Amicus Curiae Brief — Rohm and Haas Pension Plan v. Williams (No. 07-906)

MOTION FILED

FEB 8 - 2008 S

fo) No. 07-906

IN THE

Supreme Court of the Anited States

ROHM AND HAAS PENSION PLAN,

Petitioner,

wa

GARY WILLIAMS,

Individually and on Behalf of Others Similarly

Situated,

Respondent.

On Petition for a Writ of Certiorari

to the United States Court of Appeals

for the Seventh Circuit

MOTION FOR LEAVE TO FILE

AMICUS CURIAE BRIEF AND

BRIEF OF THE CHAMBER OF COMMERCE OF

THE UNITED STATES OF AMERICA AS

AMICUS CURIAEIN SUPPORT OF PETITIONER

ROBIN S. CONRAD EVAN MILLER

SHANE BRENNAN Counsel of Record

NATIONAL CHAMBER SHAY DVORETZKY

LITIGATION CENTER, JONES DAY

INC. 51 Louisiana Avenue, N.W.

1615 H Street, N.W. Washington, D.C. 20001

Washington, D.C. 20062 (202) 879-3939

(202) 463-5337 Counsel for Amicus Curiae

February 8, 2008

LORDS IS A ETE ALE IT i II ALLY EEE AEE TEE ENOL ALLA EEE ES BRIO

MOTION FOR LEAVE TO FILE

AMICUS CURIAE BRIEF

1. The Chamber of Commerce of the United

States of America (“Chamber”) respectfully moves for

leave to file an amicus curiae brief in support of

Petitioner. All parties have received timely notice of

the Chamber’s filing of this brief, to which Petitioner

has consented. Counsel for Respondent declined to

consent to the Chamber’s filing, thus necessitating

this motion for leave to file an amicus curiae brief

pursuant to Supreme Court Rule 37.2(b).

2. The Chamber is the world’s largest federation

of businesses, representing an underlying

membership of more than three million businesses

and organizations.

3. <A principal function of the Chamber is to

advocate the interests of the business community by

filing amicus curiae briefs in cases involving issues of

national concern to American businesses.

4. Many of the Chamber’s members sponsor and

maintain defined benefit pension plans and other

employee benefit plans governed by the Employee

Retirement Income Security Act of 1974 (“ERISA”),

29 U.S.C. §§ 1001-1461.

5. Thus, the Chamber has participated as amicus

curlae and advocated on behalf of the business

community in numerous cases before this Court that

have involved the interpretation of ERISA. See, e.g.,

LaRue v. DeWolff, Boberg & Assocs., Inc., No. 06-856

(U.S. argued Nov. 26, 2007); Beck v. PACE Int]

Union, 127 S. Ct. 2310 (2007); Sereboff v. Mid Atl.

Med. Servs., 547 U.S. 356 (2006); Great-West Life &

Annuity Ins. Co. v. Knudson, 534 U.S. 204 (2002).

Bais

ii

6. This case concerns the question whether a

cost-of-living adjustment in a defined benefit plan is

a per se “accrued benefit” under ERISA, 29 U.S.C.

§ 1002(23)(A). The question presented directly

imphcates the Chamber’s interest in the correct and

uniform interpretation of the obligations that ERISA

imposes on sponsors of defined benefit plans.

7. For these reasons and those set out in the

brief, the Chamber respectfully moves this Court to

allow it to file this amicus curiae brief urging the

Court to grant the petition for a writ of certiorari and

to reverse the judgment below.

Respectfully submitted,

ROBIN S. CONRAD EVAN MILLER

SHANE BRENNAN Counsel of Record

NATIONAL CHAMBER SHAY DVORETZKY

LITIGATION CENTER, JONES DAY

INC. 51 Louisiana Avenue, N.W.

1615 H Street, N.W. Washington, D.C. 20001

Washington, D.C. 20062 (202) 879-3939

(202) 463-5337

February 8, 2008

Counseil for Amicus Curiae

ili

TABLE OF CONTENTS

MOTION FOR LEAVE TO FILE AMICUS

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BRIEF OF THE CHAMBER OF COMMERCE OF

THE UNITED STATES OF AMERICA AS

AMICUS CURIAE IN SUPPORT OF

FREE a eiiinnacinnclsjiniiitasisaneupedaninieristinnineses

INTEREST OF THE AMICUS CURIAE..................

