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March 11 — Bank of America Corp. is headed to trial in a decadelong case in which its employees challenged a $3 billion transfer from the company's 401(k) plan to its cash balance pension plan.
The long-running lawsuit—first filed in 2005—accuses Bank of America of violating the Employee Retirement Income Security Act by depriving workers of the “separate account” feature of their 401(k) plan. The workers are seeking to recover the difference between the investment earnings they would have received in the 401(k) plan and the earnings that the company credited them with following the transfer of assets to the company's cash balance plan.
In his March 11 opinion, Judge Graham C. Mullen of the U.S. District Court for the Western District of North Carolina adopted Bank of America's proposed method to calculate whether it retained profits from the employees' asset transfers. Accordingly, the district court will determine if the banking company retained profits by looking at all the transfer accounts in the aggregate and examining the bank's position after the occurrence of three main events—a separate account feature was restored and certain-mandated payments to participants and a $10 million fine were paid.
The separate account feature guaranteed that participants were credited with gains and losses tied to funds contributed on their behalf, the court said.
Mullen rejected the class's proposed method, which would've been an individualized calculation of each participant's specific assets to determine whether Bank of America earned any profit in each account.
The judge scheduled the trial for Nov. 7.
Mullen's latest opinion follows the U.S. Court of Appeals for the Fourth Circuit's decision reversing the district court's summary judgment in favor of Bank of America. That decision held that the employees were seeking an appropriate equitable remedy under ERISA and thus could continue with their claims against the bank.
The appeals court remanded the case to the district court to determine how the class's monetary remedy should be calculated. The Fourth Circuit had ruled that the class was entitled to equitable relief in the form of accounting for profits, which is a restitutionary remedy based on avoiding unjust enrichment that holds a party liable for his profits, not for damages.
The class action stems from a series of transfers Bank of America made between 1998 and 2001 from its 401(k) plan to its cash balance plan. Under the 401(k) plan, the participants' accounts reflected the actual gains and losses of their investment options, while under the cash balance plan, the participants' accounts reflected the hypothetical gains and losses of their investment options.
Following a challenge to the transfers, in 2007, Bank of America entered into a closing agreement with the Internal Revenue Service to address the alleged violations. The class argued that even though the separate account feature was restored, its temporary elimination entitled the class members to monetary relief.
In 2013, Mullen held that the bank's closing agreement with the IRS and subsequent actions to restore the separate account feature deprived the workers of standing to assert their claims .
In June 2015, the Fourth Circuit reversed the district court's decision and held that the transfers eliminated the separate account feature, and thus they were entitled to monetary relief in the form of accounting for profits .
The appeals court further explained that the account feature constituted an accrued benefit that the bank was forbidden from decreasing by a plan amendment under ERISA.
Following the Fourth Circuit decision, the parties proposed calculation methods the district court should use to determine whether Bank of America retained any profits.
The bank argued that the Fourth Circuit instructed the court to determine whether, after it restored the separate account feature, made additional payments to participants and paid a $10 million fine to the IRS, it still retained additional profits. The class argued that the court had to calculate, with regard to each individual participant, whether Bank of America earned any profit using their specific assets.
In adopting the bank's proposed method, the court noted that the appeals court had said that if an accounting ultimately showed that the bank retained no profit, the case may well then become moot. This language suggested that the court should examine the bank's position after the separate account feature was restored and the settlement-mandated payments and fine were disbursed, the court concluded.
The court rejected the class's argument that the Fourth Circuit's intention was to say that the case might be moot as to some individual participant who received more in benefits and other payments than their assets actually earned over the period they were entrusted to the bank.
The class failed to mention a way for the court to reconcile the individualized calculation it proposed with the Fourth Circuit's instruction that the measure of profits be offset by the $10 million fine paid to the IRS, the court noted.
The court rejected the class's argument that the appeals court's instruction was “dicta that commands absurd results,” and said that it was in no position to disregard language that seemed to have the sole purpose of guiding the proceedings on remand.
Gottesdiener Law Firm, Tin Fulton Walker & Owen and Thomas D. Garlitz PLLC represented the class. Sidley Austin LLP, McGuireWoods LLP and Helms, Mullis & Wicker PLLC represented Bank of America.
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