UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT __________________________________________________________________________________________________________

No. 10-2752 __________________________________________________________________________________________________________

PHILLIP C. ENGERS, WARREN J. MCFALL, DONALD G. NOERR, and GERALD SMIT, individually and on behalf of all others similarly situated,

Plaintiffs-Appellants,

v.

AT&T, INC., AT&T PENSION BENEFIT PLAN, and AT&T PUERTO RICAN PENSION BENEFIT PLAN,

Defendants-Appellees.

__________________________________________________________________________________________________________

ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY

__________________________________________________________________________________________________________

BRIEF AMICUS CURIAE OF AARP IN SUPPORT OF PLAINTIFFS-APPELLANTS

__________________________________________________________________________________________________________

LAURIE MCCANN

MARY ELLEN SIGNORILLE* *COUNSEL OF RECORD

AARP Foundation Litigation MELVIN RADOWITZ AARP 601 E St., NW Washington, DC 20049 (202) 434-2060

Counsel for Amicus Curiae AARP

i

CORPORATE DISCLOSURE STATEMENT

The Internal Revenue Service has determined that AARP is organized and

operated exclusively for the promotion of social welfare pursuant to Section

501(c)(4)(1993) of the Internal Revenue Code and is exempt from income tax.

AARP is also organized and operated as a non-profit corporation pursuant to Title 29

of Chapter 6 of the District of Columbia Code 1951.

Other legal entities related to AARP include AARP Foundation, AARP

Services, Inc., Legal Counsel for the Elderly, AARP Financial, AARP Global

Network, and Focalyst.

AARP has no parent corporation, nor has it issued shares or securities.

ii

TABLE OF CONTENTS CORPORATE DISCLOSURE STATEMENT ....................................................... i TABLE OF AUTHORITIES ................................................................................. iv STATEMENT OF INTEREST ................................................................................ 1 ARGUMENT ........................................................................................................... 3 I. SINCE THE ENACTMENT OF THE ADEA, CONGRESS HAS

EXPENDED SIGNIFICANT EFFORTS TO PROTECT OLDER WORKERS FROM AGE-BASED DIFFERENCES IN EMPLOYEE BENEFITS .............................................................................. 3

A. Compliance with Section 4(i) of the ADEA Does Not

Constitute a Complete Defense to All Other Claims Alleging Age Discrimination Related to Pension Benefits ................. 5

B. An ADEA Provision that Protects Older Workers

Against Discrimination Should Not be Used to Allow Employers to Discriminate with Impunity .......................................... 7

II. CONGRESS ENACTED ERISA TO PROTECT PROMISES OF

PENSION BENEFITS SO EMPLOYEES COULD PLAN FOR THEIR RETIREMENT .............................................................................................. 9

A. Because Retirement Benefits Are A Critical Element of

Employees’ Compensation Package, Inaccurate, Misleading or Missing Information Concerning Employee Benefits Skews The Employment Relationship To Favor Employers .............. 9

B. ERISA's Notice Requirements Are Designed to Inform

Participants and Beneficiaries of the Benefits They Should Expect – or Not Expect – from a Plan ...............................................11

C. A Plan’s Failure To Provide Timely, Accurate And Complete Disclosures Negatively Impacts Employees And Prevents Them From Making Informed Decisions about their Benefits and Careers ...............................................................................................15

iii

CONCLUSION ......................................................................................................20 CERTIFICATE OF BAR MEMBERSHIP ............................................................21 CERTIFICATE OF SERVICE ..............................................................................22 CERTIFICATE OF COMPLIANCE WITH TYPE VOLUME ............................23 CERTIFICATE OF COMPLIANCE WITH ELECTRONIC FILING .................23

iv

TABLE OF AUTHORITIES CASES

Albermarle Paper Co. v. Moody, 422 U.S. 405 (1975) ........................................... 8 Cal. Brewers Assoc. v. Bryant, 44 U.S. 598 (1980)................................................. 7 Cent. Laborers' Pension Fund v. Heinz, 541 U.S. 739 (2004) ..............................11 Chock Full O' Nuts Corp. v. United States, 453 F.2d 300 (2d Cir. 1971) .............14 Eaton v. Onan Corp., 117 F. Supp. 2d 812 (S.D. Ind. 2000) ................................16 Esden v. Bank of Boston, 229 F.3d 154 (2d Cir. 2000) .........................................13 Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989) ...............................14 Geissal v. Moore Med. Corp., 524 U.S. 74 (1998) ................................................13 Huff v. UARCO, Inc., 122 F.3d 374 (7th Cir. 1997) ................................................ 6 McKennon v. Nashville Banner Pub. Co., 513 U.S. 352 (1995) ............................. 8 Orzel v. Wauwtosa Fire Dep't., 697 F.2d 743 (7th Cir. 1980) ................................ 8 Oubre v. Entergy Operations, Inc., 522 U.S. 422 (1998) ........................................ 3 Phillips Co. v. Walling, 324 U.S. 490 (1945) .......................................................... 8 Public Employees Ret. Sys. v. Betts, 492 U.S. 158 (1989) ...................................... 3 Puckett v. United Air Lines, 705 F. Supp. 422 (N.D. Ill. 1989) .............................. 5 Quinones v. City of Evanston, 58 F.3d 275 (7th Cir. 1995) ................................6, 7 Romero v. Allstate Corp., 404 F.3d 212 (3d Cir. 2005).........................................14 Thomforde v. IBM, 406 F.3d 500 (8th Cir. 2005) ..................................................12

v

STATUTES, RULES AND REGULATIONS Age Discrimination in Employment Act of 1967, 29 U.S.C. § 621 et seq. § 2, 29 U.S.C. § 621 ........................................................................................1, 3 § 4(a), 29 U.S.C. § 623(a) .......................................................................... 5, 6, 7