SUMMARY OF ARGUMENT ....00000...... ccc ecesesseneee

PRATT sisicsnsisaceisigivinidesiaadpemmaieiaaiisiiemmees

I. THE SEVENTH CIRCUIT'S DECISION

CONTRAVENES THE POLICIES

UNDERLYING ERISA AND CREATES

UNCERTAINTY FOR SPONSORS OF

DEFINED BENEFIT PENSION PLANS

REGARDING THEIR FUNDING

FEIT vcelectstaeneseotadecantebacsstonasev

Il. THE SEVENTH CIRCUIT'S DECISION

CONTRAVENES ERISA’S

DEFINITION OF AN “ACCRUED

BENEFIT’ AND EXACERBATES

EXISTING CONFUSION AMONG THE

LOWER COURTS ABOUT THE

IMPORTANT STATUTORY

DISTINCTION BETWEEN ACCRUED

BENEFITS AND RETIREMENT-TYPE

FETE a hvinnviincidseicracehtedsccinbaicbaloannty

CI ae EY a iis sccissledunchsan va si staballenolae eee ssa ueiremedbiaiones

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lv

TABLE OF AUTHORITIES

Page

CASES

Alessi v. Raybestos-Manhattan, Inc., 451 U.S.

Fi a anew ARE 0 Toe SEER OO 7,8

American Stores Co. v. American Stores Co.

Retirement Plan, 928 F.2d 986 (10th

I ce ea 12

Ashenbaugh v. Crucible Inc., 1975 Salaried

Retirement Plan, 854 F.2d 1516 (3d Cir.

IRATE REN S Sea loe te pace NaN OT PRR OME oy TOR 13

Beck v. PACE International Union, 127 S. Ct.

hee acest aiiit. be cipcaca uae sievcaseciins i

Berger v. Edgewater Steel Co., 911 F.2d 911

+ SS Se RRR Sees ee mere OO 12

Black & Decker Disability Plan v. Nord, 538

ee I I eas ia nisstchaschaucenuineliemandsdailonsaaae 6

Board of Trustees of the Sheet Metal Workers’

National Pension Fund v.

Commissioner, 318 F.3d 599 (4th Cir.

EES REE SR OO ER 11

Cattin v. General Motors Corp., 955 F.2d 416

I aa al ebaien 12

Central Laborers’ Pension Fund v. Heinz, 541

as ee aia s conicchantcsccauskss Caasaueicackewics 7

Costantino v. TRW, Inc., 13 F.3d 969 (6th Cir.

LA EE ERISA OP Raa OER CPTEIER RESO OR eee TED 15

Egelhotf v. Egelhoff ex rel. Breiner, 532 U.S.

SE re oaireg cate cnig as ha enna kaka 9

Firestone Tire & Rubber Co. v. Bruch, 489

Be i iicicicnteh ccdachicies pskcapckcnapnisaditedecwracnse C

Vv

TABLE OF AUTHORITIES

(continued)

Page

Fort Halifax Packing Co. v. Coyne, 482 U.S. 1

2 SRNR oe Serre ee EPA nan, See ay ane 10

Great-West Life & Annuity Insurance Co. v.

Knudson, 534 U.S. 204 (2002)......................... i

Hein v. FDIC, 88 F.3d 210 (8d Cir. 1996)................ 16

Herman v. Central States, Southeast &

Southwest Areas Pension Fund, 423

WF ae Ne CERO CE, FE i viveevicissnasseacicnsaccasesss 16

Hliinka v. Bethlehem Steel Corp., 863 F.2d 279

a cri dad cease igl nah A aleainisinaians 12

LaRue v. DeWolff Boberg & Associates, Inc.,

No. 06-856 (U.S. argued Nov. 26, 2007).......... i

Lockheed Corp. v. Spink, 517 U.S. 882 (1996).......... 6

Lyons v. Georgia-Pacific Corp. Salaried

Employees Retirement Plan, 221 F.3d

RN Oe a Gs iii cviskvicaaccoccgannincerecncanitnsss 15

New York State Conference of Blue Cross &

Blue Shield Plans v._ Travelers

Insurance Co., 514 U.S. 645 (1995)............... 10

Perreca v. Gluck, 295 F.3d 215 (2d Cir. 2002) ........ 16

San Diego AFL-CIO Bus Drivers Local

Division 1309 v. San Diego Transit

Corp., 26 F.3d 132 (9th Cir. 1994)........00.00.... 11

Serebotf v. Mid Atlantic Medical Services, 547

Ea: Mg cicacuecllacsistbssiimemidinnebannsmapnkisesa i

Spacek v. Maritime Assn, ILA Pension Plan,

134 F.3d 283 (Gth Cir. TODG)........00cc.cc0ccc.cc000 16

vi

TABLE OF AUTHORITIES

(continued)

Page

Steiner Corp. Retirement Plan v. Johnson &

Higgins of California, 31 F.3d 935 (10th

tA UR pee eee ED A 16

Sutton v. Weirton Steel Division of National

Steel Corp., 724 F.2d 406 (4th Cir. 1983) ..... 12

STATUTES AND LEGISLATIVE MATERIALS

Employee Retirement Income Security Act

of 1974, 29 U.S.C. §§ 1001-1461............. passim

Be Ns Oe TE in sbncckccdbncincdsccnckichesbndsimpicieiicetaeel passim

Be I i IIE a sscaos ccspasndadesionaeaoausiconevbiginnbiieaeaaata 14

RE eee aE Re 4, 14, 15, 16

ee rae SE RISD Whi winciskeiencccaniuaanntindbcsabcarsobibenes 8

H.R. Rep. No. 109-232, pt. 2, at 108 (2005)............... 6

REGULATIONS

a eee Be Beth ek pacessccinsetia inti biaibiapiaidtes 12,13

Measurement of Assets and Liabilities for

Pension Funding Purposes, 72 Fed. Reg.

