The opinion of the court was delivered by: Gladys Kessler United States District Judge
Plaintiff, Karen M. Becker, a former employee of The Weinberg Group, Inc., brings this suit alleging, inter alia, breaches of fiduciary duty and a failure to pay pension benefits under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1001 et seq. Defendants are The Weinberg Group, Inc. Pension Trust (the "Plan"); Myron and Arlyne Weinberg;*fn1 Matthew Weinberg, who is the son of Myron and Arlyne Weinberg;*fn2 The Weinberg Group, Inc. (the "Company");*fn3 and the Pension Benefit Guaranty Corporation ("the PBGC").
Plaintiff claims that the Company and the individual Defendants made a number of improper distributions to Plan participants between 1996 and 2000. As a result of these distributions, the Plan was underfunded when Plaintiff requested a lump sum distribution of her benefit. Consequently, the Company, as Plan Administrator, required her to pledge collateral greater than her benefit amount in order to receive her lump sum payment. She brought this action on behalf of herself, seeking an unrestricted lump sum distribution of her benefit, and on behalf of the Plan, seeking damages as a result of the improper distributions. The Company has since given her an unrestricted benefit payment of $484,194.98. Plaintiff claims she is entitled to a further $207,260.02.
This matter is currently before the Court on the following motions: Plaintiff's Motion for Partial Summary Judgment [Dkt. No. 38], Plaintiff's Motion for Partial Summary Judgment on the Disputed Benefit Amount [Dkt. No. 58], Defendant's (Plan) Motion for Summary Judgment [Dkt. No. 59], Defendants' (Company and individual Defendants) Motion for Partial Summary Judgment [Dkt. No. 60], and Defendant's (PBGC) Motion to Dismiss [Dkt. No. 73]. Upon consideration of the Motions, Oppositions, Replies, and the entire record herein, and for the reasons stated below, the Court rules as follows.
Plaintiff's Motion for Partial Summary Judgment [Dkt. No. 38] is denied, Plaintiff's Motion for Partial Summary Judgment on the Disputed Benefit Amount [Dkt. No. 58] is denied, Defendant's (Plan) Motion for Summary Judgment [Dkt. No. 59] is granted, Defendants' (Company and individual Defendants) Motion for Partial Summary Judgment [Dkt. No. 60] is granted, and Defendant's (PBGC) Motion to Dismiss [Dkt. No. 73] is granted.
A. Factual History and Major Contentions*fn4
The Company provides testing and research services primarily to businesses seeking regulatory approval for their products or operations. It also helps customers improve manufacturing processes and defend their products in court and the media. It has approximately 75 employees. Myron Weinberg was the Chief Executive Officer of the Company until 1997. His son, Michael Weinberg, succeeded him as CEO. Arlyne Weinberg was the President of an affiliated company that also participated in the Company's Plan.
Plaintiff was employed with the Company from September 1, 1990 until February 28, 2002. She was 47 years old when she left. According to her Affidavit, her income from employment with the Company ranged from $352,297.52 to $852,145.10 between 1996 and 2001. From 1998 until 2002, Plaintiff was employed as a director and officer of the Company. As a Company employee, she was a participant in the Company's Plan. The Company served as the Administrator of the Plan.
The Plan is a defined benefit plan. Under a defined benefit plan, an employee is entitled to a fixed payment upon retirement, the amount of which is determined based on a formula incorporating factors such as salary history and duration of employment.*fn5 See 29 U.S.C. § 1002(35). Because the payments are fixed, beneficiaries are not entitled to any plan assets exceeding the amount of their benefits.
Under the terms of the Company's Plan, each participant is entitled, upon retirement or termination, to vested benefits that accrue based on compensation and years of service, as well as certain other factors not relevant to these proceedings. The Plan documents provide several options for distribution of benefits to participants, including a lump sum distribution upon termination of employment with the Company.
On December 11, 1998, the Company adopted Plan Amendment No. 3 ("Amendment No. 3"), which states:
BE IT RESOLVED that effective as of December 31, 1998, all benefits accrued to Plan participants as of such date will be frozen and no further benefits will accrue under the Plan to participants after such date.
Dkt. No. 58 Ex. D.*fn6 On December 19, 1998, the Company issued a notice to all Plan participants stating:
This notice is to inform you that benefits attributable to the Weinberg Consulting Group, Inc. Pension Trust will be frozen effective December 31, 1998. This means that services performed only through December 31, 1998 will be included in the calculation of your accrued benefit. Thereafter, no further benefits will be earned under the Pension Trust, and hours of service performed and compensation earned after December 31, 1998, will not be included in the calculation of your accrued benefit. Dkt. No. 58 Ex. F.
Each year since 1998, the Statement of Plan Benefits provided to Plan participants has reiterated that Plan benefits were frozen as of December 31, 1998, and has stated, with minor variations, that "[t]he amount of [a participant's] Accrued Benefit depends upon [the participant's] years of service and the history of [the participant's] compensation with The Weinberg Group through December 31, 1998." Dkt. No. 59 Weinberg Decl. ¶ 4.