§ 4(a)(1), 29 U.S.C. § 623(a)(1) ......................................................................... 3 § 4(f)(1)(A), 29 U.S.C. § 626(f)(1)(A) .............................................................12 § 4(f)(2), 29 U.S.C. § 623(f)(2) ......................................................................5, 7 § 4 (f)(2)(B)(i), 29 U.S.C. § 623(f)(2)(B)(i) ....................................................... 7 § 4(i), 29 U.S.C. § 623(i) .................................................................................... 8 § 4(i)(1), 29 U.S.C. § 623(i)(1) ........................................................................... 5

§ 11(1), 29 U.S.C. § 630(l) ................................................................................. 4 Consolidated Omnibus Budget Reconciliation Act of 1985

Pub. L. No. 99-272, § 11006, 100 Stat. 82 (1986) ..........................................13 Employee Retirement Income Security Act of 1974, 29 U.S. C. §1001 et seq. Pub. L. No. 93-406 ..........................................................................................1, 9 § 2, 29 U.S.C. § 1001 ........................................................................................11 § 101, 29 U.S.C. § 1021 ....................................................................................17 § 102, 29 U.S.C. § 1022 ............................................................................. 12, 17 § 102(a), 29 U.S.C. § 1022(a) ...........................................................................12 § 102(b), 29 U.S.C. § 1022(b) ..........................................................................12 § 103, 29 U.S.C. § 1023 ....................................................................................17 § 104, 29 U.S.C. § 1024 ....................................................................................17 § 104(b)(4), 29 U.S.C. § 1024(b)(4) .................................................................14 § 204, 29 U.S.C. § 1054 ....................................................................................17 § 204(b)(1)(H)(i), 29 U.S.C. § 1054(b)(1)(H)(i) ................................................ 5 § 204(h), 29 U.S.C. § 1054(h) ............................................................. 12, 13, 14 § 204(h)(1), 29 U.S.C. § 1054(h)(1) .................................................................13 § 204(h)(2), 29 U.S.C. § 1054(h)(2) .................................................................13 Older Workers Benefit Protection Act, Pub. L. No. 101-433, 104 Stat. 978, Title I, §101 (1990) .................................. 3

vi

Omnibus Budget Reconciliation Act of 1986, Pub. L. No. 99-509, 100 Stat. 1874 (1986) § 9201 ............................................................................................................ 4 § 9202(a)(2) ................................................................................................... 5 29 C.F.R. § 1625.22(b)(3) .................................................................................................12 § 1625.22(b)(4) .................................................................................................12 § 2520.102-2 ....................................................................................................17 § 2520.102-2(a) .................................................................................................13 § 2520.102-2(b) .................................................................................................13 § 2520.102-3 .....................................................................................................17 § 2520.104b-1 ...................................................................................................17 § 2520.104b-2 ...................................................................................................17 § 2520.104b-3 ...................................................................................................17 § 2520.104b-4 ...................................................................................................17 § 2590.606-1(a) .................................................................................................12

LEGISLATIVE HISTORY 136 CONG. REC. H8616 (daily ed. Oct. 2, 1990) ...................................................... 4 CONG. REC. H8617 (daily ed. Oct. 2, 1990) ............................................................. 7 H.R. REP. NO. 93-533 (1973) as reprinted in 1974 U.S.C.C.A.N. 4639 ..........................................................14 H.R. REP. NO. 99-1012 (1986) ................................................................................. 8 H.R. REP. NO. 101-664 (1990) ................................................................................. 4 SUBCOMM. ON LABOR OF THE COMM. ON LABOR

AND PUBLIC WELFARE, 94th CONG., Legislative History of the Employee Retirement Income Security Act of 1974 (1976) ........................9, 11

vii

MISCELLANEOUS

David Charny, The Employee Welfare State in Transition,

74 TEX. L. REV. 1601 (1996).............................................................................10 Teresa Ghilarducci, Pensions & The Uses of Ignorance by Unions and Firms, 11(2) J. Lab. Res. 203 (Spring 1990) .............................................10 RICHARD W. JOHNSON, THE URBAN INSTITUTE, THE IMPACT OF LATE-CAREER HEALTH AND EMPLOYMENT SHOCKS ON SOCIAL SECURITY AND OTHER WEALTH 3-5 (Dec. 2007), http://www.ur ban.org

/publications/411591.html ................................................................................16 Russell Korobkin & Thomas Ulen, Law and Behavioral Science: Removing the Rationality Assumption From Law and Economics, 88 Cal. L. Rev. 1051 (July 2000) ......................................................................15 Anne Marie Lofaso, Toward A Foundational Theory of Workers' Rights: The Autonomous Dignified Worker, 76 UMKC L. Rev. 1 (Fall 2007) .............. 9 MetLife, Eighth Annual Study of Employee Benefits Trends: Findings from the National Survey of Employers and Employees (2010) ......... 9 Olivia S. Mitchell, Worker Knowledge of Pension Provisions, 6(1) J. LAB. ECON. 22 (Jan. 1988) .....................................................................15 A.H. Munnell, A. Webb & F. Golub-Sass, The National Retirement Risk Index: After The Crash 1, 2, 6 (IB # 9-22 Oct. 2009), http://crr.bc.edu/

briefs/the_national_retirement_risk_index_after_the_crash.html ....................19 Richard A. Oppel, Jr., Companies Cash In on New Pension Plan; But Older Workers Can Face Penalties, N.Y. TIMES, Aug. 20, 1999,

http://www.nytimes .com/1999/08/20/business/companies-cash- in-on-new-pension-plan-but-older-wor kers-can-face-penalties

