litigation, i.e., after discovery had been completed and
25 after defendants had moved for summary judgment. McCarthy II,
26 372 F. Supp. 2d at 700-01.
27 We review the determination of a district court to deny a
32
1 party leave to amend the complaint under Fed. R. Civ. P. 15(a)
2 for abuse of discretion. Grochowski v. Phoenix Constr.,
3 318 F.3d 80, 86 (2d Cir. 2003). We find that the district court
4 did not abuse its discretion in denying the motion in part and
5 thereby disallowing the claim pertaining to the mortality table.
6 Although Rule 15(a) of the Federal Rules of Civil Procedure
7 provides that leave to amend “shall be freely given when justice
8 so requires,” it is within the sound discretion of the district
9 court to grant or deny leave to amend. See Zahra v. Town of
10 Southold, 48 F.3d 674, 686 (2d Cir. 1995) (upholding the denial
11 of a motion to amend a complaint that was filed two and one-half
12 years after the commencement of the action and three months
13 prior to trial); see also Ansam Assocs., Inc. v. Cola Petroleum,
14 Ltd., 760 F.2d 442, 446 (2d Cir. 1985) (upholding the denial of
15 a motion to amend a complaint when discovery already had been
16 completed and the non-movant had already filed a motion for
17 summary judgment). A district court has discretion to deny
18 leave for good reason, including futility, bad faith, undue
19 delay, or undue prejudice to the opposing party. See Foman v.
20 Davis, 371 U.S. 178, 182 (1962). However, “[o]utright refusal
21 to grant the leave without any justifying reason for the denial
22 is an abuse of discretion.” Jin v. Metro. Life Ins. Co.,
23 310 F.3d 84, 101 (2d Cir. 2002).
24 Plaintiffs filed the original complaint in this action on
25 March 12, 2003 and amended it on July 9, 2003. McCarthy II,
33
1 372 F. Supp. 2d at 699. They moved to amend the complaint a
2 second time on December 21, 2004, more than two months after
3 discovery was completed and more than a year and a half after
4 the filing of the original complaint. Id. at 700. The district
5 court originally granted the motion, believing it unopposed.
6 Id. Defendants moved to vacate the order granting the motion to
7 amend. Id. Defendants did not object to most of plaintiffs’
8 proposed amendments but opposed the amendment that would add a
9 claim concerning the reasonableness of the mortality table used
10 in the Master Retirement Plan’s actuarial reduction. Id.
11 In denying plaintiffs’ second motion to amend, the district
12 court noted that plaintiffs’ complaint “specifically alleged an
13 unreasonable interest rate” but “did not allege, in general, an
14 improper actuarial reduction, which might encompass a number of
15 factors, including the mortality table used.” Id. at 701. The
16 district court noted that the first amended complaint “did not
17 claim that the ‘application of an unreasonable actuarial
18 reduction’ worked a forfeiture, and it certainly did not claim
19 that the ‘application of an unreasonable mortality table’ worked
20 a forfeiture.” Id.; see Am. Compl. ¶ 95. The district court
21 concluded that “plaintiffs’ motion to amend seeks to add a new
22 claim.” McCarthy II, 372 F. Supp. 2d at 700. The district
23 court further concluded that “[i]f the amendment is allowed,
24 merits discovery will need to be reopened and the litigation
34
1 will, in essence, start over – the same experts will likely need
2 to produce new reports and be re-deposed.” Id. at 701.
3 Plaintiffs became aware of the need to consider a possible
4 claim directed to the mortality table more than seven months
5 before moving to amend their complaint. Their own expert had
6 provided, by April 30, 2004, a declaration disclosing his
7 position that the mortality table used by the Master Retirement
8 Plan raised an issue. See Claude Poulin Decl. dated
9 Apr. 30, 2004, ¶ 20. His declaration stated that “the mortality
10 table used by the Plan in the calculation of the actuarial
11 reduction factors is an old table that overestimates the
12 mortality rates currently applicable to the affected plan
13 participants.” Id. ¶ 18. On May 27, 2004, the same expert,
14 during a deposition, again identified a potential issue with the
15 mortality table, testifying that the mortality tables used by
16 the plan were outdated and led to a skewed actuarial reduction.
