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In re J.P. Morgan Chase Cash Balance Litigation

October 30, 2006


The opinion of the court was delivered by: Hon. Harold Baer, Jr., District Judge



Neil Aldoroty, John J. Berotti, Annette Marie Falchetti, Terri Melli, Norman J. Schomaker, and Perry Shapiro (collectively, "Plaintiffs") allege that the JPMorgan Chase Retirement Plan ("Plan") implemented by JPMorgan Chase ("JPMC") violates the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), 29 U.S.C. § 1001, et. seq. In Count I, the Plaintiffs allege that the JPMC Plan is age discriminatory. Plaintiffs have withdrawn Count II ("backloading, " i.e. postponing benefits)*fn1 and Count III ("forfeiture")*fn2 without prejudice and reserve their rights to reinstate these claims during discovery. In Counts IV - VI, Plaintiffs allege, respectively, that JPMC and JPMC's Director of Human Resources (collectively, "Defendants") failed to provide notice that the rate of their future benefit accrual would decrease under the new plan, did not provide an adequate Summary Plan Description ("SPD"), and did not provide summaries of material modifications to the Plan. Defendants have filed a motion to dismiss all remaining counts of the Consolidated Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6), failure to state a claim. Defendants also contend that Counts IV-VI, should be dismissed pursuant to Federal Rule of Civil Procedure 8(a), failure to plead with particularity. For the reasons set forth below, this motion to dismiss is granted in part and denied in part.


A. Background on ERISA Retirement Plans

ERISA provides for two types of pension plans and labels them defined-contribution or defined-benefit plans. The categorization of a retirement plan as either a defined-contribution plan or a defined-benefit plan is critical because the plans are subject to different requirements under ERISA.

ERISA sets forth a narrow definition for defined-contribution plans. Pursuant to the law, a defined-contribution plan is one where the employer periodically contributes a certain amount of money (e.g. 3% of the employee's salary) into each employee account. ERISA Section 3(34), 29 U.S.C. § 1002(34) ("A pension plan which provides for an individual account for each participant and for benefits based solely upon the amount contributed to the participant's account, and any income, expenses, gains and losses."). Under defined-contribution plans, the employer does not guarantee a retirement benefit to the employee. The employee bears the risk of any investment, even if the investment reduces the amount in their retirement account. A common type of defined-contribution plan is a 401(k) plan. The employer makes contributions to the employee's account but does not guarantee any benefit upon retirement.

In contrast, a defined-benefit plan is one where the employee is promised a retirement benefit based on a formula set forth in the plan. Under ERISA, defined-benefit plans include all plans that do not meet the definition of a defined-contribution plan. ERISA Section 3(35), 29 U.S.C. § 1002(35) (stating that a defined-benefit plan is "a pension plan other than an individual account plan."). One type of defined-benefit plan is a final pay formula plan. In simplified terms, under a final pay formula plan, employees are guaranteed a retirement benefit that is calculated on a percentage of the employee's salary during their final years of employment.

Cash balance plans combine features of both defined-benefit and defined-contribution plans. Under a cash balance plan, not only does an employer guarantee an employee a benefit upon retirement, but the employer also makes contributions to a hypothetical account on behalf of the employee. In this Circuit, cash balance plans fall under the defined-benefit plan umbrella, subject to the regulations that govern those plans and "[t]he regulatory consequences of this classification are wide-reaching." Esden v. Bank of Boston, 229 F.3d 154, 158 (2d. Cir. 2000). In Esden, the Second Circuit explained that However `hybrid' in design a cash balance plan may be, it remains subject to a regulatory framework that is in many regards rigidly binary. Because the individual accounts, and the employer contributions and the interest credits to those accounts, are all hypothetical under a cash balance plan, it is classified as a defined-benefit plan.


B. JPMC's Cash Balance Plan

In a Rule 12(b)(6) motion, the allegations in the plaintiff's complaint are taken as true. Bolt Elec., Inc. v. City of New York, 53 F.3d 465, 469 (2d Cir. 1995). The Plaintiffs recount the following in their Consolidated Class Action Complaint.

JPMC is the successor-in-interest to several other companies, including The Chase Manhattan Bank ("Chase"), Chemical Banking Corporation ("Chemical"), Manufacturers Hanover Trust ("MHT"), J.P. Morgan & Co., Inc. ("J.P. Morgan"), and Bank One (collectively, "JPMC Predecessor Companies"). Corrected Consolidated Class Action Complaint ("Compl.") ¶ 15. Each of these Predecessor Companies had a defined-benefit pension plan prior to merger with J.P. Morgan. Compl. ¶ 28. The last conversion occurred in 1998, with an effective date of January 1, 1999. Compl. ¶ 35. The Plan at issue, effective January 1, 2002, is the result of the union of, and amendments to, the various retirement plans of the JPMC Predecessor Companies. Compl. ¶¶ 28, 40.