,html?scp=2&sq=%22IBM%22+and+%22protest%22 &st =nyt ....................18 PriceWaterHouse Coopers, Survey of Cash Balance Conversions, BENEFITS

QUARTERLY, 1st Quarter 2001 .........................................................................16

viii

Sara Rix, The Employment Situation, May 2010: Older Worker Employment and Duration of Unemployment Move Upward (June 2010), http://www.aarp.org/work/job-hunting/info-06-2010 /fst193-employment.html ..................................................................................18 Ellen E. Schultz, Actuaries Become Red-Faced Over Recorded Pension Talk, WALL ST. J., May 5, 1999 ........................................................................17 Society for Human Resource Management, 2009 Employee Benefits:

Examining Employee Benefits in a Fiscally Challenging Economy (June 2009), http://www.shrm.org/Research/SurveyFindings/Articles/ Pages/2009 EmployeeBenefits SurveyReport.aspx ........................................ 9, 10

Study from the Hartford Finds Economy Takes Toll on Pre-Retirees and Their Retirement Dreams, http://ir.thehartford.com/releasedetail.cfm

?releaseid=512699 ............................................................................................18 Treasury Inspector General for Tax Administration, Statistical Trends in Retirement Plans (Ref. No. 2010-10-097 Aug. 9, 2010),

http://www.treas.gov/tigta/auditreports/2010reports/201010097fr.pdf............19 U.S. Equal Employment Opportunity Commission, Age Discrimination in

Employment Act (FY 1997-2009), http://www1.eeoc.gov//eeoc/statistics /Enforcement/adea.cfm?redner forprint=1 .......................................................18

U.S. GOV’T ACCOUNTABILITY OFFICE, GAO-06-42, PRIVATE PENSIONS: IMPLICATIONS OF CONVERSIONS TO CASH BALANCE PLANS (2005) ........... 16, 18

1

STATEMENT OF INTEREST AARP is a non-partisan, non-profit organization dedicated to representing the

needs and interests of people age fifty and older. AARP supports the rights of older

workers and strives to preserve the legal means to enforce such rights. Almost half of

AARP’s members are in the work force, most of whom are protected by the federal

Age Discrimination in Employment Act (ADEA), 29 U.S.C. §§ 621-634, and many

of whom are working for employers which provide pension and other employee

benefit plans covered by the Employee Retirement Income Security Act (ERISA) of

1974, 29 U.S.C. § 1001 et seq.

Vigorous enforcement of the ADEA is of paramount importance to AARP, its

working members, and the millions of other workers who rely on its protections to

deter and to remedy invidious age bias in the work place. Many AARP members’

pensions have been significantly reduced as a result of the conversion of their defined

benefit pension plan to a cash balance plan. AARP has heard numerous complaints

from its members and other workers regarding the lower benefits they will receive as

a result of these conversions. In many instances, these benefit reductions are solely a

result of their age, which is an integral part of the cash balance plan formula.

AARP was instrumental in securing passage of the Older Workers Benefit

Protection Act (OWBPA) as well as the 1986 amendments to the ADEA, and the

parallel amendments to the Employee Retirement Income Security Act (ERISA), and

2

the Internal Revenue Code, which made it unlawful for pension plans to reduce or

terminate accruals of pension benefits or contributions to pension accounts based on

age. Accordingly, AARP opposes any judicial interpretation that would weaken the

ADEA’s protections against age discrimination in employee benefit plans.

Participants in private, employer-sponsored employee benefit plans rely on

ERISA to protect their rights under those plans. In particular, ERISA's protections,

and the ability to enforce these protections, are of vital concern to older workers and

retirees, since the quality of their lives in retirement depends heavily on their

eligibility for and the amount of their pension benefits. Resolution of the issues in

this case will have a significant impact on individual participants’ abilities to obtain

accurate information to make informed decisions concerning their employment and

benefits, and their ability to obtain their retirement benefits which will foster their

economic security.

In light of the significance of the issues presented by this case, AARP

respectfully submits this brief amicus curiae to facilitate a full consideration by the

Court of these

issues.

3

ARGUMENT

I. SINCE THE ENACTMENT OF THE ADEA, CONGRESS HAS EXPENDED SIGNIFICANT EFFORTS TO PROTECT OLDER WORKERS FROM AGE-BASED DIFFERENCES IN EMPLOYEE BENEFITS.

In 1990, Congress enacted the Older Workers Benefit Protection Act

(OWBPA), in response to the Supreme Court’s decision in Public Employees Ret.

Sys. v. Betts, 492 U.S. 158 (1989), which held that the ADEA did not prohibit age

discrimination in employee benefit plans. In enacting the OWBPA, Congress

emphasized that the OWBPA “restore[d] the original congressional intent in passing

and amending the Age Discrimination in Employment Act of 1967 (29 U.S.C. § 621

et seq.), which was to prohibit discrimination against older workers in all employee

benefits except when age-based reductions in employee benefit plans are justified by

significant cost considerations.” Pub. L. No. 101-433, 104 Stat. 978, Title I, §101

(1990) (codified at 29 U.S.C. §621).1

Section 4(a)(1) of the ADEA forbids an employer to “discriminate against any

individual with respect to his compensation, terms, conditions, or privileges of

employment, because of such individual’s age.” 29 U.S.C. §623(a)(1). The OWBPA

added a provision clarifying that the phrase “compensation, terms, conditions, or

1 “The policy of the Older Workers Benefit Protection Act is . . . clear from its title. It is designed to protect the rights and benefits of older workers.” Oubre v. Entergy Operations, Inc., 522 U.S. 422, 427 (1998).

