Appeals Judges Revive DB Benefits Lawsuit

May 19, 2005 ( - A federal appeals court has cleared the way for two former employees of SBC Communications to pursue their lawsuit alleging their defined benefit pension benefits were calculated based on income they received rather than what they earned.

>The US Court of Appeals for the District of Columbia Circuit reversed a lower court decision by ruling that the employees had stated a sufficiently strong case that SBC’s DB plan administrative committee improperly focused on the income they had received over a five year period and that the decision violated the Employee Retirement Income Security Act (ERISA) by treating them differently than other workers.

>According to the court, the plaintiffs adequately alleged that when calculating benefits, the administrative committee defined “actual base pay” to mean pay actually earned when it calculated benefits for participants receiving standard benefits, but the committee defined the term to mean pay actually received when calculating early retirement benefits to be paid to participants.

>The ruling, written by Circuit Judge Harry Edwards, noted that the employees alleged in their suit that SBC may have saved itself upwards of $30 million by calculating benefits under the early retirement program by using a definition of “actual base pay” that took into consideration only income that was received rather than earned.

“[P]laintiffs’ complaint asserts that Plan officials have administered the Plan in a manner that treats [early retirement] and non-[early retirement] Grandfathered retirees differently, notwithstanding the Plan’s unmistakable command to treat these two groups similarly except for the benefit enhancement [early retirement] participants receive,” the court said.

>The two employees, Marian Wagener and Donald Champoux, were employed by companies affiliated with SBC. Each participated in SBC’s defined benefit pension plan.

>According to the ruling, SBC altered the plan’s benefit structure in 1997 but preserved the pre-existing structure for certain employees – including both Wagener and Champoux – who retained a “grandfathered benefit.” Later, in 1998, SBC required some of its participating companies to use “actual base pay” instead of “basic rate of pay” in determining an employee’s “basic compensation” when calculating benefits under the plan.

>SBC adopted a plan amendment with an enhanced benefit in September 2000 as part of a corporate downsizing that tried to entice eligible workers to take early retirement. The two plaintiffs retired early to get the enhanced benefits.

>The appeals panel said that when SBC calculated the two plaintiffs’ benefits, it calculated their “actual base pay” by combining the compensation actually received by Wagener and Champoux from January 1, 1995, through December 31, 1999, and then dividing it by five. Wagener and Champoux argued that this was an error because they each received paychecks in January 2000 for work they performed prior to December 31, 1999. The judges said that term “actual base pay” did not clearly indicate whether the term intended to refer to pay actually earned or pay actually received. However, the court noted that the plan featured an equal-treatment clause requiring grandfathered benefits under the early retirement plan to be calculated the same as standard grandfathered benefits under the pension plan.

>The plan’s administrative committee rejected Wagener and Champoux’s complaints about the plan, prompting them to file a lawsuit. A federal judge in the US District Court for the District of Columbia dismissed the case in March 2004, finding that the committee had reasonably interpreted the plan. Appeals judges revered that decision in their latest ruling.

>The opinion in Wagener v. SBC Pension Benefit Plan–Non Bargained Program, D.C. Cir., No. 04-7060, 5/17/05 is  here .