74,215, 74,223 (proposed Dec. 31, 2007)

(if adopted, to be codified at 26 C.F.R. §

A I deckiecince cthiesiphiinlian cectnedegadiasdediaskamndieltstecien 8

OTHER

Actuarial Standard of Practice No. 4, § 3.5

(Actuarial Standards Bd. 2007) ...................... 8

vii

TABLE OF AUTHORITIES

(continued)

Jeffrey R. Brown, How Should We Insure

Longevity Risk in Pensions and Social

Security?, An Issue in Brief (Ctr. for

Ret. Research at Boston Coll.), Aug.

SD viintininnvnhnnnectsinahinstinsinnciniemmuniiiadiahdedanneesns

Jeffrey R. Brown & Mark J. Warshawsky,

Longevity-Insured Retirement

Distributions from Pension Plans:

Market and Regulatory Issues (Nat

Bureau of Econ. Research, Working

I hs Be a ikitahitlnnnitcenticiceincosnininie

Craig Copeland, Retirees with Pension Income

and Characteristics of Their Former

Job, Notes (Employee Benefit Research

Gy ie Se indanahdnsaaianneckainthaatdonstsutiaiies

Statement of Financial Accounting Standards

No. 87 (Fin. Accounting Standards Bd.

UG FIAUIUE TENN: BE cian nvcsccsincittnenncdnsscancasiondatnce

U.S. Dep’t of Labor, Advisory Council on

Employee Welfare & Pension Benefits,

Report of the Working Group on

Retirement Plan Leakage: “Are We

Cashing Out Our Future?” (1998),

available at http://www.dol.gov/

ebsa/adcoun/leaknew1.htm .......................

Page

BRIEF OF THE CHAMBER OF COMMERCE OF

THE UNITED STATES OF AMERICA AS AMICUS

CURIAE IN SUPPORT OF PETITIONER

INTEREST OF THE AMICUS CURIAE '

The Chamber of Commerce of the United States of

America (“Chamber”) is the world’s largest federation

of businesses. A principal function of the Chamber is

to advocate the interests of the business community

in courts across the Nation by filing amicus curiae

briefs in cases involving issues of national concern to

American businesses. The Chamber has participated

as amicus curlae in numerous cases before this Court

that have raised issues of vital concern to the

Nation’s businesses, including cases construing the

Employee Retirement Income Security Act of 1974

(“ERISA”), 29 U.S.C. §§ 1001-1461.

Many of the Chamber’s members sponsor and

maintain defined benefit pension plans governed by

ERISA. The Chamber thus has a strong interest in

the proper interpretation of the obligations that

ERISA imposes on plan sponsors. In addition, the

Chamber has long advocated national uniformity in

federal law. The predictability engendered by a

uniform federal legal scheme promotes efficient

1 Pursuant to Supreme Court Rule 37.6, the Chamber states

that no counsel for any party authored this brief in whole or in

part, and that no person or entity other than the Chamber, its

members, or its counsel has made a monetary contribution

intended to fund the preparation or submission of this brief.

Counsel for all parties received notice at least 10 days prior to

the due date of the filing of this brief, to which Petitioner has

consented. Counsel for Respondent declined to consent to this

filing, thus necessitating the foregoing motion for leave to file an

amicus curiae brief pursuant to Supreme Court Rule 37.2(b).

2

business operations, especially in the area of ERISA

plan design and administration, and protects

businesses against the costs and risks of navigating a

maze of inconsistent interpretations of federal laws.

The question presented in this case—whether a

cost-of-living adjustment (“COLA”) that a defined

benefit pension plan has discretion to provide to

participants who elect to receive monthly annuities

constitutes a per se accrued benefit under ERISA, 29

U.S.C. § 1002(23)(A), and therefore must also be

provided to participants who choose to receive their

benefits in a one-time lump-sum distribution—

directly implicates the Chamber’s interests in the

correct and uniform interpretation of ERISA’s

requirements. Indeed, numerous private pension

plans have COLAs like that in the Rohm and Haas

Plan. See Craig Copeland, Retirees with Pension

Income and Characteristics of Their Former Job,

Notes (Employee Benefit Research Inst.), Feb. 2003,

at 5-6 (noting that approximately 17% rc* private-

sector retirees (and 55% of public-sector retirees)

receive benefits under a defined benefit pension plan

that includes an automatic COLA).