4

privileges of employment” encompasses all employee benefits, including pension

benefits. §11(1), 29 U.S.C. § 630(l).2

Under the OWBPA, discrimination is a difference in benefits, plain and simple.

If an employer provides a benefit to younger workers, but denies that benefit to older

workers, the difference in benefits constitutes a violation of section 4(a) of the

ADEA, regardless of the employer’s subjective motivation for structuring the benefit

plan as it did. H.R. REP. No. 101-664, at 7 (1990).

Four years prior to the enactment of the OWBPA, as part of the Omnibus

Budget Reconciliation Act of 1986 (OBRA),3

2 Opponents to the OWBPA tried unsuccessfully to exclude pensions from the Act’s coverage because pensions were “already heavily regulated under . . . [ERISA] and the Internal Revenue Code.” 136 CONG. REC. H8616 (daily ed. Oct. 2, 1990) (statement of Rep. Clay). The sentiment was, “If a practice were lawful under ERISA and the code, it was not and should not be unlawful under the ADEA.” Id. Representative Clay, one of the OWBPA’s principal sponsors articulated Congress’ response to this argument: “That is nonsense. The rules under ERISA and the code have an entirely different focus. . . . A practice can be perfectly permissible under ERISA and the code and at the same time can be discriminatory under our civil rights law.” Id.

Congress added protections to the

ADEA specific to pensions. Prior to the enactment of OBRA, many employers had

refused to provide pension credits and accruals to employees who continued to work

beyond the pension plan’s normal retirement age. OBRA section 9201 amended the

ADEA to make that practice unlawful by providing:

3 Pub. L. No. 99-509, § 9201, 100 Stat. 1874, 1973 (1986).

5

It shall be unlawful for an employer, an employment agency, a labor organization, or any combination thereof to establish or maintain an employee pension benefit plan which requires or permits – (A) In the case of a defined benefit plan, the cessation of an employee’s benefit accrual, or the reduction of the rate of an employee’s benefit accrual, because of age.

29 U.S.C. § 623(i)(1).4

A. Compliance with Section 4(i) of the ADEA Does Not Constitute a Complete Defense to All Other Claims Alleging Age Discrimination Related to Pension Benefits.

However, as the OWBPA emphasized from the time it was

enacted, the ADEA had always prohibited age discrimination in employee benefit

plans, including pension plans. OBRA’s protections merely added to § 4(a)’s already

broad prohibition of age discrimination in employee benefits. 29 U.S.C. § 623(a).

OBRA amended the ADEA and ERISA to require full pension credit for

employment after normal retirement age. Puckett v. United Air Lines, 705 F. Supp.

422, 423 (N.D. Ill. 1989). If pension accruals are denied or reduced because of age,

§ 4(i) governs. However, §§ 4(a) and 4(f)(2) continued to apply to all other claims of

age discrimination involving pension benefits. Section 4(i) was enacted to govern

one type of age discrimination in the provision of pension benefits but it was not

intended to be the only protection against discriminatory pension practices that harm

4 OBRA § 9202(a)(2) added an analogous provision to ERISA. 29 U.S.C. § 1054(b)(1)(H)(i) (“[A] defined benefit plan shall be treated as not satisfying the requirements of this paragraph if, under the plan, an employee’s benefit accrual is ceased, or the rate of an employee’s benefit accrual is reduced, because of the attainment of any age.”).

6

older workers. Age discrimination in pension benefits can take a variety of forms and

raise a variety of claims under the ADEA.

Section 4(a) has always provided additional significant protection for older

workers’ pension benefits. For example, in Huff v. UARCO, Inc., 122 F.3d 374 (7th

Cir. 1997), the defendant’s pension plan denied employees who were eligible for

early retirement the right to elect a lump sum payout of their pension benefits. To be

eligible for early retirement under the defendant’s pension plan, an individual must

have completed ten years of service and attained the age of 55. Younger employees

could elect a lump sum payout. The plaintiffs argued that the denial of the lump sum

pension payout to certain workers over age 55 violated ADEA §4(a) and the court

agreed. The pension plan violated the ADEA because “the benefit [was] different

and in a certain way lesser.” Id. at 387. In the pending case, Plaintiffs are being

denied their day in court to establish that their pension benefits are lesser than those

provided to younger workers.

Section 4(a) also applied to a city’s decision to deny pension contributions to

firefighters age 35 or older when hired. In Quinones v. City of Evanston, 58 F.3d 275

(7th Cir. 1995), the court held that “A pension is a form of deferred compensation,

and the ADEA prohibits employers from ‘discriminating against any individual with

respect to his compensation, terms, conditions, or privileges of employment, because

of such individual’s age.’” Id. at 278 (quoting 29 U.S.C. § 623(a)). The Quinones

plaintiffs prevailed because the lower pension provided to older workers was

7

“equivalent to a lower salary for the same work.” Id. The “equal benefit or equal

cost” defense in ADEA § 4(f)(2) could not save the city.

