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Murphy v. Int'l Business Machines Corp.

February 21, 2012


The opinion of the court was delivered by: Loretta A. Preska, Chief United States District Judge

Opinion & Order

Plaintiffs John B. Murphy and Brendan M. Murphy ("Plaintiffs") bring this action against their former employer International Business Machines Corp. ("IBM" or "Defendant") alleging that IBM violated its fiduciary duty to them under the Employee Retirement Income Security Act ("ERISA" by adopting certain pension plan amendments that violated ERISA's requirements. IBM moves to dismiss the action underr Federal Rule of Civil Procedure 12(b)(6). Plaintiffs oppose Defendant's motion and in the alternative request leave to amend further their Amended Complaint ("Am. Compl."). For the reasons below, Defendant's motion is GRANTED with prejudice, and Plaintiffs' request to amend their pleadings is DENIED as futile.


The Court takes as true the following factual allegations in the complaint and draws all reasonable inferences in favor of Plaintiff. Goldstein v. Pataki, 516 F.3d 50, 56 (2d Cir. 2008).

A. Plaintiffs' Allegations

Plaintiffs were employees of IBM's Global Network Services (an IBM subsidiary) until May 1999, when they became employees of AT&T, Inc. ("AT&T) in connection with IBM's sale of Global Network Services to AT&T. (Am. Compl. ¶¶ 4-5, 12, 15.) Plaintiffs are both participants in and beneficiaries of IBM's "Pension Benefits Plan" (the "Plan") with "vested benefits" pursuant to the Plan. (Id. ¶ 6.) The vested interest at the time of the transfer of employment to AT&T was a "defined benefits plan, and provides benefits upon retirement of approximately 40% of each Plaintiff's average income for his three (3) highest earning years." (Id. ¶ 13-14.)

In approximately May 1999, IBM announced that it was instituting a Plan modification for all employees, including those recently transferred to AT&T. (Id. ¶ 15.) The modification rescinded a new "cash balance plan" for all current IBM employees over the age of 40 with more than ten years of service and returned them to a defined benefits plan. (Id. ¶ 16.) By contrast, those former employees now working for AT&T, including Plaintiffs, were required to remain in the cash balance plan and continued to receive IBM Plan pension benefits in the form of accrued interest on their pensions. (Id.) The Plan modification also created a new retirement benefit formula which provided each former employee a "buy-out option, including a lump sum payment." (Id. ¶ 17.) Plaintiffs allege that this modification was "unilaterally imposed by IBM" and had the "net effect of substantially reducing said former employees' accrued and vested pension benefits." (Id.)

In or about September 1999, Plaintiff Brendan M. Murphy elected to receive a lump sum pension buy-out under the modified Plan in the amount of $62,000. (Id. ¶ 19.) In or about January 2000, Plaintiff John B. Murphy elected to receive a lump sum pension buy-out under the modified Plan in the amount of $116,000. (Id. ¶ 18.) Both Plaintiffs allege that these decisions were made "under duress and coercion, and a lack of understanding of [their] legal rights, and not fully informed of the substantial amount of the reduction in [their] pension value (caused by IBM's unilateral plan modification)." (Id. ¶¶ 18-19.) Both Plaintiffs further allege "upon information and belief" that these lump sum payments were "far less than the true and fair value of [their] accrued and vested pension interest for [their] long-term employment with IBM." (Id.)

To wit, Plaintiffs allege that IBM breached its fiduciary duties under ERISA ¶¶ 404(a) and 409 by making the 1999 Plan amendments. (Id. ¶¶ 63-65.) In addition to the claimed reduction in the value of their vested pensions, Plaintiffs also allege that the cash balance formula adopted by IBM in 1999 fails to comply with ERISA's anti-backloading rules, see 29 U.S.C. § 1054(b)(1) (id. ¶¶ 43-52); that the lump sum payout also produced unlawful backloading and is therefore "an illegal 'whipsaw'" (id. ¶¶ 53-54); that the cash balance formula constitutes unlawful age discrimination under ERISA, see 29 U.S.C. ¶ 1054(b)(1)(H) (id. ¶¶ 60-62); and that by failing to notify Plan participants of such deficiencies, IBM failed to comply with ERISA's notice requirements, see 29 U.S.C. § 1054(h) (id. ¶¶ 55-59). As to IBM's notice requirements under ERISA, Plaintiffs specifically allege that IBM never informed them of their right to file an action in court, (id. ¶ 27); that IBM delivered summary plan descriptions after 1999 which were "misleading and materially false and inaccurate" and failed to disclose the reductions in benefits under the Plan as modified, (id. ¶¶ 28, 31, 34); and that IBM refused to respond to Plaintiffs' numerous requests to Human Resources for comparison data between the former and modified Plan, (id. ¶¶ 32-33).