The current JPMC Plan is a cash balance plan. Compl. ¶ 20; See generally Esden v. Bank of Boston, 229 F.3d 154, 158 (2d Cir. 2000) (description of cash balance plans). Under the Plan, pension benefits are calculated using the cash balance formula which commands that an employer set up a hypothetical or notional account ("Account") in the participant's name. Compl. ¶ 2 1. The Account is simply a recordkeeping device. A participant's Account accumulates benefits based on two factors - Pay Credits and Interest Credits. Id. The Pay Credit, a percentage of the individual's annual salary based on the participant's completed years of service, is a contribution the employer makes to the Account. Compl. ¶¶ 44, 45. As years of service accumulate, a higher percentage of the individual's compensation is deposited into the hypothetical Account by the employer. Id. Interest Credits, a variable interest rate based on an outside index, are also allocated to the Account. Compl. ¶ 47. The Interest Credit, while the rate itself may vary, is the same for all employees. Once the employee leaves the company, Pay Credits no longer accumulate to the account. However, Interest Credits continue to be allocated to the Account until the employee decides to receive the benefit.

After five years of participation in the Plan, the benefits in the hypothetical Account vest. At that point (and any time thereafter until the age of 70½), an employee can elect to receive their retirement benefit in one lump sum payment or in an annuity. The Account must be converted into a dollar benefit based on actuarial assumptions in the Plan before it is paid over to the employee. Compl. ¶ 23. In other words, an employee's retirement benefit is determined by the value of the Interest and Pay Credits in the Account.

All Plaintiffs are former employees of JPMC (or one of its Predecessor companies) and are subject to the JPMC cash balance formula. Compl. ¶¶ 9 -14. Plaintiffs claim that retirement benefits calculated under the cash balance plan are age discriminatory.


Pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, the movant must establish that the plaintiff failed to "state a claim upon which relief can be granted." FED. R. CIV. PRO. 12(b)(6). In ruling on a Rule 12(b)(6) motion, this Court must construe all factual allegations in the complaint in favor of the non-moving party. See Krimstock v. Kelly, 306 F.3d 40, 47 - 48 (2d Cir. 2002). The Court's consideration is normally limited to facts alleged in the complaint, documents appended to the complaint or incorporated in the complaint by reference, and to matters of which judicial notice may be taken. Allen v. WestPoint-Pepperell, Inc., 945 F.2d 40, 44 (2d Cir. 1991). A motion to dismiss should not be granted "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Shakur v. Selsky, 391 F.3d 106, 112 (2d Cir. 2004) (quoting Conley v. Gibson, 355 U.S. 41, 45-46 (1957)).


A. Procedural Claims

As a preliminary matter, the Defendants assert two procedural arguments and contend that one, or both, require dismissal of this Complaint. For me, at this time, both arguments are unavailing.

1. Failure to Exhaust Administrative Remedies

Defendants claim that the Plaintiffs failure to plead that they exhausted the administrative remedies related to these claims merits dismissal. Although there is a federal policy that favors exhaustion of administrative remedies in ERISA actions, Kennedy v. Empire Blue Cross & Blue Shield, 989 F.2d 588, 594 (2d Cir. 1993), there is no statutory exhaustion requirement under an ERISA claim brought by a participant who files a civil action to clarify their rights to future benefits under the Plan. Pease v. Hartford Life Accident Ins. Co., 449 F.3d 435, 445 (2d Cir. 2006).

2. Statute of Limitations

Defendants state that the Plaintiffs' claims are time-barred to the extent that they deal with the provision of benefits or communications before 1999. ERISA does not provide a statute of limitations for civil enforcement actions, 29 U.S.C. § 1132, thus, the most similar state statute of limitations applies. Miles v. N.Y. State Teamsters Conf. Pensions & Retirement Fund Employee Pension Benefits Plan, 698 F.2d 593, 598 (2d Cir. 1983). Employee benefit plans are contracts, accordingly, under New York law, the applicable statute of limitations is six years. N.Y. C.P.L.R. § 213.

The Second Circuit has held that the six-year statute of limitations does not begin to run until "there has been a repudiation by the fiduciary which is clear and made known to the beneficiaries." Davenport v. Harry N. Abrams, Inc., 249 F.3d 130, 134 (2d Cir. 2001). The statute of limitations period typically begins when a participant's formal application for benefits is denied by the plan. Lewis v. John Hancock Mut. Life Ins. Co., 6 F.Supp.2d 244, 247 (S.D.N.Y. 1998). In some circumstances, the time period may begin earlier. Carey v. Int'l Bhd. of Elec. Workers Local 363 Pension Plan, 201 F.3d 44, 47-48 (2d Cir. 1999) (finding that a participant's receipt of a plan amendment or letter, before the submission of a formal application for benefits, may also trigger the statute of limitations). Based on the ...

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