Here, the district court’s tortured analysis and discussion of “inputs” and

“outputs” confuses what is basic to this case and to the 23,938 opt-in plaintiffs who

lost critical pension benefits as a result of discriminatory wear away periods. The

Plaintiffs claim that the conversion of AT&T’s defined benefit plan to a cash balance

plan caused older workers to lose more benefits than younger workers. Section 4(a)

of the ADEA prohibits employers from providing fewer benefits to older workers

than younger workers except where the difference is justified by cost. 29 U.S.C.

§ 623 (f)(2)(B)(i). The Plaintiffs are entitled to their day in court to establish that the

decisions the Defendant made with regard to their pension benefits violate §4(a) and

cannot be defended successfully under §4(f)(2)(B)(i). “This is not a complicated

employee benefits issue. It is a fundamental civil rights issue. We do not permit

employers to pay an older worker less than a younger worker solely because of age;

employers must be prohibited from providing older workers smaller benefits or no

benefits . . . .” 136 CONG. REC. H. R. 8617 (daily ed. Oct. 2, 1990) (statement of Rep.

Clay).

B. An ADEA Provision That Protects Older Workers Against Discrimination Should Not be Used to Allow Employers to Discriminate with Impunity.

It is well-established that “exemptions to remedial statutes should be construed

narrowly.” Cal. Brewers Assoc. v. Bryant, 44 U.S. 598, 618 (1980). Efforts “[t]o

8

extend an exemption to other than those plainly and unmistakably within its terms

and spirit is to abuse the interpretative process and to frustrate the announced will of

the people.” Phillips Co. v. Walling, 324 U.S. 490, 493 (1945). There is no question

that the ADEA is a remedial and humanitarian statute. See, e.g., Orzel v. Wauwtosa

Fire Dep’t, 697 F.2d 743, 748 (7th Cir. 1980). Congress designed the ADEA’s

“remedial measures . . . to serve as a ‘spur or catalyst’ to cause employers ‘to self-

examine and to self-evaluate their employment practices and to endeavor to eliminate

so far as possible, the last vestiges’ of discrimination.” McKennon v. Nashville

Banner Pub. Co., 513 U.S. 352, 358 (1995) (quoting Albermarle Paper Co. v. Moody,

422 U.S. 405, 417-18 (1975)).

The district court’s interpretation of ADEA § 4(i) as creating a complete

defense to any disparate treatment or disparate impact claims relating to pension

benefits stands this bedrock principle on its head. “[T]he overall objective of

[OBRA’s pension] provisions [is] to assure that employee benefit plans do not

discriminate on the basis of age.” H.R. REP. 99-1012, at 379 (1986). The district

court takes a provision in a remedial statute intended to ensure that older workers are

protected against age discrimination and erroneously interprets it to provide immunity

to employers that discriminate on the basis of age in pension plans. The district

court’s analysis undermines the ADEA’s purpose and frustrates its goal of

eliminating age discrimination in employee benefit plans.

9

II. CONGRESS ENACTED ERISA TO PROTECT PROMISES OF PENSION BENEFITS SO EMPLOYEES COULD PLAN FOR THEIR RETIREMENT.

A. Because Retirement Benefits Are A Critical Element of Employees’

Compensation Package, Inaccurate, Misleading or Missing Information Concerning Employee Benefits Skews The Employment Relationship To Favor Employers.

A simple equation exists in the workplace: an employer is able to operate its

business with the benefit of an employee’s labor in exchange for paying that

employee a salary and other benefits. See generally Anne Marie Lofaso, Toward A

Foundational Theory of Workers’ Rights: The Autonomous Dignified Worker, 76

UMKC L. REV. 1 (Fall 2007). The benefits exchanged for the employee’s labor often

may include pension and other employee benefits. See Employee Retirement Income

Security Act, Pub. L. No. 93-406, reprinted in SUBCOMM. ON LABOR OF THE COMM.

ON LABOR AND PUBLIC WELFARE, 94th CONG., Legislative History of the Employee

Retirement Income Security Act of 1974, Vol. III, at 4751 (1976) [hereinafter

“Legislative History”].

Company benefit packages are important to employees and employers. Pension

benefits play an important role in an employer’s ability to recruit, retain, and maintain

productivity in a high quality workforce. See MetLife, Eighth Annual Study of

Employee Benefits Trends: Findings from the National Survey of Employers and

Employees (2010) at 8, 18; Society for Human Resource Management, 2009 Employee

Benefits: Examining Employee Benefits in a Fiscally Challenging Economy at 8, 19-20,

10

23-24 (June 2009), http://www.shrm.org/Research/SurveyFindings/Articles/Pages

/2009EmployeeBenefitsSurveyReport.aspx (concluding that “[e]mployees consistently

rate benefits as one of the key factors in employee job satisfaction. It is important for

an employee benefits package to be attractive to both current and prospective

employees . . . .”). In return for offering pension benefits, the employer obtains lower

employee turnover, which reduces costs and improves productivity. Id. at 8.

Inequalities in information between an employer and its employees, such as the

imbalance that AT&T created by failing to accurately and fully disclose the losses

from wear-away to its employees, are valuable to the employer because employees

will only later learn they will not receive the benefits they expected. Meanwhile,

employees overvalue their benefits, accept lower compensation packages, or stay

longer with that employer, thereby minimizing the employer’s recruiting and training

costs, as well as harm to the employer’s reputation. See David Charny, The

Employee Welfare State in Transition, 74 TEX. L. REV. 1601, 1618 (1996); Teresa

Ghilarducci, Pensions & The Uses of Ignorance by Unions and Firms, 11(2) J. LAB.

