The opinion of the court was delivered by: Colleen Kollar-kotelly United States District Judge
This action is brought by Plaintiff Jamal J. Kifafi, on behalf of himself and similarly situated individuals, to recover for violations of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), 29 U.S.C. §§ 1001 et seq., in the Hilton Hotels Retirement Plan (the "Plan"). Defendants are the Plan, the individual members of the Committee of the Plan, the Hilton Hotels Corporation, and individual Hilton officers or directors (collectively, "Defendants" or "Hilton"). On May 15, 2009, this Court granted-in-part Plaintiff's motion for summary judgment, finding that Defendants had violated ERISA's anti-backloading provision, 29 U.S.C. § 1054(b)(1), and had violated the Plan's vesting provisions with respect to the rights of four certified subclasses. See Kifafi v. Hilton Hotels Retirement Plan, 616 F. Supp. 2d 7 (D.D.C. 2009). Having found that Defendants violated ERISA, the Court ordered the parties to submit briefs regarding the equitable relief appropriate to remedy the violations. On September 7, 2010, the Court issued a ruling that addressed the parties' proposed remedies. See Kifafi v. Hilton Hotels Retirement Plan, 736 F. Supp. 2d 64 (D.D.C. 2010). Among other things, the Court endorsed Defendants' plan to remedy the backloading violation by amending the Plan's benefits formula and ordered Hilton to search its corporate records for information relating to class members' union service, which must be credited for vesting purposes. Following the Court's ruling, the parties submitted additional briefs regarding final equitable relief.
The Court held a hearing on July 28 and 29, 2011 to address the remaining remedial issues. Following the hearing, the parties submitted additional briefing regarding two discrete issues that were raised at the hearing. This Memorandum Opinion sets forth the Court's rulings and incorporates the discussion held on the record during the hearing. The rulings described below reflect the Court's judgment and discretion about the proper scope of equitable relief for the ERISA violations previously found by the Court.
The history of the case is most thoroughly laid out in the Court's prior opinions, most significantly its opinion on summary judgment, see Kifafi v. Hilton Hotels Retirement Plan, 616 F. Supp. 2d 7 (D.D.C. 2009), and its most recent opinion regarding equitable remedies, see Kifafi v. Hilton Hotels Retirement Plan, 736 F. Supp. 2d 64 (D.D.C. 2010). The Court assumes familiarity with these opinions. Nevertheless, the Court shall review the facts of this case insofar as they are relevant to the issues discussed herein.
The Hilton Hotels Retirement Plan (the "Plan") is a defined benefit pension plan subject to ERISA. Benefits under the Plan accrue according to a formula based on an employee's average compensation and years of service, with an offset for the employee's Social Security benefits. See 616 F. Supp. 2d at 13-14. ERISA prevents employers from "backloading" benefits, i.e., using a benefit accrual formula that postpones the bulk of an employee's accrual to his later years of service. Id. at 11. In order to prevent backloading, ERISA requires defined benefit plans to satisfy one of three alternative minimum accrual rules, known as the "3% rule," the "133 1/3% rule," and the "fractional rule." Id. at 11-12; see 29 U.S.C. § 1054(b)(1). Beginning in 1976 and continuing until 1999, the Plan contained an accrual schedule that was supposed to comply with ERISA's "133 1/3% rule." 616 F. Supp. 2d at 14. In 1999, after this lawsuit was filed, Hilton amended the Plan's benefit accrual formula seeking to comply with the fractional rule. Id. at 16. The 1999 amendment (Amendment 1999-1) also changed two unrelated aspects of the Plan that lowered benefits for participants. Id. Following briefing on summary judgment, this Court held that the pre-amendment Plan failed to comply with any of the three minimum accrual rules and that the pre-amendment Plan was required to comply with the 133 1/3% rule. Id. at 24. The Court concluded that "the Plan's participants are entitled to receive the benefits they would have accrued had the Plan complied with the 133 1/3% rule." Id. at 24. The Court also concluded that the 1999 amendment to the Plan did not moot the ERISA violation found by the Court. Id. at 25-28. The Court's ruling applies to a certified class of current and former Hilton employees (the "benefit-accrual class").*fn1
The Court also found that Defendants had violated ERISA with respect to the vesting of benefits under the Plan, i.e., the time of service required for an employee to obtain a right to his or her accrued benefits.*fn2 Employees who terminated after January 1, 1989 need five years of service to become vested; employees who terminated prior to that date needed ten years of service. ERISA requires employers to count all of an employee's years of service for calculating his or her years toward vesting, even if they occur prior to participation in the retirement plan. 29 U.S.C. § 1053(b)(1); 616 F. Supp. 2d at 12. ERISA generally requires an employee with 1000 hours of service during a twelve-month period to be credited with one year of service. 29 C.F.R. § 2530.200b-1. In calculating the 1000 hours of service, the employer must count not only hours worked but also hours "during which no duties are performed . . . due to vacation, holiday, illness, incapacity . . . layoff, jury duty, military duty or leave of absence." Id. § 2530.200b-2(a). If an employer's existing records do not allow it to properly calculate an employee's hours of service, the employer may "use a permitted equivalenc[y]." Id. § 2530.200b-3(a). One such equivalency focuses on "hours worked," in which an employee who works 870 hours is credited with 1000 hours of service. Id. § 2530.200b-3(d).
