Inc. must pay extra pension benefits to as many as 16,000 employees for its failure to adequately tell
them in 1996 of a cash balance plan amendment that froze their benefits, a
federal judge in New York ruled (Osberg v. Foot Locker, Inc., S.D.N.Y.,
No. 1:07-cv-01358-KBF, 9/29/15).
Following a nearly two-week bench trial, Judge Katherine B. Forrest in her Sept. 29 decision chided Foot Locker for giving “false, misleading, and incomplete” information to its employees about their cash balance plan.
“Here, there is no doubt that Foot Locker committed equitable fraud. It sought and obtained cost savings by altering the Participants' Plan, but not disclosing the full extent and impact of those changes,” Forrest said.
The judge went one step further and, as a remedy for Foot Locker's violation of the Employee Retirement Income Security Act's disclosure requirements, ordered Foot Locker to “reform” the plan and pay the participants the benefits they would have received if the plan hadn't been amended.
This equitable remedy of “reformation” was adopted by the U.S. Supreme Court in Cigna Corp. v. Amara, 131 S. Ct. 1866, (U.S. 2011), but there have been few cases where a court has had the opportunity to use reformation as a remedy for an ERISA violation.
Forrest said Foot Locker's violations of ERISA were even “more egregious” than those in Amara, and had little difficulty saying this was a situation where reformation was an appropriate remedy.
Plan Conversion and Freeze
Foot Locker converted its traditional defined benefit plan to a cash balance plan in 1996. As part of the conversion, participants' benefits in the traditional plan were “frozen” and subject to what's known as “wear-away.”
Eleven years after the plan was converted, a class of plan participants sued Foot Locker alleging that numerous aspects of the cash balance plan conversion violated ERISA. Among those claims were allegations that Foot Locker violated ERISA's disclosure requirements by not adequately telling employees what would happen to their benefits as part of the freeze.
The case was originally assigned to Judge Deborah A. Batts, who rejected the participants' attempt at reformation of the plan. Batts found in that decision that the participants would need to show “actual harm” before reformation could take place.
But the U.S. Court of Appeals for the Second Circuit reversed that ruling, saying proof of “actual harm” wasn't required to establish a claim for reformation of the plan.
from a story that ran in Pension & Benefits Daily (10/01/2015).
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