RES. 203 (Spring 1990) at 203, 204, 206. By failing to accurately disclose the cash

balance plan changes, AT&T employees were left with the perception that the

amount of their retirement benefits would be higher than they actually were.

11

B. ERISA's Notice Requirements Are Designed to Inform Participants and Beneficiaries of the Benefits They Should Expect – or Not Expect – from a Plan.

After assembling a record that showed a history and pattern of employees

failing to receive their promised employee benefits, a lack of disclosure and

transparency, and varied and numerous financial abuses, Congress enacted ERISA,

declaring that in its judgment “the interests of participants in employee benefit plans

and their beneficiaries” should be protected. Congress concluded that among the

safeguards which would lead to the protection of employee benefits was “the

disclosure and reporting to participants and beneficiaries of financial and other

information . . . .,” by requiring “disclosures be made and safeguards be provided

with respect to the establishment, operation, and administration of such plans,” and

“by establishing standards of conduct, responsibility, and obligation of fiduciaries of

employee benefit plans.” ERISA § 2, 29 U.S.C. § 1001; see also Legislative History

at 4668 (stating that the “availability of this information will enable both participants

and the Federal Government to monitor the plans’ operations”). This language in

ERISA’s legislative declaration demonstrates Congress’ obvious and unremarkable

intent that ERISA would make it easier, not more difficult, for participants to obtain

their benefits.

Accordingly, ERISA's central purpose is to protect “employees' justified

expectations of receiving the benefits their employers promise them.” Cent.

Laborers' Pension Fund v. Heinz, 541 U.S. 739, 743 (2004). It is not only ERISA's

12

vesting and accrual rules that further this goal, but ERISA's notice requirements as

well. Indeed, before employees can have definite expectations at all – and plan their

retirement accordingly – a plan must tell its employees both the current terms of the

plan, and inform them when future benefit accruals will significantly decrease. For

participants and beneficiaries, these notice requirements, which are embodied in

ERISA §§ 102 and 204(h), are the most important of ERISA's disclosure provisions.

ERISA § 102 creates an obligation for the plan to distribute Summary Plan

Descriptions (“SPDs”) and Summaries of Material Modifications (“SMMs”) to their

participants and beneficiaries. Section 102 requires SPDs to identify the plan's source

of financing, explain its rules for eligibility, vesting and accrual, and summarize its

claims and appeals process, among other things. 29 U.S.C. § 1022(b). A plan must

issue an SMM whenever it makes “any material modification in the terms of the

plan.” Id. § 1022(a). And, section 102 also requires the plan to ensure that an

average plan participant must be able to understand the information a plan provides in

an SPD or SMM.5

Under regulations interpreting section 102, an understandable description must

Id.

5 In addition to requiring summary plan descriptions and § 204(h) notices “to be written in a manner calculated to be understood by the average plan participant,” Congress has used this standard for notification in other statutes including health insurance continuation coverage under COBRA, see 29 C.F.R. § 2590.606-1(a) and the ADEA waiver provisions. See 29 U.S.C. § 626(f)(1)(A); 29 C.F.R. § 1625.22(b)(3) and (4); Thomforde v. IBM, 406 F.3d 500, 503-4 (8th Cir. 2005) (waiver of ADEA claim is only valid if “it is written in a manner calculated to be understood by such individual, or by the average individual eligible to participate”).

13

not have “the effect of misleading, misinforming or failing to inform,” and any

description of reductions “shall not be minimized, rendered obscure or otherwise

made to appear unimportant.” 29 C.F.R. § 2520.102-2(b). Furthermore, an

understandable description usually must have “clarifying examples” and “clear cross-

references” to any reductions or other restrictions on benefits that a participant might

reasonably expect to receive. 29 C.F.R. § 2520.102-2(a).

Under ERISA § 204(h), which Congress added in 1986, pension plans must

also inform their participants when they significantly reduce the rate of future benefit

accrual.6 29 U.S.C. § 1054(h)(1). Like SPDs and SMMs, such notice must be able to

be understood by an average plan participant. Id. § 1054(h)(2). By adding ERISA

§204(h), Congress made clear that it did not view the existing disclosure

requirements as adequate for amendments that significantly reduce future retirement

benefits and intended to establish an advance notice requirement for those

amendments. Although Congress amended § 204(h) in 2001 to better clarify its

intent that the notice provide sufficient information for participants to understand the

impact of plan amendments and interpretive regulations subsequently were issued,7

6 Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), Pub. L. No. 99-272, § 11006, 100 Stat. 82, 243 (1986). Section 204(h) was enacted in the same legislation that requires employers to notify their employees of the right to elect continuation of health insurance coverage. See generally Geissal v. Moore Med. Corp., 524 U.S. 74, 79-80 (1998).

7 These subsequent regulations may provide interpretive guidance on the basic notice requirement in §204(h), even though the events at issue antedate the regulations. See

14

the Third Circuit has recognized that the basic notice requirement in §204(h) has been

unchanged since 1986. See Romero v. Allstate Corp., 404 F.3d 212, 219 n. 4 (3d Cir.

2005).

Taken together, these provisions “ensur[e] that 'the individual participant

knows exactly where he stands with respect to the plan.” Firestone Tire & Rubber

Co. v. Bruch, 489 U.S. 101, 118 (1989) (quoting H.R. REP. No. 93-533, at 11 (1973),

as reprinted in 1974 U.S.C.C.A.N. 4639, 4649).8

plan for the future.

