Hoak v. NCR Corporation

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Before JORDAN and NEWSOM, Circuit Judges, and HONEYWELL, District Judge. 

The Bottom Line
The district court’s judgment in favor of the plaintiffs was affirmed on appeal. The higher court agreed that NCR Corporation’s actions adversely affected participants’ accrued retirement benefits.

Class Action Takeaway
The Eleventh Circuit affirmed that when benefit plans or contracts include strong participant-protection clauses (e.g., “no action shall adversely affect any participant’s accrued benefits”), courts treat those clauses as binding promises. Employers can’t rely on actuarial assumptions or averages to justify a change that harms even some class members.

Background
NCR Corporation set up several unfunded “top hat” retirement plans for senior executives, promising fixed monthly life-annuity payments upon retirement. The plan language allowed for termination provided that “no such action shall adversely affect the accrued benefits of any participant.” In 2013, after becoming concerned about its liabilities, NCR terminated the plan in favor of paying lump-sum amounts that it argued were equivalent—despite applying a 5% discount rate. The plaintiffs sued on behalf of a class, claiming that NCR breached the agreement and that the lump-sum payments adversely affected their accrued benefits. The district court ruled in favor of the plaintiffs, agreeing that NCR had violated the plan’s language. It ordered the defendants to pay the difference between what participants received and the cost of replacement annuities, along with prejudgment interest. The defendants appealed the district court’s summary-judgment ruling.

Opinion
The issue before the court was whether NCR’s lump-sum payments “adversely affected” the benefits of any participant. NCR claimed that its plan administrator had discretion in interpreting the plan language, but the court disagreed. While administrators are allowed some discretion, under ERISA that discretion cannot be abused when benefit determinations are challenged. The plan’s clear language did not warrant the level of deferential review NCR claimed. The court cited Meadows ex rel. Meadows v. Cagle’s Inc., holding that “when plan documents unambiguously address the substantive rights of the parties at issue, the plan language controls.” Because ERISA requires plan administrators to either fully provide all benefits of the plan or purchase commitments from an insurer to do so, the court affirmed the lower court’s ruling. NCR’s actions—based on mortality tables, actuarial calculations, and the 5% discount rate—did adversely affect the benefits of at least some (“any”) of the plan’s participants. NCR knew that converting benefits to lump sums meant about 50% of participants would outlive the amount if they continued to draw the same monthly benefits they were previously receiving. For these reasons, the lower court’s summary judgment in favor of the plaintiffs was upheld.