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Nolan v. Detroit Edison Co.

United States District Court, E.D. Michigan, Southern Division

July 9, 2019

LESLIE D. NOLAN, Plaintiff,
v.
DETROIT EDISON COMPANY, DTE ENERGY CORPORATE SERVICES, LLC, DTE ENERGY COMPANY RETIREMENT PLAN, DTE ENERGY BENEFIT PLAN ADMINISTRATION COMMITTEE, JANET POSLER, QUALIFIED PLAN APPEALS COMMITTEE, MICHAEL S. COOPER, RENEE MORAN and JEROME HOOPER, Defendants.

          OPINION AND ORDER GRANTING MOTION TO DISMISS AND DISMISSING COMPLAINT

          DAVID M. LAWSON UNITED STATES DISTRICT JUDGE.

         In 2002, the Detroit Edison Company and its affiliated companies (DTE) implemented a new retirement plan. Up to that point, DTE offered its employees a traditional defined benefit plan (the Employees' Retirement Plan of the Detroit Edison Company, or “Traditional Plan”), wherein a retired employee would be paid an annuity calculated on a formula based on the employee's salary and years in service. The new plan is known as a “Cash Balance Plan, ” which has been described as a species of defined benefit plan, but also as “a hybrid between a defined contribution plan and a defined benefit plan as it contains attributes of both.” Register v. PNC Financial Servs. Group, Inc., 477 F.3d 56, 62 (3rd Cir. 2007). Under the Cash Balance Plan, the company established a hypothetical retirement account for each employee, which would grow from two sources: annual “contribution credits” (equal to a percentage of the participant's eligible earnings), and “interest credits” (initially linked to the interest rate of government-issued Treasury Bonds).

         When DTE made the change, it did not require existing employees who had earned benefits under the old plan to switch to the new plan. Instead, it provided a window for those employees to elect to stay with the Traditional Plan or opt in to the new one, thereby allowing them to receive future retirement benefits under one plan or the other, but not both. That choice carried some measure of risk, because no certain prediction could be made that at retirement time an individual employee would do better under the new plan than the old one.

         There was a further catch. Existing employees who elected to switch to the new Cash Balance Plan would have their accrued retirement benefits frozen and then receive a hypothetical retirement account balance based on what they had accrued already under the Traditional Plan, projected forward to their retirement date, and then reduced to present value. That established their opening cash balance, against which future accruals would be measured. In one way, that benefited them. It provided a guarantee that no matter how slowly their cash balance account grew compared to the opening balance, they would be guaranteed the monthly benefit upon retirement they had earned as of the date the account was frozen, and no less. Indeed, ERISA requires as much. See 29 U.S.C. § 1054(g). But their cash balance account would not grow beyond that initial balance until their accumulated credits caught up to that initial balance, “a phenomenon known in pension jargon as ‘wear away.'” Cigna Corp. v. Amara, 563 U.S. 421, 431 (2011).

         Plaintiff Leslie Nolan elected to switch to the Cash Balance Plan in the spring of 2002, after she had worked at DTE for just over 23 years. When she went to retire in 2017 after 38 years with the company, she was unpleasantly surprised to learn that her pension benefit had not grown much since her account was frozen in 2002. She believed that she should receive a monthly benefit as calculated under the Traditional Plan plus the amount accrued under the Cash Balance Plan since 2002, irrespective of the wear away. She sued the defendants under various sections of the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1001, et seq., alleging that they breached the terms of the retirement plan, they failed to explain the election in terms that could be understood by the average person, and they failed to give notice that the new plan could result in a reduction of accrued benefits. The defendants responded to the complaint with a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6).

         The Court heard oral argument on May 8, 2019. The materials furnished by the defendants to their employees in 2002 plainly state that a retiree electing to switch to the Cash Balance Plan would receive the “greater of” the accrued benefit under the traditional plan or under the Cash Balance Plan, but not both. The defendants did not breach the plan when calculating the plaintiff's monthly pension payment upon her retirement. And the plan materials provided notice that benefits under the new plan could be less, using language that could be understood by the average person. Moreover, all of the plaintiff's claims are time-barred. Because the plaintiff has not stated a claim for which relief can be granted, the Court will grant the defendants' motion and dismiss the complaint.

         I.

         The following facts are taken from the complaint, the attached documents to it, and the materials referenced in the complaint.

         Leslie Nolan began working for DTE on December 17, 1979. She remained at DTE for 38 years - most recently in the role of financial analyst - until her retirement on December 17, 2017. During her employment, Nolan participated in the two pension plans mentioned above, which are sponsored and administered by DTE and the DTE Energy Benefit Plan Administration Committee.