The disclosures allow a participant

to know what benefits s/he may presently expect from the plan, and, if there is an

amendment, to know if s/he should expect the future accrual of benefits to decrease

and to plan accordingly. Without notice requirements, the vision of a secure

retirement would be clouded with uncertainty and no participant could meaningfully

Esden v. Bank of Boston, 229 F.3d 154, 171 (2d Cir. 2000) (IRS regulation interpreting ERISA is valid guidance); Chock Full O’ Nuts Corp. v. United States, 453 F.2d 300, 303 (2d Cir. 1971) (holding regulations issued after event served explanatory role). 8 The Supreme Court here was discussing another ERISA disclosure provision, 29 U.S.C. § 1024(b)(4), which requires an administrator to furnish a participant with a plan description, SPD, or certain other kinds of information upon written request.

15

C. A Plan’s Failure To Provide Timely, Accurate And Complete Disclosures Negatively Impacts Employees And Prevents Them From Making Informed Decisions about their Benefits and Careers.

If employees do not receive accurate information which permits them to

determine their rights and obligations under an employee benefit plan, it is impossible

for them to determine what, if any, actions they must take to protect their rights, or to

make informed decisions concerning their benefits and employment. See Russell

Korobkin & Thomas Ulen, Law and Behavioral Science: Removing the Rationality

Assumption From Law and Economics, 88 CAL. L. REV. 1051, 1064 (July 2000)

(“actors should be able to compare the utility consequences of all alternatives to each

other”). Indeed, employees can make myopic and suboptimal decisions regarding

when to retire or how much to save for retirement. See Olivia S. Mitchell, Worker

Knowledge of Pension Provisions, 6(1) J. LAB. ECON. 22, 36 (Jan. 1988).

In cash balance conversions, like AT&T’s, timely, accurate and complete

information is even more important because the impact of the conversion on the

amount of benefits are not apparent and transition formulas are complicated. Indeed,

no one disputes that cash balance conversions have had their worst impact on older

workers. Even rulings in favor of companies sponsoring cash balance plans find that

“older workers” “have been getting the worst of both worlds as a result of these [cash

balance] conversions” because they “were too young to derive much benefit from the

traditional ‘final average pay’ design, but ... too old to have gotten an early start in

16

their careers on the benefits of a cash balance plan.”9

Moreover, plans’ purposeful lack of disclosure during cash balance

conversions occurring in the late 1990’s, like AT&T’s conversion, was well-known.

A survey by PriceWaterhouseCoopers found that in nearly three-quarters of the

conversions with 20% or more reductions, employees receive “either general

information or only a hint of potential reductions.” PriceWaterHouse Coopers,

Survey of Cash Balance Conversions, BENEFITS QUARTERLY, 1st Quarter 2001, at 22.

Accord, PRIVATE PENSIONS at 35-37. A May 5, 1999 Wall Street Journal article broke

Eaton v. Onan Corp., 117 F.

Supp. 2d 812, 818, 831 n.9 (S.D. Ind. 2000). The U.S. Government Accountability

Office (“GAO”) released a report on benefit reductions under cash balance

conversions which found that older workers experience greater losses of expected

benefits than younger workers; the median benefit reduction for workers at age 50 at

the conversion was $238 per month versus $59 per month for workers at age 30 –

almost four times as much. See U.S. GOV’T ACCOUNTABILITY OFFICE, GAO-06-42,

PRIVATE PENSIONS: IMPLICATIONS OF CONVERSIONS TO CASH BALANCE PLANS 36-38

(2005) [hereinafter “Private Pensions”].

9 In traditional defined benefit plans, pension wealth tends to grow more rapidly in the years just before people qualify for benefits. See RICHARD W. JOHNSON, et al., THE URBAN INSTITUTE, THE IMPACT OF LATE-CAREER HEALTH AND EMPLOYMENT SHOCKS ON SOCIAL SECURITY AND OTHER WEALTH 3-5 (Dec. 2007), http://www.ur ban.org /publications/411591.html (click on “PDF”). Reductions in benefit formulas thus fall disproportionately hard on employees in the decade before retirement because it is much more difficult to make up a significant loss of benefits if an employee is in her late 50s or early 60s.

17

the story of conferences in which actuaries discussed how cash balance conversions

“masked” benefit reductions until employees retire because “[t]here is very little

comparison that can be done between the two plans.” Ellen E. Schultz, Actuaries

Become Red-Faced Over Recorded Pension Talk, WALL ST. J., May 5, 1999 at C1.

The article quotes an October 1998 Society of Actuaries' meeting where consulting

actuaries joked about the employees' confusion. Amy Viener, an actuary at William

M. Mercer Inc., noted: “You switch to a cash balance plan where the people are

probably getting smaller benefits, at least the older-longer-service people; but they

are really happy, and they think you are great for doing it.” An actuary with Watson

Wyatt Worldwide who spoke on a panel called “Introduction to Cash

Balance/Pension Equity Plans” alongside Ms. Viener, is heard saying on a tape: “It is

not until they are ready to retire that they understand how little they are actually

getting.” “Right, but they're happy while they're employed,” responded Ms. Viener

of Mercer. Id.

In contrast, disclosures that are timely, accurate, complete and understandable

in accord with ERISA’s statutory and regulatory requirements, ERISA §§ 101-104,

204, 29 U.S.C. §§ 1021-1024, 1054; see also 29 C.F.R. §§ 2520.102-2 & 102-3; 29

C.F.R. §§ 2520.104b-1-104b-4, can equip participants with the information they need

to make informed decisions concerning their benefits and employment, ranging from

18

protesting for changes in benefit plans and improved compensation,10 looking for new

employment, saving more, or working longer.11

For many people, outside of Social Security, employee benefit plans are the

main source of retirement assets. As longevity, and thus the amount of assets needed

See Study from the Hartford Finds

Economy Takes Toll on Pre-Retirees and Their Retirement Dreams,

http://ir.thehartford.com/releasedetail.cfm?releaseid=512699. Any one of these

decisions from AT&T’s older employees would have been reasonable given their

significant losses of benefits. See Private Pensions at 36-38.