The Chamber and its members thus have a strong

interest in the Court’s granting plenary review and

correcting the erroneous judgment of the court below.

3

SUMMARY OF ARGUMENT

The Seventh Circuit’s conclusion that a COLA is a

per se accrued benefit contravenes both the policies

underlying ERISA and the statute’s plain language.

1. The decision below will have adverse

consequences for pension plan sponsors and

participants alike. First, it eliminates an incentive

for participants to choose monthly annuities instead

of a lump-sum distribution, contrary to the public

interest in ensuring that retirees have guaranteed

lifetime income. Second, by subjecting plan sponsors

to financial obligations greater than those that they

assumed under the terms of a plan, the Seventh

Circuit’s decision increases the risk that plan

sponsors will choose not to offer COLAs in the first

place. Third, the Seventh Circuit’s decision upsets

the settled funding and corporate accounting

expectations of plan sponsors, whose actuaries must

rely on the terms of a plan in conducting financial

accounting and ERISA-mandated funding valuations.

Fourth, the decision below is at odds with decisions of

the Fourth and Ninth Circuits, thereby subjecting

plan sponsors to inconsistent obligations regarding

plan funding and contravening ERISA’s goal of

creating a uniform national scheme to govern plan

administration.

2. The Seventh ircuit’s decision also

contravenes the statutory language of ERISA and

exacerbates the confusion among the courts of

appeals concerning the statutory distinction between

accrued benefits and retirement-type subsidies.

ERISA defines an “accrued benefit” as “the

individual’s accrued benefit determined under the

plan and .. . expressed in the form of an annual

4

”

benefit commencing at normal retirement age... .

29 U.S.C. § 1002(23)(A) (emphasis added). A COLA

falls outside the definition of an accrued benefit

because, by its very nature, it does not commence at

normal retirement age.

Rather than being an accrued benefit, the COLA in

the Rohm and Haas Plan is a _ retirement-type

subsidy—zi.e., it is a supplement in excess of “the

actuarial equivalent of the normal retirement

benefit”—paid only to participants who chose to

receive monthly annuities. The distinction between

an accrued benefit and a retirement-type subsidy has

significant legal consequences. While both forms of

benefit are subject to ERISA’s_ anti-cutback

protection, see 29 U.S.C. § 1054(g)({1), (2), ERISA

otherwise regulates accrued benefits far more

extensively than it does retirement-type subsidies,

and in particular requires only that the present value

of an accrued benefit, not retirement-type subsidies,

be paid to participants who elect a lump-sum

distribution.

Like the Seventh Circuit, other courts of appeals

have also conflated these benefit concepts. The

decision below exacerbates that confusion among the

lower courts and imposes liability costs on plans that

ERISA does not mandate and that plan sponsors |

have not anticipated. This Court should grant the

petition for certiorari and reverse the erroneous

judgment of the Seventh Circuit:

5

ARGUMENT

I. THE SEVENTH CIRCUITS DECISION

CONTRAVENES THE POLICIES

UNDERLYING ERISA AND CREATES

UNCERTAINTY FOR SPONSORS OF DEFINED

BENEFIT PENSION PLANS REGARDING

THEIR FUNDING OBLIGATIONS.

The decision below undermines the _ policies

underlying ERISA and_ will have _ adverse

consequences for both pension plan sponsors and

participants in several important respects.

First, the decision below contravenes sound

retirement planning by =wmaking’- lump-sum

distributions more attractive relative to monthly

retirement annuities. By “offer[ing] retirees the

opportunity ... for a lifelong stream of guaranteed

income,” annuitization solves the problem of

“longevity risk, or the risk that [a retiree] will live

significantly beyond her expected life span and thus

run out of money.” Jeffrey R. Brown, How Should We

Insure Longevity Risk in Pensions and Social

Security?, An Issue in Brief (Ctr. for Ret. Research at

Boston Coll.), Aug. 2000, at 1, 5 (emphasis removea).

Academics and public policy experts have therefore

long advocated greater reliance on annuities as a part

of sound retirement policy. See id.; Jeffrey R. Brown

& Mark J. Warshawsky, JLongevity-Jnsured

Retirement Distributions from FPension Plans:

Market and Regulatory Issues 4 (Nat Bureau of

Econ. Research, Working Paper No. 8064, 2001)

(““Yaari (1965) was the first to demonstrate the

economic value of annuitization in a life cycle model

with uncertain lifetimes... .”).