         Nolan initially participated in the Traditional Plan, which became effective April 1, 1943. That was a defined benefit pension plan that computed an employee's retirement benefit as a percentage of average salary multiplied by years of service. The benefits under the Traditional Plan were paid as an annuity on a monthly basis.

         Between March 4, 2002 and April 26, 2002, DTE invited eligible employees who participated in the Traditional Plan to transfer to its new retirement program, the Cash Balance Plan. The plaintiff alleges that with its invitation, DTE promised employees that if they elected to transfer to the new plan, they would receive both the “frozen and protected” pension benefit they previously earned under the Traditional Plan plus the benefit they would earn thereafter under the Cash Balance Plan (“A Promise”). Transferring to the Cash Balance Plan was voluntary and required affirmative action; otherwise an employee remained in the Traditional Plan.

         Nolan elected to transfer to the Cash Balance Plan. In 2017, because of her age and length of service, she was eligible to retire before she reached age 65 without any reductions in benefits. But she learned then that her cash balance account had not grown - mostly due to her reduced salary when she went to part-time status and sharply declining interest rates - and she had not “caught up” to her frozen account balance under the Traditional Plan. Plainly she would have been better off had she stuck with the Traditional Plan.

         Nolan contends that she is entitled to a pension based on the A formula, and if not, she was misled when the elections were presented to her in 2002. DTE says that the new plan contains no such formula, and employees were fully informed about the options, including the uncertainty of future outcomes, and that the employees were counseled through at least four resources in making their decisions: the Retirement Choice Decision Guide (“Decision Guide”), a personalized statement of their accrued benefits and the projected conversion to an opening cash balance, an online modeling tool, and in-person workshops and webcasts presented by an outside financial counselor. According to the plaintiff, DTE expressed the A Promise in both section 6.01 of the Retirement Plan and the Decision Guide that also was furnished to eligible employees.

         DTE's Retirement Plans

         Article V of the revised Retirement Plan described the Cash Balance Plan, which if an employee elected became effective on June 1, 2002. A “Cash Balance Account” would be maintained for each employee who elected to participate in the Cash Balance Plan. The Account was described as “a hypothetical account used for bookkeeping purposes only to determine the amount of a Participant's retirement benefits that are payable pursuant to Article VI.” Art. V, § 5.01, ECF No. 1-2, PageID.94. For those participants who transferred from the Traditional Plan, the hypothetical account would reflect an “Opening Cash Balance” equal to the actuarial equivalent of the participant's “accrued benefit” under the Traditional Plan as of the date of transfer. Id., § 5.02(d), PageID.95. The accrued benefit would be converted into a lump sum using the applicable mortality table and interest rates. Ibid. Thereafter, annual “contribution credits” equal to a percentage of the participant's eligible earnings as well as “interest credits” then would accrue on the hypothetical account. Id., § 5.02(e), (f), PageID.95.

         The Retirement Plan defined “accrued benefit” as “the benefit that a Participant has earned under the Plan on any given date, without regard to the Participant's nonforfeitable right to such benefit, and computed in accordance with the applicable Accrued Benefit formulas in Article VI.” Art. 2, § 2.01, ECF No. 1-2, PageID.65.

         Section 6.01 sets forth the formula by which a participant's accrued benefit would be determined:

(1) DTE and MCN Traditional Plan Participants. At any point in time, a DTE or MCN Traditional Plan Participant's Accrued Benefit, payable in the Normal Form commencing on the Participant's Normal Retirement Date, shall be calculated in accordance with Sections 6.02 through 6.05, as applicable.
(2) DTE and MCN Cash Balance Plan. At any point in time, a DTE or MCN Cash Balance Plan Participant's Accrued Benefit, payable in the Normal Form commencing on the Participant's Normal Retirement Date, shall be the Actuarial Equivalent of the Participant's Cash Balance Account, as described in Article V.

Id., PageID.99. Section 6.02 states that “[a] Participant shall have a fully vested right to a Normal Retirement Benefit upon attainment of Normal Retirement Age, which shall be age 65.” Ibid. Section 6.03 defines the amount of a Cash Balance Plan participant's Normal Retirement Benefit as “equal to the Participant's Accrued Benefit computed as of the Participant's Normal Retirement Date.” Ibid. Section 6.04 defines the amount of a DTE Traditional Plan participant's Normal Retirement Benefit as a percentage of the participant's average final compensation multiplied by years of service with a minimum benefit of a fixed amount multiplied by years of service. Id., PageID.100. Section 6.05 pertains to benefits accrued under the traditional plan of MCN Energy Group, one of DTE's merger partners, which does not impact the issues in this case.

