greater than zero." Id. at 12. The Court finds that Plaintiff's argument is only partially correct.
The Plan's accrual provisions compute benefits based on the larger of: (1) an equation based on "Final Earnings" ("Final Earnings Equation") or (2) two dollars times the number of years of participation in the Plan ("Two Dollar Equation"). During the first eight years of her employment, the Two Dollar Equation provided greater benefits than the Final Earnings Equation, thereby allowing Plaintiff to earn some benefits. Thus, Plaintiff did not accrue "zero" benefits during the first eight years of her employment. The Court, nevertheless, finds that the Basic Formula violates ERISA.
During the pendency of Plaintiff's motion, the Court ordered the parties to submit additional briefing with calculations demonstrating the Plan's compliance or noncompliance with ERISA. Plaintiff submitted extensive calculations demonstrating the Plan's failure to meet ERISA's accrual provisions. See Pauk Supp. Aff. PP 31-53. Defendants agreed that "Plaintiff's benefit did not accrue in compliance" with ERISA's accrual provisions, Defs.' Supp. Mem. at 3, yet sought to minimize any violation as "purely academic," id. at 4.
a. Basic Formula Violates Three Percent Rule
The Basic Formula violates the Three Percent Rule. That rule is satisfied if the participant accrues at least three percent of his/her pension in any given year. Substituting Plaintiff's Normal Earnings and Social Security Benefit
into the Basic Formula, the Court finds that in the eighth year of her participation, for example, Plaintiff accrued two dollars in pension benefits, less than the required three percent of Plaintiff's normal retirement benefit. See Pauk Supp. Aff. PP 26, 31, 39. Therefore, the Basic Formula does not satisfy the Three Percent Rule.
b. Basic Formula Violates 133 1/3 Percent Rule
The Basic Formula also violates the 133 1/3 Percent Rule. That rule requires that the amount of plan benefits accruable in any given year not exceed 133 1/3 percent of the annual accruable benefit in any prior year of participation. Once again, in the eighth year of her participation, Plaintiff accrued two dollars in pension benefits. In the last four years of her participation, Plaintiff accrued $ 16.08 in pension benefits per year. See Pauk Supp. Aff. PP 31, 43. As a result, Plaintiff's rate of accrual in any of her last four years of participation is 800% of the rate in year eight. Accordingly, the Plan exceeds the maximum permissible variance under the 133 1/3 Percent Rule.
c. Basic Formula Violates Fractional Rule
The Basic Formula violates the Fractional Rule. The Fractional Rule is satisfied if the accrued benefit as of a given participation year is not less than the following: Normal Retirement Benefit x (Actual Years of Participation/Years of Service from Entry to Normal Retirement Age). By the ninth year of Plaintiff's participation, for example, Plaintiff accrued $ 18.00 in pension benefits. See Pauk Supp. Aff. PP 31. Substituting the appropriate numbers in the formula for year nine ($ 185.86 x (9/20) = $ 83.64), Plaintiff accrued less than the benefit that should have accrued under the Fractional Rule. Accordingly, the Basic Formula fails to satisfy any of the three alternative formulas required under Section 1054. The Court grants summary judgment to Plaintiff as to Count One.
Despite the complexity of the calculations and formulas under the Plan and the tests of Section 1054, it is clear that the Plan violates ERISA. Although Defendants downplay any violation of these accrual requirements as "purely academic," the Court does not take Congress' efforts to prevent "backloading" of pension plan benefits lightly. In light of the clear violation of ERISA, the Court is dismayed by Defendants' inaction in reforming the Plan to comply with ERISA, particularly given Defendants' contentions that "there are an infinite number of benefit formulas that can be adopted that satisfy ERISA's benefit accrual requirements", Defs.' Opp. Mem. at 21, and that "the Plan's formula could be revised retroactive to October 1, 1976 in a way that would clearly satisfy ERISA's accrual rates . . ." Id. at 22. Although the Court declines Plaintiff's request to impose the revised Plan proposed by Plaintiff, the Court orders Defendants to reform the Plan consistent with the requirements of ERISA retroactive to October 1, 1976.