6

Indeed, noting that lump-sum distributions

“encourage[] spending rather than saving,” an

Advisory Council convened by the Department of

Labor recommended in 1998 that annuities be the

primary form of distribution for retirement benefits.

See U.S. Dep't of Labor, Advisory Council on

Employee Welfare & Pension Benefits, Report of the

Working Group on Retirement Plan Leakage: “Are

We Cashing Out Our Future?” (1998), available at

http://www.dol.gov/ebsa/adcoun/leaknewl.htm. So,

too, the Report of the House Ways and Means

Committee, in connection with the Pension

Protection Act of 2005, noted that “discouraging

annuitization” in favor of “lump-sum distributions...

may reduce retirement income security” and “lead[]}

to a drain on pension plan assets, which can

undermine the [interests] of other plan participants.”

H.R. Rep. No. 109-232, pt. 2, at 108 (2005). By

compelling pension plans that offer COLAs to

monthly annuitants to also pay the present value of

the COLA as part of a lump-sum distribution, the

Seventh Circuit’s decision removes a _ significant

incentive for participants to choose annuities, thereby

contravening sound public policy.

Second, by failing to adhere to the bedrock

principle that a participant’s entitlement to benefits

under an ERISA-governed plan is to be determined in

accordance with the terms of the plan, the Seventh

Circuit’s decision ultimately harms plan sponsors and

participants alike. “Nothing in ERISA requires

employers to establish employee benefits plans” or to

offer a particular “kind of benefits .. . if they choose

to have such a plan.” Lockheed Corp. v. Spink, 517

U.S. 882, 887 (1996); see also Black & Decker

Disability Plan v. Nord, 538 U.S. 822, 833 (2003)

7

(explaining that “employers have large leeway to

design [ERISA] plans as they see fit”); Alessi v.

Raybestos-Manhattan, Inc., 451 U.S. 504, 511 (1981)

(explaining that “private parties, not the

Government, control the level of benefits” offered by

an ERISA plan in the first instance). Thus, while

ERISA “protect[s] employees’ justified expectations of

receiving the benefits their employers promise them,”

Cent. Laborers’ Pension Fund v. Heinz, 541 U.S. 739,

743 (2004), the statute also protects plans and plan

sponsors by looking to the terms of the plan when

defining a participant’s entitlement to benefits, and

when defining “accrued benefit[s]” in particular, 29

U.S.C. § 1002(23)(A). See, eg, Firestone Tire &

Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989).. In

this way, the statute ensures that employers do not

face liability for financial obligations greater than

those that they chose to assume and expressly

memorialized in the terms of an ERISA plan.

The Seventh Circuit’s decision, however, imposes

by judicial fiat the requirement that a COLA be paid

to participants who choose a lump-sum distribution

whenever a plan also provides a COLA to those who

elect a monthly annuity, notwithstanding the express

language in the Rohm and Haas Plan that a COLA is

available to monthly annuitants only. By rewriting

the terms of the Plan, the Seventh Circuit’s decision

makes it more likely that plan sponsors will choose

not to offer COLAs in the first instance.

Third, the Seventh Circuit’s conclusion that a

COLA is a per se accrued benefit under ERISA

upsets the settled funding expectations and corporate

accounting responsibilities of sponsors of defined

benefit pension plans. ERISA requires the sponsors

of defined benefit plans to adhere to strict minimum

8

funding requirements in order to ensure the solvency

of the plans. See 29 U.S.C. §§ 1081-1085; see also

Alessi, 451 U.S. at 510 n.5 (describing ERISA’s

minimum funding’ requirements). Moreover,

corporate plan sponsors are required to account for

the financial impact of their plans in accordance with

Financial Accounting Standards Statement No. 87

(“FAS 87”), one of the rules promulgated by the

Financial Accounting Standards Board. See

Statement of Fin. Accounting Standards No. 87 (Fin.

Accounting Standards Bd. 1985).

In determining the amount of funding needed to

satisfy ERISA’s requirements, actuaries are required

to assess a plan’s liabilities based on the design

features of the plan as memorialized in the written

plan documents. See Actuarial Standard of Practice

No. 4, §3.5 (Actuarial Standards Bd. 2007)

(instructing actuaries to “measurfe] pension

obligations and _ determinfe] plan costs’ or

contributions” taking into account “plan provisions”);

see also Measurement of Assets and Liabilities for

Pension Funding Purposes, 72 Fed. Reg. 74,215,

74,223 (proposed Dec. 31, 2007) (if adopted, to be

codified at 26 C.F.R. § 1.430(d)-1(d)) (“[T]he

determination of a plan’s funding target and target

normal cost for a plan year is based on plan

provisions that are adopted no later than the

valuation date for the plan year and that become

effective during that plan year.”). Likewise, FAS 87

“requires use of the terms of the pension plan itself’

to determine corporate expenses resulting from the

plan. FAS 87, 4 14.

