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Carlson v. Principal Life Insurance Co.

September 28, 2006


The opinion of the court was delivered by: Joseph F. Bianco, District Judge


This is an action governed by the Employee Retirement and Income Security Act ("ERISA"), 29 U.S.C. § 1001 et seq. Plaintiff Mary Carlson brings suit against defendant Principal Life Insurance Company ("Principal"), seeking to increase annuity benefits she is allegedly due pursuant to a Group Annuity Contract. A three-day bench trial commenced on May 10, 2006. Based on the record presented by the parties, and in accordance with Rule 52 of the Federal Rules of Civil Procedure, the following constitutes this Court's findings of fact and conclusions of law finding in favor of Principal.


This action was commenced on January 31, 2001, by plaintiff Mary Carlson (hereinafter "Mary") against defendants Principal and Eileen Carlson (hereinafter "Eileen"). In its answer, Principal asserted a cross-claim against Eileen. By a decision dated November 28, 2001, the Honorable Jacob Mischler dismissed the case for lack of subject matter jurisdiction. On February 12, 2003, the Second Circuit reversed and remanded the matter to the District Court. See Carlson v. Principal Financial Group, 320 F.3d 301 (2d Cir. 2003). In its remand decision, the Second Circuit "offer[ed] some guidance to assist the District Court's analysis on remand:"

In determining whether Mary can state an ERISA claim against Principal, the District Court will have to consider several questions, including (1) whether Principal is a proper defendant under ERISA and (2) whether the Nationar Plan had been terminated at the time Principal allegedly breached its obligation to provide Donald with the certificate, such that there was no ERISA plan in existence at that time.

Id. at 307. The case was reopened on March 10, 2003 and, on March 23, 2003, the matter was reassigned to the Honorable Leonard D. Wexler. By stipulation filed August 10, 2003, and so ordered on September 15, 2003, Mary dismissed all claims against Eileen. Principal then filed an amended answer to assert a thirdparty claim against Eileen. Eileen filed a motion to dismiss the third party complaint, which was denied by Order dated September 21, 2004. The parties subsequently filed cross-motions for summary judgment, which were denied by Memorandum and Order dated August 16, 2005. On February 9, 2006, this case was re-assigned to the undersigned. A three-day bench trial was held beginning May 10, 2006, and the parties had the opportunity to examine witnesses and submit relevant documentary evidence. At the bench trial, defendant/third party plaintiff Principal stipulated to the dismissal of its claims against third-party defendant Eileen. The parties' proposed findings of fact and conclusions of law were submitted on June 14, 2006, and closing arguments were heard on June 29, 2006. The Court heard supplemental argument on July 13, 2006, by telephone. Having reviewed the submissions and assessed the credibility of the witnesses, the Court makes the following Findings of Fact and Conclusions of Law, pursuant to Fed. R. Civ. P. 52(a) and 65.



Donald Carlson began employment with Savings Bank Trust Company (which would later be renamed Nationar) (hereinafter "Nationar") on August 10, 1936. (First Stipulation of Facts ordered on December 20, 2005, ¶ 3 (hereinafter "First Stip.")) Donald and former defendant/third party defendant Eileen were married on March 1944. (Id. ¶ 5.) Eileen has a birth date of October 4, 1918. (Id. ¶ 1.) Donald and Eileen entered into a legal separation agreement on September 18, 1970, and were divorced on November 2, 1972. (Id. ¶¶ 6-9.) Donald and Mary were married on November 5, 1972. (Id. ¶ 10.) Mary was born on May 14, 1937. (Id. ¶ 4.) Donald retired from Nationar on March 31, 1983, and began receiving a pension benefit of $2,795.02 per month from Nationar on April 1, 1983. (Id. ¶¶ 11-12.)

In connection with the termination of the Nationar retirement plan, bids were solicited for a single premium guaranteed annuity. (First Stip. ¶ 13.) By letter dated July 16, 1993 from William M. Mercer Asset Planning, Inc. ("Mercer"), Principal was invited to bid on the issuance of "a nonparticipating single premium group annuity contract to settle the retirement benefits accrued under the Nationar Retirement Plan[,] which is being terminated." (Second Stipulation of Facts ordered on May 15, 2006, at ¶ 1 (hereinafter "Second Stip.")) The July 16, 1993 letter enclosed census data that identified each Nationar Retirement Plan participant for whom an annuity was to be purchased, as well as the type of annuity benefit, and the amount of the annuity. (Id. at 2, Def.'s Ex. 1A.) Nationar sought to purchase a joint survivor annuity for Donald J. Carlson, a male, born May 14, 1919, in the monthly amount of $2,795.02, which monthly amount would continue following the decedent's death to a female born October 4, 1918. (Id. ¶ 4.) This date of birth matched Eileen, not Mary. Pricing of the annuity is based upon life expectancy and, as such, the date of birth and gender of the co-annuitant, but not the name of the co-annuitant, are relevant. (Tr. at 386-387.)*fn1 Principal relied upon the census information provided by Mercer in preparing the bid and determining the costs. (Tr. at 388.) On July 29, 1993, Principal submitted a proposal for the issuance of such annuity. (First Stip. ¶ 13.) By letter dated September 9, 1993, Mercer advised Principal that Nationar agreed to accept Principal's bid to issue the annuity in exchange for $7,878,800. (Second Stip. ¶ 7.) On September 16, 1993, Nationar sent to Principal via facsimile, a document dated September 14, 2006, certifying that the census data previously provided was accurate. (Second Stip. ¶ 11, Ex. N.) Separately, Nationar sent a letter on September 16, 1993, authorizing Principal to make the October 1, 1993 payments directly to the annuitants in pay status. (Id. ¶ 11, Ex. O.) A notice was sent to the Pension Benefit Guaranty Corporation on February 14, 1994. (First Stip. ¶ 15.) On March 8, 1994, Mercer wrote to Principal informing Principal that it had reviewed the annuity contract and had concluded that it complied with the specification in the original July 16, 1993 letter. (Second Stip. ¶ 13, Ex. P.) On May 26, 1994, Nationar executed the application for the group annuity contract. (Second Stip. ¶ 15, Ex. Q.) By letter dated June 29, 1994, Principal advised Nationar that certain items were needed as specified in the correspondence before certificates could be mailed to the annuitants. (Second Stip. ¶ 17.) On November 4, 1994, Principal issued a Group Annuity Contract, which was retroactively effective from September 1, 1993. (Id. ¶ 17.) As of October 1, 1993, Principal paid Donald's benefits of $2,795.02 per month. (Id. ¶ 19.)

