Norton Healthcare Loses Battle Against Early Retirees

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By Carmen Castro-Pagan

Jan. 7 — Norton Healthcare Inc.'s pension plan must use class members' formula to recalculate plan participants' monthly retirement income and corresponding lump-sum distribution, the U.S. District for the Western District of Kentucky ruled.

In the Jan. 6 opinion, Senior Judge Thomas B. Russell rejected Norton's proposed formula for recalculating the participants' monthly retirement income and lump sums, holding that the plan failed to propose a formula that would ensure the recalculated lump sums were at least actuarially equivalent to the monthly retirement income.

Russell also held that those participants whose monthly retirement income was based upon a cash balance benefit, as well as those who retired early and received a lump sum in 2003, were members of the class and, thus, entitled to have their benefits recalculated.

Litigation History

This case involves an Employee Retirement Income Security Act dispute brought by a class of early retirees who elected to receive lump-sum distributions.

The retirees claimed that Norton miscalculated their retirement benefits by using a non-increasing annuity as the form of benefit payable rather than an increasing annuity, which would have provided them with an annual cost-of-living adjustment.

They further claimed that the plan failed to include the value of early retirement subsidies in its calculation of lump-sum benefits, and that it also failed to calculate the lump-sum benefits according to the formula established in the plan.

In October 2013, Russell granted in part the retirees' motion for summary judgment, holding that they were entitled to recalculated benefits that should include COLAs, with no early retirement reductions (213 DER EE-7, 11/4/13).

As a result, he ordered Norton to recalculate the class members' monthly retirement income and corresponding lump sums, and to ensure that the recalculated lump sums were at least actuarially equivalent to the monthly retirement income, accounting for the COLA and 60 months of the monthly retirement income.

Current Challenges

The parties were unable to agree on the appropriate formula to calculate the retirees' monthly retirement income and lump sums, as well as who among the participants qualified as a member of the class.

The court said that Norton didn't provide a formula that would ensure that the recalculated lump sums were at least actuarially equivalent to the monthly retirement income.

In contrast, “the class has gone to great lengths to not only create a formula and demonstrate how it is actuarially equivalent but also to respond to any of Norton's criticism concerning its formula,” the court concluded. Thus, the court ruled that Norton was to apply the class's formula.

The court certified the class in February 2011 (38 DER EE-9, 2/25/11) Ever since, the parties have challenged the court's certification of the class.

In considering Norton's renewed arguments against class certification, the court reiterated its previous ruling. The court noted that the parties had been unable to agree as to whether participants whose benefits were based upon a cash balance benefit were members of the class and, thus, entitled to the recalculation of their lump sum.

The court rejected Norton's argument that the cash balance benefit and the defined benefit were two separate benefit calculations, and any court ruling would only apply to those participants who received a defined benefit.

The retirees were represented by Feinstein Doyle Payne & Kravec LLC; Grabhorn Law Office PLLC; and Stember Cohn & Davidson-Welling LLC. Norton was represented by Bingham Greenebaum Doll LLP; Wyatt, Tarrant & Combs LLP; Kastner Westman & Wilkins LLC; and Dinsmore & Shohl LLP.

To contact the reporter on this story: Carmen Castro-Pagan in Washington at ccastro-pagan@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com