But under the Seventh Circuit’s holding, a COLA

is a per se accrued _ benefit—regardless of

unambiguous pension plan language that a COLA is

9

excluded from the definition of “accrued benefit” and

is unavailable when participants choose a lump-sum

pension distribution. That holding imposes new and

unforeseen liabilities on plans and plan sponsors

whose actuaries, as required by actuarial standards

of practice and FAS 87, anticipated funding

requirements and corporate liabilities based on the

terms of the pension plan. More specifically, by

essentially rewriting the terms of pension plans like

the Rohm and Haas Plan, the Seventh Circuit’s

decision forces actuaries and accountants. to

recalculate the amount of projected lump-sum

pension distributions by including the value of

COLAs. This will cause all private pension plans

that have COLAs, but distinguish between COLAs in

an annuity and a lump-sum form of pension, to

necessarily have greater pension funding liability

and corporate accounting expense than their

sponsors had forecast.

Fourth, the Seventh Circuit’s decision contravenes

ERISA’s goal of facilitating “nationally uniform plan

administration.” gelhoff v. Egelhoff ex rel. Breiner,

532 U.S. 141, 148 (2001). The conflict between the

Seventh Circuit and the Fourth and Ninth Circuits

over whether a COLA is a per se accrued benefit

vastly complicates the determination of whether a

plan is adequately funded to cover its liabilities, an

inquiry that now depends on different standards in

different circuits. See Pet. at 11-23 (describing how

the Seventh Circuit’s per se definition of an accrued

benefit conflicts with the case-by-case approach of the

Fourth and Ninth Circuits). This Court’s review is

needed to restore “a uniform administrative scheme

[that] provides a set of standard procedures” for

determining plan liabilities and funding

10

requirements. Fort Halifax Packing Co. v. Coyne,

482 U.S. 1, 9 (1987); see also N.Y. State Conf. of Blue

Cross & Blue Shield Plans v. Travelers Ins. Co., 514

U.S. 645, 656 (1995) (explaining that Congress

intended that ERISA would ensure that “plans and

plan sponsors [are] subject to a uniform body of

benefits law”) (citation omitted).

In sum, the Seventh Circuit’s decision undermines

sound retirement policy by encouraging lump-sum

distributions over annuitization; increases the risk

that employers will choose not to offer COLAs;

imposes new and unanticipated financial obligations

on plan sponsors; and creates substantial uncertainty

regarding the funding requirements for defined

benefit pension plans and the corporate liabilities

incurred by plan sponsors. This Court’s review of the

lower court’s decision is warranted.

i. THE SEVENTH CIRCUITS DECISION

CONTRAVENES ERISA’S DEFINITION OF AN

“ACCRUED BENEFIT’ AND EXACERBATES

EXISTING CONFUSION AMONG THE LOWER

COURTS ABOUT THE IMPORTANT

STATUTORY DISTINCTION BETWEEN

ACCRUED BENEFITS AND RETIREMENT-

TYPE SUBSIDIES.

Not only does the Seventh Circuit’s decision have

adverse policy implications, but it also contravenes

ERISA’s statutory text and further confuses the state

of the law among courts of appeals concerning the

distinction between accrued benefits and retirement-

type subsidies.

ERISA defines an “accrued benefit” “in the case of

a defined benefit plan [as] the individual’s accrued

benefit determined under the plan and . . . expressed

11

in the form of an annual benefit commencing at

normal retirement age....” 29 U.S.C. § 1002(23)(A)

(emphasis added). As the Petition explains, the

Seventh Circuit’s decision contravenes this definition

and creates a circuit split with decisions of the

Fourth and Ninth Circuits by holding categorically

that a COLA is an accrued benefit under ERISA,

even if the terms of the plan expressly exclude the

COLA from the plan’s definition of accrued benefits.

See Pet. at 11-23. Consistent with the text of the

statute, the Fourth and Ninth Circuits have engaged

in a case-by-case inquiry, dependent on the terms of

the plan at issue, to determine whether a COLA or

other form of benefit is an “accrued benefit.” See Bd.

of Trs. of the Sheet Metal Workers’ Nat? Pension

Fund v. Commr, 318 F.3d 599 (4th Cir. 2003); San

Diego AFL-CIO Bus Drivers Local Div. 1809 v. San

Diego Transit Corp., 26 F.3d 132 (9th Cir. 1994)

(unpublished mem.).