Donald died on September 30, 1995. (Id. ¶ 20.) Eileen and Mary both requested survivor benefits. (Id. ¶ 21.) By letter dated August 3, 1999, Principal told Mary that, "Under the terms of our contract[,] Ms. Eileen Carlson was entitled to receive 100% of the survivor annuity benefits." (Id. ¶ 22, Ex. F.)

Eileen's son-in-law provided a copy of the Property Settlement Agreement and Judgment for Divorce entered into by Eileen Carlson and Donald. The Agreement explicitly addresses Donald's retirement benefits in paragraph 8:

The Husband is presently employed by Savings Banks Trust Company and will be entitled to certain benefits upon his retirement, earlier death or termination of employment under the Retirement Plan administered by the Savings Banks Retirement System. To the extent he is eligible to elect such an option, the Husband shall select an option upon retirement, earlier death or termination of employment payable first to himself, so long as he survives, and thereafter to his wife for her life, unless he has remarried and is survived by another wife at the time of his death. Upon other wife shall share and share alike in the annuity as is actuarily determined by the Savings Banks Retirement System. Until such time as the Husband retires or otherwise becomes entitled to retirement benefits, he shall name the minor children to be the recipient of retirement benefits hereunder in lieu of the wife to the extent if any that the wife is ineligible to receive such benefits. The obligation of the husband hereunder to name the wife as described above shall terminate upon her remarriage or death during the lifetime of the Husband.

(Stipulation ¶¶ 6-7 and Pl. Ex. 36.)

Principal also received an Application for Retirement Benefits and Election of Benefits Payment form which allegedly was executed by Donald on March 1, 1983, pursuant to which Donald applied for a Special Benefit Payment Form, to wit:

Special Benefit Payment Form - (If you wish a Benefit Payment Form other than one of those set forth above, the Employee Benefits Committee will ascertain whether such form (in language to be inserted below) is acceptable to the trustees of the System.)

Special 100% Joint and Survivor. A reduced benefit payable to me for my lifetime with the provision that in the event of my death $1,397.51 per month will be continued to each of the designated beneficiaries set forth under Item 3(d) for their lifetimes should they survive me. In the event that I am survived by only one of the designated beneficiaries such survivor will be entitled to $2,795.02 per month for her lifetime.

Paragraph 3(d) provides:

Beneficiary to Whom Any and All Benefits on My Behalf Are to Be Paid by System upon My Death Following Retirement . . .

d. Special Beneficiary Designation

Mary W. Carlson (born 5/14/37)

Eileen Carlson (born 10/4/18)

(Pl.'s Ex. 33). The competing claims of Eileen and Mary were temporarily resolved based upon Eileen's voluntary willingness to accept 50% of the total monthly annuity payment. On November 24, 1995, Principal sent letters to Eileen and Mary, explaining that Eileen Carlson would be paid $1,397.51 per month for the remainder of her life, and Mary Carlson would be paid $1,007.55 per month for the remainder of her life. (Id. ¶ 24, Exs. G, H.) The amounts received by Eileen and Mary Carlson are actuarially equivalent, given each woman's respective age. (First Stip. ¶ 28.) By letters dated November 28, 1995 and December 7, 1995, Mary objected to receiving $1,007.55 per month. (Second Stip. ¶ 25.)

On February 16, 1996, Mary had a telephone conversation with Sandra Schaffer of Principal, at which time Mary advised that she would accept payment of the sum of $1,007.55 and requested said payments to be made. (Second Stip. ¶ 30.) Principal received no further communication regarding Mary's benefits until Mary's attorney contacted Principal on May 4, 1998. (Second Stip. ¶ 30.)

On May 15, 1998, Principal received correspondence from Mary's counsel, asserting a claim seeking entitlement to be paid under the Group Annuity Contract. (Tr. at 402; Def.'s Ex. 12).


The Second Circuit advised that "Mary's ability to state a claim under ERISA remains an open question" that depends first, on whether Principal could be a proper defendant under Title I of ERISA and, second "whether the Nationar Plan was properly terminated."*fn2 Carlson v. Principal, 320 F.3d 301, 307 (2d Cir. 2003).

1. Under Harris Trust, Principal is Not a Proper Defendant Under ERISA

The Second Circuit has explicitly set forth in remanding this case, how the Court should determine whether Principal is a "proper ...

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