         Decision Guide

         DTE employees considering switching to the Cash Balance Plan were provided a 46-page Decision Guide summarizing a three-step process for choosing a plan:

1. Educate - Learn about your options and how they work.
2. Evaluate - After educating yourself about your options, evaluate them according to your individual situation. With the modeling tool available through the Retirement Choice Web Site, evaluate and compare the retirement options using data from your Personalized Statement and by entering your own assumptions.
3. Elect - Once you have finished reading this Decision Guide and exploring the other resources available to you, you will need to visit the Retirement Choice Web Site to elect the option that is best for you.

         Decision Guide at 1, ECF No. 1-3, PageID.224. Although the Decision Guide was promoted as employees' “primary source of printed Retirement Choice information, ” DTE also provided access to the other resources mentioned above, including a “Retirement Choice Personalized Statement” that provided an overview of how an employee's pension benefit was calculated at the time and how it would convert under the Cash Balance Plan, as well as “Retirement Choice Workshops” presented by an independent consulting firm. Id., PageID.227-28.

         The first page of the “Educate” section of the Decision Guide provided a summary of what would happen to retirement benefits if an employee elected to continue with the Traditional Plan versus switching to the New Horizon Plan (Cash Balance Plan). Id., PageID.230. Under the former, there would be no change to the formula of the pension plan as the employee would continue to receive a pension benefit based on average annual eligible earnings and years of benefit service. Ibid Under the latter, the Decision Guide expressly noted,

• As of December 31, 2001, you will stop earning benefits under the Detroit Edison Traditional Pension Plan and begin earning benefits under the New Horizon Pension Plan.
• Your accrued benefit from the Traditional Plan will be converted using a present value conversion factor into an initial cash balance benefit for January 1, 2002 based on the lump-sum value of your accrued benefit under the Traditional Pension Plan on December 31, 2001.
• Your election will be used only if you continue to meet the eligibility requirements listed on page 3 until at least June 1, 2002, when your election becomes effective. Benefits as of January 1, 2002 will be based on your election.
• Once you are vested, you are eligible for the greater of any Traditional Pension Plan retirement benefits you have accrued as of December 31, 2001 or May 31, 2002, the dates on which your Traditional Pension Plan benefit is frozen and protected.

Ibid.

         The following page presented the formulas for calculating retirement benefits under the Traditional Plan and the Cash Balance Plan. The Decision Guide explained that under the Traditional Plan, the retirement benefit was based on average salary and years of service, and that the employee “do[es] not contribute to this plan. The Company fully pays for your benefits under the plan.” It went on to state, Your cash balance pension benefit increases each year with two types of credits:

Contribution credits - Equal to 7% of your eligible earnings each year.
Interest Credits - Based on average 30-year Treasury rates* for the month of September prior to the plan year.
*Interest Credit UpDated: The U.S. Department of the Treasury has announced that it will stop issuing 30-year Treasury bonds in 2002, but it may continue to publish a 30-year Treasury rate. This rate is used under ERISA for pension funding and benefit calculations. If the Treasury stops publishing the 30-year Treasury rate, Congress will have to amend ERISA to replace the 30-year Treasury rate with a comparable measure. The pension plan will automatically change with the law. If this occurs, the change under ERISA will affect both the cash balance interest credits and the value of your Traditional Pension Plan benefit.

Id., PageID.231.

         The next page stated that if an employee chose the Cash Balance Plan, her “age 65 accrued benefit under [the] Traditional Pension Plan as of December 31, 2001 would be converted to an initial cash balance benefit in the [Cash Balance Plan] on January 1, 2002.” Id., PageID.232. The Decision Guide explained that because an employee's pension benefit under the two plans is expressed differently - a monthly amount under the Traditional Plan and a one lump-sum amount at present value under the Cash Balance Plan - the “current monthly annuity benefit under the Traditional Pension Plan will need to be converted to a total lump-sum amount in today's dollars by multiplying it by a present value conversion factor based on [the employee's] age as of January 1, 2002.” Ibid It went on to say that the “initial cash balance benefit in the [Cash Balance Plan] is determined by multiplying [the employee's] monthly age 65 current Traditional Plan benefit accrued through December 31, 2001 by [the] present value conversion factor.” Ibid It also noted that the “interest rate used for the ...


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