17 Claude Poulin Dep. dated May 27, 2004, at 122.
18 Plaintiffs-appellants argue that defendants were not
19 prejudiced by an amendment because the April 2004 declaration and
20 May 2004 deposition of plaintiffs’ actuarial expert gave
21 defendants full and fair notice that the mortality table
22 “significantly contributed to the ERISA violation alleged in the
23 original complaint.” Br. of Pls.-Appellants 29-30. As the
24 district court correctly noted, however, the amended complaint
25 challenged specifically the discount rate used in the actuarial
35
1 reduction, not the actuarial reduction method itself.
2 McCarthy II, 372 F. Supp. 2d at 701. A complaint provides a
3 defendant with “notice of what the plaintiff’s claim is and the
4 grounds upon which it rests.” See Swierkiewicz, 534 U.S.
5 at 512-14 (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957))
6 (quotation marks omitted). Having received such notice, a
7 defendant may conduct his trial preparation accordingly and is
8 not required, based on the plaintiff’s subsequent conduct in
9 litigation, to anticipate future claims that a plaintiff might
10 intend to pursue. Thus, when plaintiffs’ counsel attempted to
11 question defendants’ expert about mortality assumptions during an
12 October 6, 2004 deposition, defendants’ counsel objected, stating
13 that “[a]t some point I have [to move for] a protective order if
14 you turn it into a deposition not about the opinion the witness
15 has been retained to testify on, but on a separate issue that is
16 not mentioned in the complaint, not mentioned at the motion to
17 dismiss stage that led to this round of briefing, and is not in
18 the case.” Edward W. Brown Dep. dated Oct. 6, 2004, at 74.
19 Plaintiffs sought to amend their complaint after an
20 inordinate delay. By that time, discovery had closed, defendants
21 had filed for summary judgment, and nearly two years had passed
22 since the filing of the original complaint. In light of this
23 record, we conclude that the district court did not exceed its
24 discretion in denying plaintiffs’ leave to amend.
36
1 C. The District Court Did Not Err in Granting Summary Judgment
2 on the Lawfulness of the 6.75 Percent Discount Rate
3
4 We review de novo a district court’s grant of summary
5 judgment. Miller, 321 F.3d at 300. Summary judgment is awarded
6 when there are no genuine issues of material fact and the moving
7 party is entitled to judgment as a matter of law. Fed. R.
8 Civ. P. 56(c). In ruling on a summary judgment motion, the
9 district court must “‘resolve all ambiguities, and credit all
10 factual inferences that could rationally be drawn, in favor of
11 the party opposing summary judgment’” and determine whether there
12 is a genuine dispute as to a material fact, raising an issue for
13 trial. Kessler v. Westchester County Dep’t of Soc. Servs.,
14 461 F.3d 199, 206 (2d Cir. 2006) (quoting Cifra v. Gen. Elec.
15 Co., 252 F.3d 205, 216 (2d Cir. 2001)). A fact is “material”
16 when it “‘might affect the outcome of the suit under governing
17 law.’” Jeffreys v. City of N.Y., 426 F.3d 549, 553 (2d Cir. 2005)
18 (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248
19 (1986)). An issue of fact is “genuine” if “‘the evidence is such
20 that a reasonable jury could return a verdict for the nonmoving
21 party.’” Id. (quoting Anderson, 477 U.S. at 248). Unless the
22 nonmoving party offers “‘some hard evidence showing that its
23 version of the events is not wholly fanciful[,]’” summary
24 judgment is granted to the moving party. Id. at 554 (quoting
25 D’Amico v. City of N.Y., 132 F.3d 145, 149 (2d Cir. 1998)).
37
1 Before the district court and again on appeal, plaintiffs-
2 appellants argued that one component of the Master Retirement
3 Plan’s actuarial reduction, the 6.75 discount rate, violated
4 ERISA because the discount rate was unreasonable and “[t]he
5 application of an unreasonable rate of interest works a
6 prohibited forfeiture of benefits under ERISA Section 203(a).”
7 Am. Compl. ¶ 95 According to plaintiffs-appellants, a
8 reasonable discount rate is “a long-term rate” based on
9 “relatively risk-free investments,” namely the thirty-year
10 Treasury Bond, that would “‘yield the kind of investment return
11 retiring plan participants would experience in the marketplace.’”
