Scott v. AT&T Inc.

Background

Named plaintiffs Timothy Scott, Patricia Gilchrist, Karen Fisher, Helen Maldonado-Valtierra, Dan Koval, Judy D. Duff, John Griffin, Kenneth Rhodes, Judy Dougherty, John Kelly, Richard Walshon, Jennifer Fryer, and Vince Carabba brought claims on behalf of themselves and two proposed classes of participants in the AT&T Defined Benefit Plan. The defendants were AT&T Inc., the AT&T Defined Benefit Plan, and AT&T Services, Inc., which the opinion collectively calls AT&T.

The plaintiffs alleged that the Plan violated the Employee Retirement Income Security Act of 1974 (ERISA) by calculating joint-and-survivor annuities using conversion factors that were not actuarially equivalent to single-life annuities. The plaintiffs said the factors relied on mortality assumptions that were decades old and resulted in benefits lower than participants were entitled to receive. They asserted claims involving actuarial equivalence, nonforfeiture protection for vested benefits, and breach of fiduciary duty.

The Plan uses fourteen component pension programs, eleven of which were at issue. The Plan does not explain where its joint-and-survivor annuity conversion factors came from or how they were selected. The record indicated that most of the factors were incorporated into the Plan in 1984 and had not been updated for 38 years. The factors were apparently based on a 1971 mortality table using annuity data from 1964 to 1968, although the record did not confirm all of the assumptions behind them.

AT&T moved for summary judgment on all claims. Summary judgment is granted when the evidence shows no genuine dispute about an important fact and the moving party is entitled to judgment under the law.

Actuarial equivalence

The court denied summary judgment on Counts I and III, which alleged violations of ERISA provisions requiring certain pension benefits to be actuarially equivalent. The court explained that the term “actuarial equivalent” is a technical term and that the parties disagreed about whether it requires reasonable actuarial assumptions, rather than merely benefit amounts that fall within a range produced by some other actuarial method.

The plaintiffs offered expert evidence that an actuary would regard two benefits as actuarially equivalent only when reasonable assumptions were used. Their expert also opined that actuarial factors should be current regarding financial markets and future demographic expectations. The court concluded that this evidence created a factual dispute about the meaning of actuarial equivalence in the actuarial field and about whether the assumptions underlying the Plan’s factors were reasonable.

The court rejected AT&T’s argument that the assumptions behind the factors were irrelevant. It also declined to hold that ERISA permits a plan to use any assumptions it chooses so long as the resulting benefits fall within a range that another reasonable method might produce. Those issues therefore remained for further proceedings.

Nonforfeiture claim

The court denied summary judgment on Count II, the claim that the use of unreasonable assumptions resulted in the forfeiture or underpayment of vested benefits under ERISA’s nonforfeiture provision.

AT&T argued that the provision applied only to benefits beginning at normal retirement age and not to early-retirement benefits. The court rejected that categorical argument, explaining that the statute makes reaching normal retirement age—not retiring at normal retirement age—the relevant trigger for nonforfeiture protection. The court also noted that ERISA defines “normal retirement benefit” as the greater of the early-retirement benefit or the benefit beginning at normal retirement age.

AT&T raised an additional argument for the first time in its reply brief. The court declined to consider that argument because the court’s standing order prohibited raising new arguments in a reply.

Fiduciary-duty claim

The court granted summary judgment to AT&T on Count IV, the claim that AT&T Services breached its ERISA fiduciary duties.

The court said the threshold question in an ERISA fiduciary-duty case is whether the challenged conduct was performed in a fiduciary role. Employers generally act as plan sponsors, rather than fiduciaries, when they establish or amend plan terms. Applying that principle, the court held that AT&T was not acting as a fiduciary when it established the challenged conversion factors or decided not to change them.

The plaintiffs also argued that AT&T acted as a fiduciary by administering the Plan according to terms that allegedly violated ERISA. The court concluded that the plaintiffs had not shown how following clear and mandatory Plan terms involved the discretionary authority or control required for fiduciary status.

Standing of pre-retirement participants

The court denied summary judgment on AT&T’s challenge to the standing of named plaintiffs Jennifer Fryer and Vince Carabba, who had not begun receiving benefits and represented the proposed class of participants who had not commenced benefits.

The court focused on Fryer. She testified that she intended to retire at approximately age 55 in 2027 and intended to elect a joint-and-survivor annuity if she remained married. The court held that this evidence showed a substantial risk that she would be affected by the challenged benefit calculation method. The court rejected AT&T’s arguments that the possible future injury was too speculative, that Fryer’s intention was only a vague “some day” plan, or that future divorce or the death of her spouse defeated standing.

The court also rejected AT&T’s argument that Fryer lacked standing because she might ultimately receive more money under AT&T’s method. The court said ERISA protects contractually defined benefits and can allow a claim based on a material risk to those benefits even before the amount of an actual monetary loss is known.

Statute of limitations

The court denied summary judgment on whether the actuarial-equivalence and nonforfeiture claims of retired participants were barred by the statute of limitations. The denial was without prejudice to AT&T raising the issue again if supported by the evidence at trial.

The parties agreed that a four-year limitations period applied. The court concluded that the evidence did not establish that participants had reason to know their claims were denied when they began receiving benefits. Although the Plan listed the conversion factors, it did not disclose the assumptions underlying them. The court also found no evidence that the named plaintiffs or an average participant could have reconstructed those assumptions from the Plan documents or benefit notices.

Disposition

The court granted summary judgment in favor of AT&T on Count IV, the breach-of-fiduciary-duty claim. It denied summary judgment in all other respects, including Counts I and III, Count II, the standing challenge concerning the pre-retirement representatives, and the statute-of-limitations issue. The court stated that separate motions under Federal Rule of Evidence 702 would be addressed in a separate order.