Plaintiff claims that between 1996 and 2000, the Company and individual Defendants made improper benefit payments to Myron Weinberg, Arlyne Weinberg and ten additional participants. See Dkt. No. 38 Ex. E. She claims that in 1994, the Company and Myron and Arlyne Weinberg entered into an agreement to segregate $2,488,293 of the Plan's assets into a separate account for the sole benefit of Myron and Arlyne Weinberg. Plaintiff maintains that creation of this separate account violated the Internal Revenue Code, and therefore it was a breach of the individual Defendants' fiduciary duties to the Plan. She further maintains that the creation of the separate account constituted a "prohibited transaction" under ERISA. Accordingly, Plaintiff claims that the assets in the separate account continued to be Plan assets that were required to be available to provide benefits for all Plan participants, including Plaintiff.
In November 1999, the Plan assets in the separate account were paid to Myron and Arlyne Weinberg. Plaintiff claims these payments were made without first ensuring compliance with the Treasury regulations governing distributions to highly-compensated employees and without application of the relevant Treasury regulation restrictions on lump sum distributions to highly-compensated employees.*fn7 Plaintiff also contends that at the time the distributions were made, the amount of assets in the Plan, after subtracting the amount of the distributions, did not equal or exceed 110 percent of the Plan's current liabilities, as required by Section 14.04 of the Plan's governing documents. The Company represented in a letter to the Internal Revenue Service ("IRS") dated October 7, 2002 that there were at least ten lump sum distributions made to other highly compensated employees between 1996 and 2000. Plaintiff claims all of these distributions violated the fiduciary duties of the Company and the individual Defendants, and constituted prohibited transactions under ERISA.
In a staff meeting on February 15, 2002, Matthew Weinberg informed all employees that the Company would no longer make any lump sum distributions of benefits to Plan participants, because, according to Plaintiff, "the Pension Plan had paid out a significant number of benefits to previously retired or terminated participants."
On February 28, 2002, the Company terminated Plaintiff's employment.
On November 27, 2002, Plaintiff filed a claim with the Plan Administrator for a lump sum distribution of her benefits.
By letter dated December 19, 2002, the Company informed Plaintiff that "[t]he Plan is both willing and able to pay Dr. Becker the full amount of her accrued benefit in a lump sum subject to the restrictions described in the immediately following paragraph." In that paragraph, the Company informed her that, pursuant to Section 14.04 of the Plan, in order to receive a lump sum distribution of her benefits, she must (1) "deposit amounts in escrow with a fair market value equal to at least 125% of the restricted amount;" (2) "provid[e] a bank letter of credit in an amount equal to 100% of the restricted amount;" or (3) "post a bond equal to at least 100% of the restricted amount."
In a March 18, 2003 letter to Matthew Weinberg as Plan Administrator, Plaintiff appealed the denial of her request for an unrestricted lump sum payment of her benefit. She claimed that the Plan Administrator had erroneously calculated her pension benefit by crediting her with only seven "years of participation" in the Plan, rather than ten years. Dkt. No. 59, March 18, 2003 Letter.
On May 7, 2003, the Company, acting as Plan Administrator, sent a letter to Plaintiff rejecting her assertion that she should have been credited with ten years of participation. Dkt. No. 58 Ex. G. Relying on the language of Plan Amendment No. 3, the letter stated, in relevant part*fn8
In contrast to the limitations under Section 5.01(f)(7)(ii) of the Plan*fn9 which are based on years of service, the Plan Administrator has interpreted the limitations of this same subsection which are based on years of participation to require that a participant actually accrue a benefit under the Plan to receive credit for a year of participation. We note that the Plan Administrator's interpretation is consistent with the IRS' interpretation of years of participation in every other context in which it arises for tax qualification purposes....
As you know, Amendment No. 3 to the Plan which was adopted on December 11, 1998 (and which was signed by Dr. Becker) froze the accrued benefits and all future participation under the Plan as of December 31, 1998, with the result that periods of service performed after December 31, 1998 and compensation received after that date were not taken into account in calculating benefits under the Plan....
Based on the language of Amendment No. 3 requiring that all benefits accrued by Plan participants be frozen as of December 31, 1998, the Plan Administrator has determined that service after December 31, 1998 is not taken into account in determining years of participation for purposes of Section 5.01(f)(7)(ii) of the Plan.
Dkt. No. 38 Ex. G. at 2-3 (emphasis in original). The letter also attached a separate letter from the Plan's actuary, AON Consulting, explaining the calculation of Plaintiff's benefit amount under Internal Revenue Code Section 415(b). The letter stated the maximum benefit amount as $130,000, and provided a detailed explanation of the determination of Plaintiff's Social Security Normal Retirement Age.