12 Br. of Pls.-Appellants 8-9 (quoting Claude Poulin Dep. dated
13 May 27, 2004, at ¶ 14).
14 The district court granted summary judgment to defendants,
15 concluding as a matter of law that ERISA does not mandate the use
16 of a zero-risk discount rate. McCarthy II, 372 F. Supp. 2d
17 at 699. The district court saw no genuine issue of material fact,
18 considering the rate chosen by the Plan to be “one that no
19 reasonable juror could find unreasonable . . . .” Id.
20 We agree with the district court that ERISA does not require
21 a plan to use in the actuarial reduction a zero-risk discount rate
22 or a rate that is practically risk-free. We see no error in the
23 district court’s finding that the actuarial reduction used in the
24 Master Retirement Plan was not unreasonable solely for using a
38
1 6.75 percent discount rate. We therefore affirm the grant of
2 summary judgment to defendants-appellees.
3 Section 206(a) of ERISA requires employers offering an early
4 retirement benefit to current employees to offer an equivalent,
5 although actuarially reduced, early retirement benefit to
6 qualifying employees who have separated from service prior to
7 satisfying the age requirement for early retirement. 29 U.S.C.
8 § 1056(a).3 The benefit the separated employee receives upon
9 satisfying the age requirement for early retirement must be “not
10 less than the benefit to which he would be entitled at the normal
11 retirement age, actuarially reduced under regulations prescribed
12 by the Secretary of the Treasury.” Id.
13 Section 206(a), among other sections of ERISA, has a
14 counterpart in the Internal Revenue Code, which contains
3
ERISA Section 206 was amended by the Pension Protection
Act of 2006, Pub. L. No. 109-280, 120 Stat. 780 (2006), which
resulted in the addition of a new subsection. The text of
Section 206(a), which was not modified by the amendment, is as
follows:
In the case of a plan which provides for the payment
of an early retirement benefit, such plan shall provide
that a participant who satisfied the service requirements
for such early retirement benefit, but separated from the
service (with any nonforfeitable right to an accrued
benefit) before satisfying the age requirement for such
early retirement benefit, is entitled upon satisfaction
of such age requirement to receive a benefit not less
than the benefit to which he would be entitled at the
normal retirement age, actuarially reduced under
regulations prescribed by the Secretary of the Treasury.
29 U.S.C. § 1056(a).
39
1 provisions allowing favorable tax treatment to qualifying
2 retirement plans. Section 401(a)(14) of Title 26 contains the
3 parallel provision to ERISA Section 206(a) in providing that a
4 qualified defined benefit pension plan must afford early
5 retirement benefits that are “not less than the benefit to which
6 [the participant] would be entitled at the normal retirement age,
7 actuarially, reduced under regulations prescribed by the Secretary
8 [of the Treasury].” 26 U.S.C. § 401(a)(14) (2000).
9 The Secretary of the Treasury has promulgated regulations to
10 construe Internal Revenue Code § 401(a)(14). These regulations
11 provide that under a qualifying plan the “reduced normal [i.e.,
12 early] retirement benefit is the benefit to which the participant
13 would have been entitled under the plan at normal retirement age,
14 reduced in accordance with reasonable actuarial assumptions.”
15 26 C.F.R. § 1.401(a)-14(c)(2) (emphasis added).
16 We conclude, as did the district court, that the regulations
17 do not specify a rate or range of discount rates that qualify as
18 “reasonable actuarial reductions” for payment of early retirement
19 benefits. McCarthy II, 372 F. Supp. 2d at 696. The parties are
20 also in agreement on this point. See Edward W. Brown Report dated
21 Aug. 4, 2004, at 4 (stating that “[n]either the IRS [n]or any
22 actuarial organization has published guidance on what constitutes
23 a reasonable interest rate for determining early retirement
24 payments”); Claude Poulin Decl. dated Apr. 30, 2004, ¶ 20 (stating
25 that “there are no prescribed interest rate or mortality table
40
1 assumptions for the calculation of early retirement reduction
2 factors . . . .”). We further conclude that by failing to specify
3 a discount rate, the regulations provide benefit plans with a
4 degree of discretion in setting discount rates to achieve a
5 reduction according to reasonable actuarial assumptions.
