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Bilello v. JPMorgan Chase Retirement Plan

April 24, 2009


The opinion of the court was delivered by: Denise Cote, District Judge


Defendants JPMorgan Chase Retirement Plan and JPMorgan Chase Director of Human Resources have moved to dismiss a complaint filed by Frank Bilello on behalf of himself and all others similarly situated. Bilello was an employee of JPMorgan Chase & Co. ("JPMC") and predecessor banks, including Chemical Banking Corporation ("Chemical"), from 1960 until his retirement in 2008. Chemical's 1989 conversion to a cash balance pension plan and the subsequent plan amendments are the subject of this lawsuit.

Bilello's complaint alleges numerous violations of the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001 et seq., and the Internal Revenue Code ("I.R.C."). Defendants have moved to dismiss all counts of the complaint pursuant to Rules 8(a), 12(b)(1), and 12(b)(6), Fed R. Civ. P. An Opinion and Order of January 6, 2009 denied defendants' motion to the extent that it argued that Bilello lacked statutory standing as an ERISA participant because he received a lump-sum distribution of his pension benefit upon retirement. Bilello v. JPMorgan Chase Retirement Plan, 592 F. Supp. 2d 654 (S.D.N.Y. 2009) (the "January 6 Opinion"). An Order of April 10, 2009 rejected defendants' argument that Bilello's claims should be dismissed for failure to exhaust his administrative remedies, but an Opinion and Order issued that same day granted defendants' motion to dismiss on statute of limitations grounds with respect to the entirety of Counts 1, 2, 4, 6 and with respect to parts of Counts 3, 7, and 8. Bilello v. JPMorgan Chase Retirement Plan, No. 07 Civ. 7379 (DLC), ---F.Supp.2d ----, 2009 WL 585974, at *11 (S.D.N.Y. Apr. 10, 2009) (the "April 10 Opinion"). This Opinion addresses defendants' motion with respect to other portions of Counts 3 and 7.*fn1


This litigation involves a multi-faceted attack on Chemical's 1989 conversion from a traditional defined-benefit plan to a cash-balance plan. In a cash balance plan, credits based on an employee's salary ("pay credits") may cease to accumulate once an individual's employment ends, but interest credits continue to be allocated until benefits are distributed. See, e.g., Esden v. Bank of Boston, 229 F.3d 154, 160 (2d Cir. 2000). Cash balance plans may offer employees the option of a lump-sum payout upon termination of employment in lieu of an annuity, although any such payout must be worth at least as much, in present terms, as the annuity payable at normal retirement age. Id. at 163. Before a participant reaches normal retirement age, this requires projecting the interest payable on the current balance to normal retirement age (in other words, applying future interest credits) and discounting that amount back to present value. Id. at 159.

Chemical converted its conventional defined benefit retirement plan (the "Pre-1989 Plan") into a cash balance plan on January 1, 1991, retroactive to January 1, 1989 (the "1989 Plan") and its retirement plan underwent further mergers in 1993, 1997 (the "1997 Plan," resulting from a merger with Chase), 2002 (following the Chase-J.P. Morgan merger), and 2005. See January 10 Opinion, 592 F. Supp. 2d at 657. Bilello filed this lawsuit challenging the 1989 conversion plan and the subsequent plans arising from the retirement plan mergers of Chemical and its successors Chase and JPMorgan Chase, alleging nine class-wide and two individual counts of ERISA violations.


A trial court considering a Rule 12(b)(6) motion must "accept as true all factual statements alleged in the complaint and draw all reasonable inferences in favor of the non-moving party." Vietnam Ass'n for Victims of Agent Orange v. Dow Chemical Co., 517 F.3d 104 (2d Cir. 2008) (citation omitted). At the same time, "conclusory allegations or legal conclusions masquerading as factual conclusions will not suffice to defeat a motion to dismiss." Achtman v. Kirby, McInerney & Squire, LLP, 464 F.3d 328, 337 (2d Cir. 2006) (citation omitted).

Motions under Rule 12(b)(6) are evaluated according to a "flexible plausibility standard, which obliges a pleader to amplify a claim with some factual allegations in those contexts where such amplification is needed to render the claim plausible." Boykin v. KeyCorp, 521 F.3d 202, 213 (2d Cir. 2008) (citation omitted). "To survive dismissal, the plaintiff must provide the grounds upon which his claim rests through factual allegations sufficient to raise a right to relief above the speculative level." ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007) (citation omitted).

1. Count 3

Count 3 arises from the plans' alleged failures to provide a method for reflecting future interest credits in the calculation of an employee's accrued benefit before normal retirement age. Acknowledging that safe harbor regulations for cash balance plans specify two acceptable methods to be used, 26 C.F.R. § 1.401(a)(4)-8(c)(3)(v)(B),*fn2 Bilello alleges that the plans' failure to specify a projection method resulted in the accrual of benefits that was not "definitely determinable" in violation of ERISA §§ 402(a)(1) and 402(b)(4), 29 U.S.C. §§ 1102(a)(1) and § 1102(b)(4) and I.R.C. § 401(a)(25).*fn3

Defendants argue that Count 3 should be dismissed because the I.R.C. provision containing the "definitely determinable" requirement does not create a cause of action under ERISA. They submit that impermissibly reading the I.R.C. requirements into the provisions of ERISA at issue is the only way that plaintiff can make out a violation of ERISA §§ 402(a)(1) and 402(b)(4) based on the failure to specify an interest rate projection method.

Sections 402(a)(1) and 402(b)(4) of ERISA do not mention a "definitely determinable" violation created by employer discretion regarding interest rate projection methods. They require generally that benefit plans be "established and maintained pursuant to a written instrument" that "specif[ies] the basis on which payments are made to and from the plan." ERISA §§ 402(a)(1), 402(b)(4); 29 U.S.C. §§ 1102(a)(1), 1102(b)(4). I.R.C. § 401(a)(25), the source of the "definitely determinable" language, provides that

[a] defined benefit plan shall not be treated as providing definitely determinable benefits unless, whenever the amount of any benefit is to be determined on the basis of actuarial assumptions, such assumptions are specified ...

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