In addition, the Seventh Circuit’s decision merits

this Court’s review for another independent reason:

The very nature of a COLA is facially inconsistent

with the statutory definition of an “accrued benefit”

because a COLA does not “commencfe] at normal

retirement age.” 29 U.S.C. § 1002(23)(A) (emphasis

added). Under the Rohm and Haas Plan, the only

benefit that commences at normal retirement age is

the basic form of pension, 2.e., the participant’s level

life annuity. The COLA in the Plan is an upward

“annual adjustment to monthly payments from the

Plan,” providing “a benefit enhancement” that is

“intended to keep pace with inflation.” Pet. App. at

68a-69a. Thus, a participant reccives a COLA, at the

earliest, the year after retiring, and even then only if

there has been an intervening increase in the cost of

12

living after a person’s commencement of monthly

pension payments such that the Plan supplements

the initial monthly amount. Because a participant

does not begin to receive a COLA until after

“commencing . . . retirement,” a COLA does not fall

within the statutory definition of an “accrued

benefit,” which must necessarily “commencfe] at

normal retirement age.” 29 U.S.C. § 1002(23)(A); see

also 26 C.F.R. § 1.411(d)-3(g)(3) (defining “annuity

commencement date” as “the annuity starting date,”

or, “in the case of a retroactive annuity starting

date .. . the date of the first payment of benefits

pursuant to a participant election of a retroactive

annuity starting date”).

The Seventh Circuit’s treatment of a COLA as a

per se accrued benefit is in tension with decisions of

the Third, Fourth, Sixth, and Tenth Circuits, which

have properly interpreted the requirement that an

“accrued benefit” must “commencfe] at normal

retirement age,” 29 U.S.C. §1002(23)(A), in

accordance with ERISA’s plain language. These

courts have explained that various forms of benefits

that commence before, rather than at, normal

retirement age are not accrued benefits. See, e.g,

Cattin v. Gen. Motors Corp., 955 F.2d 416, 423 (6th

Cir. 1992); Am. Stores Co. v. Am. Stores Co. Ret.

Plan, 928 F.2d 986, 990 (10th Cir. 1991); Berger v.

Edgewater Steel Co., 911 F.2d 911, 918 (3d Cir.

1990); Hlinka v. Bethlehem Steel Corp., 863 F.2d

279, 284 (3d Cir. 1988); Sutton v. Weirton Steel Div.

of Nat! Steel Corp., 724 F.2d 406, 410 (4th Cir. 1983).

Similarly, a COLA that commences after normal

13

retirement age cannot be an accrued benefit, contrary

to the Seventh Circuit’s conclusion.

Rather than being an accrued benefit, the COLA in

the Rohm and Haas Plan is a retirement-type

subsidy—i.e., a supplement in excess of “the actuarial

equivalent of the normal retirement benefit”—paid

only to participants who chose to receive monthly

annuities. Ashenbaugh v. Crucible Inc., 1975

Salaried Ret. Plan, 854 F.2d 1516, 1521 n.6 (3d Cir.

1988). Indeed, the benefit sought by Respondent—

the lump-sum value of the pension annuity as

enhanced by the addition of the COLA—is

necessarily greater than the actuarial present value

of the level life annuity that commenced at normal

retirement. Thus, a COLA falls squarely within the

definition of a retirement-type subsidy established by

Treasury regulations. See 26 C.F.R. § 1.411(d)-

3(g)(6)(iv) (defining “retirement-type subsidy” to

mean “the excess, if any, of the actuarial present

value of a retirement-type benefit over the actuarial

present value of the accrued benefit commencing at

normal retirement age or at actual commencement

date”).

The Seventh Circuit’s error in treating a COLA as

an accrued benefit rather than a retirement-type

subsidy has significant consequences. To be sure,

ERISA provides some protection to both accrued

benefits and retirement-type subsidies. But where it

does so, ERISA recognizes that a retirement-type

2 Even to the extent that a pension plan were to allow early

retirement prior to normal retirement age, and commencement

of pension payments at that earlier date, the COLA supplement

still would not commence at normal retirement but necessarily

at least a year following the early retirement date.

14

subsidy is distinct from an accrued benefit.

Specifically, both an accrued benefit and a

retirement-type subsidy are subject to ERISA’s anti-

cutback protection, which prohibits a pension plan

amendment that reduces or eliminates certain types

of benefits once offered in the pension plan document.

See 29 U.S.C. § 1054(g)(1) (providing anti-cutback

protection for accrued benefits); § 1054(g)(2)

(providing that, for purposes of anti-cutback

protection, a retirement-type subsidy, early

retirement benefit, or optional form of benefit “shall

be treated as” an accrued benefit). In addition, an

administrator of a defined benefit plan is required to

provide a detailed notice to each individual affected

by an amendment that otherwise lawfully reduces

the rate of future benefit accruals or the plan

participant’s ability to obtain a future retirement-

type subsidy. See § 1054(h)(1) (requiring notice of

reduction in rate of future benefit accruals);

§ 1054(h)(9) (providing that for purposes of this

notice requirement, reduction of a retirement-type

subsidy or early retirement benefit “shall be treated

as having the effect of reducing the rate of future

benefit accrual”).