6 The question of whether the discount rate qualifies as a
7 reasonable rate for purposes of ERISA is a mixed question of law
8 and fact. “Because statutory terms are at issue, their
9 interpretation is a question of law, and it is the court’s duty to
10 define the appropriate legal standard.” Chandris, Inc. v. Latsis,
11 515 U.S. 347, 369 (1995). However, a question of fact exists if
12 reasonable persons applying the proper legal standard could differ
13 on whether the reduction was accomplished according to actuarial
14 assumptions that were reasonable as a result of the discount rate
15 used. See id. Mixed questions of law and fact are reviewed under
16 the de novo standard. Beth Israel Med. Ctr. v. Horizon Blue Cross
17 and Blue Shield of New Jersey, Inc., 448 F.3d 573, 580
18 (2d Cir. 2006).
19 In determining whether the Master Retirement Plan was
20 reasonable in its use of the 6.75 percent discount rate for the
21 actuarial reduction, the district court found that “a plan has met
22 its ERISA obligations with respect to calculation of early benefit
23 payments if it selects a discount rate that is reasonably
24 calculated to be representative of its participants’ average
25 discount rate,” McCarthy II, 372 F. Supp. 2d at 698, i.e., the
41
1 average of the rates of return desired by the participants, which
2 would vary according to such factors as degree of risk and
3 duration of investment, see id. at 697. The court then considered
4 the assumptions a plan can make with regard to the average
5 discount rate of its participants. The court noted that in
6 selecting a discount rate, a plan could assume that its
7 participants have a zero tolerance for risk or could instead focus
8 on a plan’s rate of return. The court determined that the
9 investment characteristics of a plan and a plan’s rate of return
10 are instructive because the rate of return controls the amount of
11 defined benefit a plan will offer. Id. The district court
12 considered the discount rate used in the Master Retirement Plan
13 not to be unreasonable because that rate, although above the zero-
14 risk rate on thirty-year government securities that plaintiffs
15 proposed, was well below the approximate 8-10 percent rate of
16 return on the Master Retirement Plan’s assets. Id. at 698-99.
17 Plaintiffs-appellants submit that the rate is unreasonable,
18 arguing that employer contributions, not plan returns, control the
19 amount of defined benefits that a plan is able to offer in the
20 first place. Br. of Pls.-Appellants 24. They consider it
21 unreasonable to use a plan’s investment experience when
22 calculating deferred vested retirement benefits because investment
23 in the equities market is volatile, future projections of a plan’s
24 investment returns are self-interested, and allowing a plan
25 sponsor to rely on investment returns assumes that past returns
42
1 are relevant to the analysis of long-term future investment
2 returns. Id. at 25-26.
3 The court finds no error in the district court’s conclusion
4 that the actuarial reduction method was not unreasonable solely
5 for its use of a 6.75 percent discount rate. The rate was
6 significantly lower than the approximately 8-10 percent rate of
7 return earned on the assets of the Master Retirement Plan, the
8 6.75 discount percent rate was below the 7.37 and 6.88 percent
9 average interest rates on thirty-year government securities that
10 existed around the time the plan was created, and plaintiffs-
11 appellants’ own expert did not testify that the 6.75 percent
12 discount rate was presumptively unreasonable as an actuarial
13 matter when used in a calculation for deferred vested retirement
14 benefits.
15 A plan’s experience in the market, i.e., the actual rate of
16 return on the plan’s investments, is relevant to determining
17 whether an actuarial rate is reasonable. In 2002, the Master
18 Retirement Plan’s actuary estimated, for funding purposes, that
19 the plan’s projected rate of return would be 8.25 percent.
20 McCarthy II, 372 F. Supp. 2d at 698. The Master Retirement Plan’s
21 investment experience in the equities market yielded relatively
22 consistent results: “Over the past two years, the Plan assets have
23 earned a rate of return of 9.63%; over the last year, 15.91%; over
24 the past 10 years, 10.78%; and over the past 15 years, 10.27%.”
25 Id. at 696. The 6.75 percent discount rate used by the Master
43
1 Retirement Plan for purposes of the actuarial reduction was thus
2 below both the estimated rate of return and the actual rate of
3 return achieved by the assets of the plan.