B. Recalculation of Plaintiff's Pension Benefits
In addition to a ruling on the legality of the Plan, Plaintiff further seeks a declaration by the Court that Defendants underpaid Plaintiff even under the terms of the current Plan. Plaintiff contends that Defendants' application of an estimated social security wage history rather than an actual social security wage history in the Basic Formula resulted in underpayment to Plaintiff. Defendants respond that they were entitled to apply an estimated social security wage history. Plaintiff and Defendants agree that if an actual social security wage history were applied, Plaintiff would be entitled to further benefits. See Defs.' Supp. Mem. at 3. In light of the Court's holding that the Plan itself violates ERISA and the Court's order to reform the Plan retroactively, the Court need not address whether Plaintiff was entitled to increased benefits under the terms of the violative Plan. After such time as the Plan is reformed to comply with ERISA, the Trustees shall calculate Plaintiff's benefits under the newly revised Plan to determine whether Plaintiff is entitled to benefits in excess of payments previously received and notify Plaintiff of that determination. Thus, Plaintiff's motion for declaratory relief is denied in this respect.
C. Plaintiff's Claim for Additional Interest
In July 1989, Defendants paid Plaintiff $ 1,019.36 to correct an unrelated benefit underpayment. In September 1989, Defendants sent Plaintiff $ 462.79, an award of five percent interest on the underpayment. Plaintiff now seeks the difference between the five percent interest paid by Defendant in 1989 and the higher of interest actually earned by the Plan or the legal rate of interest. See Complaint at 15. Plaintiff suggests the application of the nine percent rate prescribed for pre-judgment interest under New York's CPLR § 5004.
As an initial matter, the Court must determine whether ERISA's civil enforcement provisions sanction the requested relief.
Of ERISA's six civil enforcement provisions, only two, Section 1132(a)(1)(B)
and Section 1132(a)(3)(B)
, arguably permit an independent claim for interest. With regard to Section 1132(a)(3)(B), the Supreme Court, in Mertens v. Hewitt Assocs., 508 U.S. 248, 248-49, 124 L. Ed. 2d 161, 113 S. Ct. 2063 (1993), held that "other appropriate equitable relief" under this provision encompasses only those remedies typically available in equity (e.g., injunction, mandamus, and restitution) and not compensatory damages. See also Lee v. Burkhart, 991 F.2d 1004, 1011 (2d Cir. 1993) ("Money damages are generally unavailable under" Section 1132(a)(3)). Because the compensatory nature of Plaintiff's claim precludes relief under Section 1132(a)(3)(B), the Court construes this claim as having been brought under Section 1132(a)(1)(B). See, e.g., Jordan v. Retirement Comm. of the Contributory Defined Benefit Retirement Plan at Rensselaer Polytechnic Inst., 875 F. Supp. 125, 127 (N.D.N.Y. 1995) (holding that plaintiff, who "has coyly avoided identifying that section of ERISA under which he pursues his claim" for additional interest on a plan's award of underpayments, "can obtain the relief he seeks, if at all, only under [Section 1132(a)(1)(B)].").
Massachusetts Mutual Life Insurance Co. v. Russell, 473 U.S. 134, 87 L. Ed. 2d 96, 105 S. Ct. 3085 (1985), casts doubt on the viability of an independent claim for interest under Section 1132(a)(1)(B). In Russell, the Supreme Court held that an individual beneficiary cannot recover extra-contractual damages "caused by improper or untimely processing of benefit claims" under Section 409(a) of ERISA. 105 S. Ct. at 3086. Although Plaintiff's claim does not arise under Section 409(a), the Russell Court also noted, in dicta, that:
the statutory provision explicitly authorizing a beneficiary to bring an action to enforce his rights under the plan-- § 502(a)(1)(B) . . . says nothing about the recovery of extracontractual damages, or about the possible consequences of delay in the plan administrators' processing of a disputed claim. Thus, there really is nothing at all in the statutory text to support the conclusion that such a delay gives rise to a private right of action for compensatory or punitive relief.
Id. at 144.
In the wake of Russell, two courts have addressed whether a pension plan beneficiary may recover interest on benefits initially withheld or delayed but subsequently paid prior to the initiation of a lawsuit.
In Scott v. Central States, Southeast and Southwest Areas Pension Plan, 727 F. Supp. 1095, 1095-96 (E.D. Mich. 1989), the defendant administratively approved plaintiff's claim for pension benefits twelve years after plaintiff submitted the claim. Plaintiff sued, pursuant to Section 1132(a)(3), for the interest that accrued during the delay period. Id. at 1096. The court concluded that, since the pension plan did not prescribe interest payments for delays in benefit payments, the claim for interest was extracontractual. Id. at 1098. The court, relying on Russell and subsequent cases interpreting Russell in other contexts,
held that extracontractual damages are not available under ERISA. Id.
