McCutcheon v. Colgate-Palmolive Co.
- Lorna Schofield
- 1:16-cv-04170
- U.S. District Court · Southern District of New York
- 2
In McCutcheon v. Colgate-Palmolive, Judge Schofield rejected Defendants’ reformation defense, ruling that the proposed change would violate Section 417(e) of the Internal Revenue Code.
The ruling affects the Defendants’ reformation defense and the Plaintiffs’ claims concerning benefits under the Plan. The order does not describe the effect on the action as a whole.
What happened
McCutcheon v. Colgate-Palmolive Co. concerns Defendants’ defense that the court should change the benefits Plan to reflect what its drafters allegedly intended. The defense was raised in Defendants’ answer and summary judgment motion, but the court’s earlier opinion did not address it.
Defendants sought to calculate a benefit using a discount rate that was higher than the rate required by Section 417(e) of the Internal Revenue Code. The court concluded that this change would violate the law’s requirement that a lump-sum payment be at least the actuarial equivalent of the participant’s accrued benefit. The court also found Defendants’ expert’s reliance on a later Internal Revenue Service notice unpersuasive.
In McCutcheon v. Colgate-Palmolive Co., Judge Lorna G. Schofield rejected Defendants’ reformation defense as a matter of law. This order does not state the disposition of the entire action, which had previously been found ready for trial.
The detailed version
- McCutcheon v. Colgate-Palmolive Co. · No. 1:16-cv-04170
- Lorna Schofield
- July 29, 2020
Background
The court had previously issued an opinion granting in part and denying in part Defendants’ motion for summary judgment. Summary judgment is a decision without a trial when the court determines that the relevant facts do not require a trial to resolve the legal issue. The court later recognized that the earlier opinion had inadvertently omitted discussion of Defendants’ reformation defense.
Reformation is a request to change a written agreement or plan so that it reflects an asserted drafting intent. Defendants asked the court to reform the Plan so that, if a participant’s Appendix C § 2(b)(i) annuity benefit—the “Grandfathered Benefit”—exceeded the value of the annuitized form of her PRA lump-sum payment, she would receive an RAA Annuity equal to the difference. Defendants had raised this defense in their Answer and in their summary judgment motion, and both parties addressed it in submissions to the court.
Court’s Analysis
The court rejected the proposed reformation as contrary to the Plan’s plain meaning and because the reformed Plan would violate Section 417(e) of the Internal Revenue Code. That provision requires a lump-sum payment to be at least the actuarial equivalent of a participant’s accrued benefit expressed as a single-life annuity payable at normal retirement age.
The court explained that Section 417(e) prescribed the discount rate used to calculate the present value of the accrued annuity. At the relevant time, that rate was the Pension Benefit Guaranty Corporation rate. Under Defendants’ proposed reformation, the calculation would instead use the “20+1%” rate, which was higher than the applicable Pension Benefit Guaranty Corporation rate. The court concluded that using the higher rate would violate Section 417(e).
The court also found Defendants’ expert’s argument that Section 417(e) did not apply unpersuasive. The expert relied on Internal Revenue Service Notice 2017-44, which was issued after the calculations at issue had been performed. The court further stated that the notice did not appear, by its terms, to apply to the benefit involved here.
Disposition
The court ordered that Defendants’ reformation defense was rejected as a matter of law. The order does not state that the entire action was dismissed or otherwise finally resolved; it notes that the action had been declared ready for trial.
Read the full 2-page opinion on CourtListener, the free public archive maintained by the Free Law Project.