In December of 2004, Matthew Weinberg personally borrowed $3,000,000.00, which he loaned to the Company to contribute to the Plan in order to fully fund and ultimately terminate it. Between January 1, 2005 and July 6, 2005, the Company contributed the total amount of $2,276,128.00 to the Plan.
On August 12, 2005 the Company provided Plaintiff with an unrestricted lump sum payment of $484,194.98. On August 18, 2005, Plaintiff cashed the check for her benefit.
On March 21, 2005, the Plan Administrator filed a standard termination notice with the PBGC with respect to the Plan. Am. Compl. ¶ 84. On April 28, 2005, Plaintiff submitted a letter to the PBGC alleging that the Plan Administrator had miscalculated her benefits, and asking the PBGC to suspend termination of the Plan. See Dkt. No. 73 Ex. D. The PBGC had a 60-day period from the time of the termination notice within which to issue any notice of noncompliance; it did not issue any such notice. On November 28, 2005, the Plan Administrator filed a certification with the PBGC certifying that all assets of the Plan had been distributed to Plan participants. The PBGC responded on December 9, 2005, notifying the Plan Administrator that all Plan records must be preserved. See id. On February 6, 2007, the Company and individual Defendants informed the Court that the Plan has been terminated.
On August 5, 2003, Plaintiff filed the instant action alleging, inter alia, breaches of fiduciary duty under ERISA and a failure to pay pension benefits. In the original Complaint, Plaintiff asserted six separate causes of action against the Company, individual Defendants and the Plan, which she grouped into two general categories: (1) claims on behalf of the Plan against the Company and individual Defendants for the breach of fiduciary duty through their mismanagement of plan assets (Counts 1, 2 and 6); and (2) claims in Plaintiff's own capacity for benefits under the Plan (Counts 3, 4 and 5).
As to these claims, Plaintiff sought a judgment (1) declaring the Company and the individual Defendants jointly and severally liable (including in their capacities as co-fiduciaries) for all losses to the Plan resulting from the alleged fiduciary breaches and prohibited transactions; and (2) enjoining all Defendants from further violating any provision of ERISA or the Plan's governing instruments. Plaintiff also sought the full amount of her benefits, together with the costs of this action, including reasonable attorney's fees, and interest from the date she claims the lump sum distribution of her benefits should have been made.
On July 14, 2005, Plaintiff filed an Amended Complaint with leave of Court. The Amended Complaint joined PBGC as a Defendant and added a Claim for Declaratory Relief (Count 7), seeking a declaration that the Court orders the Company to make Plaintiff or the Plan whole for the additional part of those benefits not paid pursuant to her termination, and that the Court orders PBGC to conduct an audit of the Plan to ensure that it makes Plaintiff and other participants whole.
On April 7, 2004, the Court denied the motion of the Plan, the Company and individual Defendants to dismiss or, in the alternative, for summary judgment. On July 23, 2004, the Court granted Plaintiff's motion to disqualify counsel for the Plan due to a conflict of interest on the ground that the same counsel represented the Company and individual Defendants. The Court ordered the Plan to retain new, independent counsel. On July 28, 2005, the Court denied the Plan's motion to dismiss and its renewed motion to dismiss the First Amended Complaint.
On March 29, 2005, Plaintiff filed a Motion for Partial Summary Judgment [Dkt. No. 38], which is currently before the Court. The Plan filed an Opposition on April 27, 2005 [Dkt. No. 42], and the Company and individual Defendants filed a separate Opposition on the same date [Dkt. No. 43]. Plaintiff filed a Reply to the Plan's Opposition on May 17, 2005 [Dkt. No. 46], and a separate Reply to the Opposition of the Company and individual Defendants on the same date [Dkt. No. 45].
On September 15, 2005, pursuant to a briefing schedule set during an August 12, 2005 status conference, Plaintiff filed a Motion for Partial Summary Judgment on the Disputed Benefit Amount [Dkt. No. 58], which is currently before the Court. The Plan filed an Opposition on October 14, 2005 [Dkt. No. 62], and the Company and individual Defendants filed a separate Opposition on the same date [Dkt. No. 63]. Plaintiff filed her Reply to the Plan on November 1, 2005 [Dkt. No. 66], and on the same date filed a separate Reply to the Opposition of the Company and individual Defendants [Dkt. No. 67].
The Plan filed a Motion for Summary Judgment on Plaintiff's Claim for Benefits on September 30, 2005 [Dkt. No. 59], which is currently before the Court. Plaintiff filed an Opposition on November 1, 2005 [Dkt. No. 64], and the Plan replied on November 15, 2005 [Dkt. No. 68].
The Company and individual Defendants filed a Motion for Partial Summary Judgment on September 30, 2005 [Dkt. No. 60], which is currently before the Court. Plaintiff opposed on November 1, 2005 [Dkt. No. 65], and the Company and ...