4 A discount rate chosen by a plan may be suspect where a plan
5 projects inordinately high returns or experiences unusually high
6 investment success and bases its actuarial discount rate on this
7 high rate. There is no indication here, however, that the Master
8 Retirement Plan sought to link the discount rate with its
9 projected return on investment. The fact that the discount rate
10 selected by the Master Retirement Plan to calculate actuarial
11 reductions fell well below that rate, which was projected to be
12 8.25 percent but actually yielded an average over 10 percent, is a
13 further indication that the actuarial assumptions are not
14 unreasonable solely because of the use of the 6.75 percent
15 discount rate. Nor is there any indication in the record that the
16 Master Retirement Plan based its portfolio of investments on high-
17 risk equities yielding volatile returns.
18 Additionally, the Master Retirement Plan selected and
19 maintained a discount rate that was, at the time, comparable to
20 the interest rate on thirty-year government securities. The
21 Master Retirement Plan was amended and restated in 1994, in which
22 year the average interest rate for thirty-year government
23 securities was 7.37 percent. See Fed. Reserve Statistical
24 Release: Selected Interest Rates: Historical Data: 30-year
25 Treasury Bill, available at
44
1 http://www.federalreserve.gov/releases/h15/data.htm. In 1995, at
2 the time the Internal Revenue Service (“IRS”) reviewed the plan
3 for compliance with the trust qualification requirements of
4 26 U.S.C. § 401(a), the average interest rate for thirty-year
5 government securities was 6.88 percent, a rate comparable to but
6 still higher than the Plan’s 6.75 percent rate.4 Id.; Br. of
7 Pls.-Appellants 10 (stating that the 6.75 percent fixed rate ten
8 years ago approximated the rate of the thirty-year Treasury Bond).
9 By selecting a discount rate that was lower than the average
10 interest rate set for thirty-year government securities, the
11 Master Retirement Plan applied a discount rate that was at that
12 time more favorable to participants in the plan than would have
13 been the thirty-year interest rate on government securities. In
14 summary, the district court’s finding that no juror could have
15 found on this record that the use of the 6.75 percent discount
4
Defendants-appellees argue that the 1995 determination
letter that Dun & Bradstreet received from the IRS demonstrates
implicit approval by the IRS that the discount rate and other
actuarial assumptions in the Master Retirement Plan were
reasonable. The determination letter refers to only two sections
of the Treasury regulations, sections 1.401(a)(4)-1(b)(2) and
1.401(a)(4)-4(b), both of which require that benefits be provided
in a nondiscriminatory manner, and does not refer to the
regulation addressing reasonable actuarial assumptions, section
1.401(a)-14(c)(2). See 26 C.F.R. §§ 1.401(a)(4)-1(b)(2),
(a)(4)-4(b), (a)-14(c)(2). In addition, I.R.S. Publication 794,
which discusses the significance and limitations of a favorable
determination letter, states that “[a] determination letter does
not consider whether actuarial assumptions are reasonable for
funding or deduction purposes or whether a specific contribution
is deductible.” I.R.S. Publ. 794, Favorable Determination Letter
at 2 (Rev. Sept. 2006). The court therefore declines to accord
great weight to the determination letter. See Esden v. Bank of
Boston, 229 F.3d 154, 175-76 (2d Cir. 2000).
45
1 rate was unreasonable is further supported by the average rate of
2 return on the Master Retirement Plan’s investments, which was
3 substantially higher than the discount rate, and the rate of
4 return on thirty-year government securities around the time the
5 plan was created, which was comparable to the discount rate.
6 Plaintiffs-appellants argue that although application of the
7 6.75 percent discount rate may have been reasonable in 1995, it is
8 not reasonable in today’s low interest rate environment.5
9 Essentially, plaintiffs-appellants advocate for “periodic”
10 adjustment of the rate used to determine actuarial equivalence.
11 Reply Br. of Pls.-Appellants 18 (arguing that “nothing prevents
12 the company from periodically reviewing its rate and changing it
13 as needed”). ERISA does not specifically require that retirement
14 plans periodically adjust their actuarial interest rates. If a
15 plan were required to do this, an employer potentially could
16 manipulate the benefits provided to a participant, particularly in
17 a year in which interest rates were extraordinarily high. The
18 court recognizes the concern expressed in the relevant provisions
19 of Title 26, Title 29, and the related regulations, that employers
20 should not be able to manipulate actuarial assumptions to their
21 benefit and to the detriment of employees. See, e.g.,
22 26 U.S.C. § 401(a)(25) (requiring, in order for a defined benefit
5
At the time the District Court issued its Memorandum and
Order on June 6, 2005, the rate on thirty-year Treasury bills was
approximately 4.9 percent. See McCarthy II, 372 F. Supp. 2d
at 698.