B. Cooper v. IBM

In 1999, a class action lawsuit under ERISA was filed against IBM and the Plan in the United States District Court for the Southern District of Illinois. See Cooper v. IBM Personal Pension Plan, No. 99-829 (S.D. Ill. Nov. 1, 1999). The Cooper class alleged that the IBM pension formulas adopted in 1995 and in 1999 violated ERISA's anti-backloading and age discrimination provisions. (See Defendant's Memorandum of Law in Support of Motion to Dismiss Amended Complaint ("Def. Mem.") at 2-3; Declaration of Jeffrey G. Huvelle ("Huvelle Decl."), Ex. A.)*fn1

The class argued that (1) the conversion of the plan to a cash balance formula, effective July 1, 1999, was age-discriminatory because it subjected older employees to disproportionately longer periods of "wearaway," a term that refers to the period of time in which an employee earns no additional pension benefits, and (2) the "always cash balance" formula used to determine participants' opening account balances at the time of conversion discriminated on the basis of age in violation of ERISA § 204(b)(1)(H). (See id.)

In September 2001, the Illinois district court certified a Rule 23(b)(1) plaintiff class consisting of "[a]ll individuals who have participated in the IBM Personal Pension Plan at any time after December 31, 1994." (Def. Mem. at 3; Huvelle Decl., Ex. B.) On July 31, 2003, the district court granted the class summary judgment on all of its claims, including its claim that the Plan's cash balance and "always cash balance" formulas discriminated on the basis of age in violation of ERISA § 204(b)(1)(H) and that the "Pension Credit Formula," which was the Plan's benefit prior to the adoption of the cash balance formula, violated both the anti-backloading rules (§ 204(b)(1)) and the age discrimination rule (§ 204(b)(1)(H)). See generally Cooper v. IBM, 274 F. Supp. 2d 1010 (S.D. Ill. 2003). Before proceeding to the remedies phase, the parties entered into a settlement. (See Def. Mem. at 3.)

Under the terms of the Cooper settlement, IBM agreed to provide the class with supplemental benefits (together with attorneys' fees) valued at or about $314 million. In turn, the plaintiff class released IBM from all claims that were or could have been asserted in the lawsuit, except the claims that the cash balance formula and the "always cash balance formula" violate ERISA § 204(b)(1)(H) (age discrimination). Finally, the parties agreed that (1) IBM would appeal the district court's age discrimination rulings with respect to these two formulas, (2) that the class would receive additional relief if the rulings were upheld, but (3) the class would receive no additional relief if the rulings were reversed. (See Huvelle Decl., Ex. C); see also Cooper v. IBM, No. 99-829, 2005 WL 1981501, at *1-2 (S.D. Ill. Aug. 16, 2005) (summarizing settlement terms).*fn2 On August 16, 2005, the district court approved the settlement and entered a final judgment in accordance with its terms. (See Def. Mem. at 4; Huvelle Decl., Ex. D.) IBM then successfully appealed the district court's holdings on the ERISA age discrimination claims; the Court of Appeals for the Seventh Circuit held that cash balance plans do not violate ERISA. See generally Cooper v. IBM Personal Pension Plan, 457 F.3d 636 (7th Cir. 2006); accord Hirt v. Equitable Retirement Plan, 533 F.3d 102 (2d Cir. 2008).

Plaintiffs were at all times members of the Cooper class and received notice of the class action settlement on or about October 11, 2005. (Am. Compl. ΒΆΒΆ 9-11, 20-21.) Plaintiffs have since received minimum annual annuities from IBM in connection with the settlement in Cooper. (See Opp. at 10 (withdrawing ...

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