The court in Hizer v. General Motors Corp., 888 F. Supp. 1453, 1461-62 (S.D. Ind. 1995), reached the opposite result. In Hizer, the defendants denied plaintiff's initial claim for death benefits under a pension plan. Id. at 1457. Four years later, defendants reviewed the initial denial and paid plaintiff the benefits plus interest. Id. Plaintiff, claiming the interest rate applied was insufficient, sued for additional interest. Id. Just as in Scott, the pension plan itself did not provide for interest payments for withheld or delayed benefits payments. Id. The court dismissed the Scott decision as "inconsistent with Seventh Circuit decisions governing the closely related matter of prejudgment interest." Id. at 1460-61. The court relied upon Seventh Circuit decisions which have "established the presumption that prejudgment interest should ordinarily be awarded in cases seeking payment of ERISA benefits." Id. at 1461. The court then concluded that there appears to be "no rationale for drawing a distinction between prejudgment interest and interest on delayed payment." Id.
This Court disagrees with the reasoning in Hizer and follows the holding in Scott which finds claims for extracontractual damages, such as Plaintiff's, as precluded under ERISA. The Court finds a clear distinction between an award of prejudgment interest and an independent judgment for interest on a delayed payment.
See generally Cefali v. Buffalo Brass Co., 748 F. Supp. 1011, 1025 (W.D.N.Y. 1990) (noting distinction between award of prejudgment interest on damages recovered and independent action solely to recover extracontractual damages). A court can only award prejudgment interest upon finding that a defendant violated a provision of ERISA for which Congress authorized relief. In contradistinction, in order to award damages on an independent claim for extracontractual interest, the Court must create a cause of action which Congress did not provide for under ERISA. As the Supreme Court stated in Russell, "the six carefully integrated civil enforcement provisions found in [Section 1132(a)] of the statute as finally enacted, however, provide strong evidence that Congress did not intend to authorize other remedies that it simply forgot to incorporate expressly." 105 S. Ct. at 3092. As to extracontractual interest, this Court refuses to find that a right exists under ERISA without instruction from Congress to do so, particularly in light of the Supreme Court's suggestion in Russell that no such right exists.
Plaintiff's extracontractual claim also fails on the merits. Plaintiff's claim for additional interest necessarily challenges the Board of Trustees' interpretation and administration of the terms of the Plan. Under the Plan, the Board of Trustees has discretionary authority to determine eligibility for benefits.
Thus, even if ERISA affords relief for independent claims of interest on paid benefits, the Court must still scrutinize the Board of Trustees' decision to award five percent interest under the deferential arbitrary and capricious standard as set forth in Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115, 103 L. Ed. 2d 80, 109 S. Ct. 948 (1989) (holding that arbitrary and capricious standard applies to Section 1132(a)(1)(B) denial of benefits claims if "the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan."). See also Jordan, 875 F. Supp. at 128 (reviewing plan's application of interest to underpayments under arbitrary and capricious standard).
The Plan here does not prescribe any method of calculating interest on withheld benefits, nor does it require such interest payments to be made. ERISA is also silent as to the payment of interest on withheld or delayed benefit payments. Under similar circumstances, the court in Scott found that the trustees' decision to deny a beneficiary any interest on delayed benefit payments could not be considered unreasonable under any standard of review. 727 F. Supp. at 1098. This Court agrees that, in light of the fact that the Board of Trustees had no obligation under either ERISA or the terms of the Plan to award interest for withheld benefits, the Board of Trustees did not act arbitrarily or capriciously by awarding Plaintiff five percent interest. Accordingly, the Court denies summary judgment for Plaintiff and grants summary judgment to Defendants as to Count Four.
For the foregoing reasons, the Court hereby orders that:
(1) Plaintiff's motion for summary judgment is granted as to Count One;
(2) Defendants reform the Plan by May 15, 1997, retroactive to October 1, 1976, so as to comply with this Opinion and Order;
(3) upon the completion of the ordered reformation, Defendants must recalculate Plaintiff's pension benefits under the reformed Plan to determine whether Plaintiff is entitled to further benefits in excess of those previously received;
(4) Defendants must notify Plaintiff of Defendants' recalculation of Plaintiff's pension benefits under the reformed Plan by June 15, 1997;
(5) Plaintiff's motion for summary judgment is denied and Defendants' cross-motion for summary judgment is granted as to Count Two;
(6) Plaintiff's motion for summary judgment is denied and Defendants' cross-motion for summary judgment is granted as to Count Three;
(7) Plaintiff's motion for summary judgment is denied and Defendants' cross-motion for summary judgment is granted as to Count Four.
It is So Ordered.
Dated: January 7, 1997
New York, New York
Mary Johnson Lowe
United States District Judge