46
1 plan to be treated as providing definitely determinable benefits,
2 that “whenever the amount of any benefit is to be determined on
3 the basis of actuarial assumptions, such assumptions [be]
4 specified in the plan in a way which precludes employer
5 discretion”).
6 Plaintiffs’ expert, Claude Poulin, prepared a declaration and
7 testified at deposition on the unreasonableness of the actuarial
8 discount rate.6 Notably, he did not testify that the 6.75 percent
9 discount rate was presumptively unreasonable or that it failed to
10 comply with industry standards. Instead, he testified that he had
11 seen discount rates both lower and higher than that used by the
12 Master Retirement Plan. Claude Poulin Dep. dated May 27, 2004,
13 at 49. He concluded that “the interest rate in conjunction with
14 the mortality tables [was] unreasonable in determining actuarial
15 equivalency.” Id. at 122 (emphasis added). The essence of
16 Mr. Poulin’s testimony was that the discount rate adopted by the
17 Master Retirement Plan became unreasonable when it was used in
18 connection with what he considered to be an outdated mortality
19 table. Id. at 48, 52. Mr. Poulin testified that “it is possible
20 to generate or create a mortality table that combined with a 6.75
21 percent interest rate would produce a reasonable actuarial
6
Both parties relied on experts that are Fellows in the
Society of Actuaries, members of the American Academy of
Actuaries, and Enrolled Actuaries under ERISA. See Claude Poulin
Decl. dated April 30, 2004, ¶ 1, Ex. A; Edward W. Brown Report
dated Aug. 4, 2004, at 1.
47
1 equivalent benefit.” Id. at 132. The fact that plaintiffs’ own
2 expert did not characterize the 6.75 percent discount rate as
3 presumptively unreasonable but testified that “many plan rates are
4 lower or maybe slightly higher” supported the district court’s
5 conclusion. Id. at 49 (emphasis added).
6 Plaintiffs’ expert further stated that “the rates used for
7 the calculation of lump sums give an indication of what ERISA and
8 the Internal Revenue Code prescribe as reasonable actuarial
9 assumptions for the purpose of determining actuarial equivalence
10 in general.” Claude Poulin Decl. dated Apr. 30, 2004, ¶ 20. The
11 statute, 26 U.S.C. § 417(e)(3)(A)(ii)(II), formerly required that
12 qualified retirement plans use the annual interest rate yield on
13 thirty-year Treasury securities in determining certain
14 distributions.7 We note significant differences between lump sum
15 distributions and deferred vested retirement benefits. Although
16 use of the thirty-year Treasury rate may create a strong
17 presumption that a plan complies with 26 C.F.R.
18 § 1.401(a)-14(c)(2), neither the Internal Revenue Code nor any
19 regulations require use of the rate on thirty-year Treasury
7
This section of the Internal Revenue Code has been amended
to provide, in relevant part, that the applicable interest rate
means “the adjusted first, second, and third segment rates
applied under rules similar to the rules of section 430(h)(2)(C)
for the month before the date of the distribution or such other
time as the Secretary may by regulations prescribe.” 26 U.S.C.
§ 417(e)(3)(C), amended by Pension Protection Act of 2006,
Pub. L. No. 109-280, 120 Stat. 780 (2006). The amendments made
by this section apply with respect to plan years beginning after
December 31, 2007. Id.
48
1 securities to determine the actuarial equivalent of a deferred
2 vested retirement benefit.
3 III. CONCLUSION
4 For the reasons stated in the foregoing, the district court’s
5 grant of defendants’ motion to dismiss the count of the complaint
6 that challenged the Summary Plan Description, the district court’s
7 denial in part of plaintiffs’ motion to amend the complaint to
8 disallow a claim relating to the mortality table, and the district
9 court’s award of summary judgment in favor of defendants on the
10 issue of the use by the Master Retirement Plan of the 6.75 percent
11 discount rate in the actuarial reduction, are AFFIRMED.
49