But otherwise, ERISA regulates accrued benefits

and retirement-type subsidies distinctly. For

example, once vested, an employee’s right to an

accrued benefit is nonforfeitable. See § 1053(a). In

addition, ERISA imposes minimum standards on the

rate by which accrued benefits must be earned in

defined benefit plans. See § 1054(b)(1). Finally, and

as was at issue in this case, a pension paid to a

retiree in the form of a lump sum must equal at least

the actuarial present value of such retiree’s accrued

15

benefit. See § 1054(c)(3); see also Lyons v. Georgia-

Pacific Corp. Salaried Employees Ret. Plan, 221 F.3d

1235, 1251-52 (11th Cir. 2000).

None of these statutory protections apply to a

“retirement-type subsidy.” Thus, on/y the pension

plan participant’s accrued benefit, and not a

retirement-type subsidy, must be paid when the

participant chooses a lump-sum form of pension

distribution. See 29 U.S.C. § 1054(c)(3).

Accordingly, if a plan sponsor provides for a COLA

to be added to the monthly annuity form of pension

benefit that begins at normal retirement, the anti-

cutback protection afforded by § 1054(g) prohibits the

pension plan sponsor from later amending the plan to

eliminate the COLA from the annuity form of pension

benefit. However, because a COLA merely receives

the lesser statutory protection of a retirement-type

subsidy and not the greater statutory protection

afforded an accrued benefit, if.a plan (like that

offered by Rohm and Haas) unambiguously provides

that a lump-sum distribution shall not include the

value of a COLA, ERISA imposes no obligation to

provide it.

Some courts of appeals have properly understood

the critical distinction between accrued benefits and

the category of benefits afforded lesser protections,

which includes retirement-type subsidies, early

retirement benefits, and optional forms of benefits.

See, e.g., Costantino v. TRW, Inc., 13 F.3d 969, 979-

80 (6th Cir. 1994) (recognizing the distinction

between “the definition of ‘accrued benefits” and

ERISA’s “strategy of protecting [retirement-type]

subsidies by treating them as ‘accrued benefits’ in

16

several provisions’); Steiner Corp. Ret. Plan v.

Johnson & Higgins of Cal., 31 F.3d 935, 939 (10th

Cir. 1994).

More commonly, however, courts—as in the

decision below—have improperly conflated these two

distinct categories of benefits. See, e.g., Herman v.

Cent. States, Se. & Sw. Areas Pension Fund, 423

F.3d 684, 691 (7th Cir. 2005) (describing early

retirement benefits as “accrued benefits’ within the

meaning of ERISA”) (citation omitted); Perreca v.

Gluck, 295 F.3d 215, 228 (2d Cir. 2002) (referring to

“an optional form of benefit, which includes lump

sum payments,” as an “accrued benefit”); Hein v.

FDIC, 88 F.3d 210, 217 (3d Cir. 1996) (stating that

§ 1054(g)(2) “mandates accrua/’ of early retirement

benefits) (emphasis added); Spacek v. Maritime

Ass‘n, ILA Pension Plan, 134 F.3d 283, 291 n.9 (5th

Cir. 1998) (noting prior Fifth Circuit precedent

concluding that “benefits protected by § 1054(g)(2)

are ‘vested or accrued”).

Thus, not only is the Seventh Circuit’s decision

wrong as a matter of statutory interpretation, but it

exacerbates the existing confusion among the courts

of appeals about the difference between accrued

benefits and retirement-type subsidies (as well as

early retirement benefits and other optional forms of

benefit for which ERISA grants lesser protection).

Because ERISA requires only that accrued benefits,

and not retirement-type subsidies, be paid to

participants who elect a lump-sum distribution, see

29 U.S.C. § 1054(c)(3), the decision below, like those

of other courts that have conflated these forms of

benefits, threatens to impose on plans substantial

liability and pension design burdens that ERISA does

not mandate and that plan sponsors have not

17

anticipated. This Court’s review is needed to clarify

the distinction between accrued benefits and those

benefits subject to lesser ERISA protection, and thus

eliminate lower court confusion that unnecessarily

increases the already significant financial burden

imposed on companies that provide a traditional,

defined benefit form of pension plan.

CONCLUSION

The petition for a writ of certiorari should be

granted.

Respectfully submitted,

ROBIN S. CONRAD EVAN MILLER

SHANE BRENNAN Counse/ of Record

NATIONAL CHAMBER SHAY DVORETZKY

LITIGATION CENTER, JONES DAY

INC. 51 Louisiana Avenue, N.W.

1615 H Street, N.W. Washington, D.C. 20001

Washington, D.C. 20062 (202) 879-3939

(202) 463-5337 Counsel for Amicus Curiae

February 8, 2008