10 E.g., Richard A. Oppel, Jr., Companies Cash In on New Pension Plan; But Older Workers Can Face Penalties, N.Y. TIMES, Aug. 20, 1999, http://www.nytimes .com/1999/08/20/business/companies-cash-in-on-new-pension-plan-but-older-wor kers-can-face-penalties,html?scp=2&sq=%22IBM%22+and+%22protest%22 &st =nyt (“But it is I.B.M.'s conversion that has set off the harshest and most publicized reaction from its employees. Since the company, based in Armonk, N.Y., disclosed the change this spring, the backlash has turned into a social movement of sorts, with fuming employees conspiring via E-mail to protest and pressure their company to rescind the conversion.”). 11 For many older workers, working longer may be the only alternative where there have been benefit reductions. However, even that possibility is fraught with difficulties. It is generally more difficult for older workers than for younger workers to find work. Sara Rix, The Employment Situation, May 2010: Older Worker Employment and Duration of Unemployment Move Upward (June 2010), http://www.aarp.org/work/job-hunting/info-06-2010/fst193-employment.html (click on “Full Report”). There were 6,770 more age discrimination charges filed with the Equal Employment Opportunity Commission in 2009 than in 2000. U.S. Equal Employment Opportunity Commission, Age Discrimination in Employment Act (FY 1997-2009), http://www1.eeoc.gov//eeoc/statistics/Enforcement/adea.cfm?redner forprint=1.

19

to live comfortably in retirement increases,12

The District Court's ruling that AT&T was merely "spinning" the benefit

reductions and changes to make them "more palatable" to its employees improperly

diminishes the statutory disclosure rules that Congress enacted to protect

participants. The substantial benefit reductions and the substantially less valuable

benefits that AT&T masked demonstrate the wisdom in ERISA's requirements that

plans make timely, accurate, complete and understandable disclosure of significant

reductions in rates of benefit accruals to give employees an opportunity to react to

these retirement plans become even

more important. The long-term effect of an employer reneging on its benefit promise

is financially devastating and emotionally shattering for employees and their families

by destroying employees’ expectations. Moreover, retirement typically occurs at an

age where employees no longer have the option or the time to start all over again in

hopes of obtaining a new pension. See Treasury Inspector General for Tax

Administration, Statistical Trends in Retirement Plans at 14 (Ref. No. 2010-10-097

Aug. 9, 2010), http://www.treas.gov/tigta/auditreports/2010reports/201010097fr.pdf.

and deal with reductions in the benefits.

12 A.H. Munnell, A. Webb & F. Golub-Sass, The National Retirement Risk Index: After The Crash 1, 2, 6 (IB # 9-22 Oct. 2009), http://crr.bc.edu/briefs/the _national_retirement_risk_index_after_the_crash.html (from 2004 to 2009, the percent of households who are at risk of being unable to maintain their standard of living in retirement increased from 43% to 51%).

20

CONCLUSION

For the foregoing reasons, AARP respectfully urges that this Court reverse the decision of the district court.

Dated: November 10, 2010 Respectfully submitted,

/s/Mary Ellen Signorille Laurie McCann AARP Foundation Litigation Melvin R. Radowitz AARP 601 E Street, NW Washington, DC 20049 (202) 434-2060 Attorneys for Amicus Curiae AARP

21

CERTIFICATE OF BAR MEMBERSHIP

The undersigned certifies that she is a member of the bar of the United States

Court of Appeals for the Third Circuit.

Dated: November 10, 2010 /s/Mary Ellen Signorille Attorney for Amicus Curiae AARP

22

CERTIFICATE OF SERVICE

I hereby certify that on November 10, 2010, I electronically filed the foregoing

with the Clerk of the Court for the United States Court of Appeals for the Third

Circuit using the appellate CM/ECF system.

I certify that all participants in the case are registered CM/ECF users and that

service will be accomplished by the appellate CM/ECF system.

Dated: November 10, 2010 /s/Mary Ellen Signorille Attorney for Amicus Curiae AARP

23

CERTIFICATE OF COMPLIANCE WITH RULE 32(a) AND L.A.R. 31.1(c) Certificate of Compliance with Type-Volume Limitation, Typeface Requirements,

and Type Style Requirements:

1. This brief complies with the type-volume limitation of Fed. R. App. P. 32(a)(7)(B) because:

This brief contains 4,752 words, excluding the parts of the brief exempted by Fed. R. App. P. 32(a)(7)(B)(iii).

2. This brief complies with the typeface requirements of Fed. R. App. P. 32(a)(5) and the type style requirements of Fed. R. App. P. 32(a)(6) because:

This brief has been prepared in a proportionally spaced typeface using Microsoft Office Word 2007 in size 14 Times New Roman font.

Certificate of Compliance with Electronic Filing Requirements:

1. This brief complies with the electronic filing requirements of L.A.R. 31.1(c) because:

a. The text of this electronic brief is identical to the text in the paper copies filed with the Court.

b. The Symantec virus protection program was run on the file containing this electronic brief, and no virus was detected.

Dated: November 10, 2010 /s/Mary Ellen Signorille

Attorney for Amicus Curiae AARP