Beginning in 1976 and continuing until the Plan was amended in December 2002, Hilton applied the 1000 hours standard for calculating employees' years of service. 616 F. Supp. 2d at 29. By its terms, the Plan required all periods of employment between the date of hire and the date of termination to be taken into account, including leaves of absences and union service. Id.
at 14. The Court found that Defendants had violated the Plan's vesting provisions with respect to four certified subclasses: (1) they failed to credit employees' union service for purposes of vesting*fn3 ; (2) they failed to properly apply the 1000 hours standard because they kept inadequate records; (3) they failed to credit employees' leaves of absence; and (4) they failed to count the year in which employees became participants in the Plan for vesting purposes. 616 F. Supp. 2d at 29-32. Accordingly, the Court ruled that the members of these vesting subclasses should be awarded the vesting credit to which they are entitled.
On September 7, 2010, the Court issued a Memorandum Opinion addressing the parties' competing proposals for equitable relief appropriate to remedy the backloading and vesting violations found by the Court. With respect to the backloading violation, the Court generally endorsed Defendants' proposal to amend the benefits formula by capping the Social Security offset at a certain level, mathematically ensuring that the annual accrual rate never falls below a required minimum. See 736 F. Supp. 2d at 71-73. The Court ordered the parties to recalculate benefits for the benefit-accrual class based on Defendants' formula and attempt to resolve any disagreements about the specific amounts owed to particular class members. Id. at 73.
With respect to the vesting violations, the Court's prior remedial order addressed a series of disputes between the parties. The Court rejected Plaintiff's proposal to count all periods of non-participating service as union service, and the Court also rejected Defendants' proposal to award credit for union service only where the Plan records indicate union service. The Court ordered Defendants to conduct a search of their corporate records for information that would indicate union service by subclass members identified by Plaintiff. See 736 F. Supp. 2d at 75-76. The Court also ordered the parties to develop a joint proposal for a claims procedure to be administered by Defendants to subclass members who may have union service. Id. The Court determined that there were disputed issues of fact regarding the Plan's application of unlawful equivalencies to salaried employees, and this issue would need to be addressed at the remedies hearing. Id. at 80-81. The Court also indicated that it appeared that additional vesting credit was due to individuals identified in a "Services Prior" table in the Plan database. Id. at 81. The Court ruled that Defendants should credit participants for service based on the hours reflected in the Plan and the proper equivalencies, not based on an elapsed time method. Id. at 82. The Court also declined to rule on Plaintiff's claim that Hilton had improperly revised the Plan records since 2002, finding that the parties had not adequately addressed this issue in their briefs.
Section 502(a)(1)(B) of ERISA allows a participant or beneficiary to bring a civil action "to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan." 29 U.S.C. § 1132(a)(1)(B). Pursuant to this provision, the Court may order that participants' benefits be recalculated consistent with the terms of the Plan. See Frommert v. Conkright, 433 F.3d 254, 270 (2d Cir. 2006) ("The relief that the plaintiffs seek, recalculation of their benefits consistent with the terms of the Plan, falls comfortably within the scope of § 502(a)(1)(B).")
ERISA also has a "catchall" provision, Section 502(a)(3), which allows a participant, beneficiary, or fiduciary to "(A) enjoin any act or practice which violates any provision of this subchapter or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this subchapter or the terms of the plan." 29 U.S.C. § 1132(a)(3); Varity Corp. v. Howe, 516 U.S. 489, 507, 511 (1996). Where relief is otherwise available under Section 502(a)(1)(B), equitable relief under Section 502(a)(3) will not be "appropriate." Varity Corp., 516 U.S. at 515. However, where a plan does not conform with the requirements of ERISA, relief under the catchall provision may be appropriate. The phrase "appropriate equitable relief" encompasses those categories of relief typically available in equity, such as injunction, mandamus, and restitution, but it does not include compensatory or punitive damages. See Mertens v. Hewitt Assocs., 508 U.S. 248, 256-58 & n.8 (1993); id. at 258 n.8("'Equitable' relief must mean something less than all relief.") Thus, courts have found that equitable relief is appropriate in ERISA cases where it places participants "in basically the same financial position in which they would be if the employer had complied with the minimum requirements necessary for the [plan] to satisfy the accrual and vesting provisions of ERISA." Carrabba v. Randalls Food Markets, Inc., 145 F. Supp. 2d 763, 770-71 (N.D. Tex. 2000), aff'd, 252 F.3d 721 (5th Cir. 2001) (per curiam).
A. Remedies for the Backloading Violation
1. Benefits Formula for Participants Who Separated After 1981 The parties agree that based on the Court's prior rulings, Hilton shall cap the Social Security offset so that the minimum accrual formula for participants who separated from service after 1981 is as follows: 1.4325% of Average Monthly Compensation ("AMC") multiplied by Years of Benefit Service ("YBS") up to a maximum of 25 years, plus 0.375% of AMC multiplied by YBS in excess of 25 years, up to 45 years. The parties further agree that AMC should be capped at $12,500 per month in accordance with applicable tax laws. As explained below, the parties disagree on whether further adjustments to this formula are necessary.*fn4
2. Benefits Formula for Participants Who Separated Before 1982 The Plan's benefit formula was slightly different for participants who separated from service prior to 1982. For those participants, the Plan generally provides that the amount of benefits payable at retirement age is equal to 1.5% of the employee's AMC multiplied by YBS, minus the Social Security offset. The parties initially disagreed about the proper remedial formula for these participants, but they now agree that the Social Security offset should be capped so as to ensure that the minimum accrual rate is 1.125% of AMC (calculated by dividing the maximum 1.5% by 133 1/3%). Accordingly, the Court shall order this remedy that is agreed upon by the parties.
3. Benefit Offset for New York Hotel Association or Union Benefits Plaintiff contends that Hilton should not be permitted to implement an offset for benefits earned by participants from the New York Hotel Association ("NYHA") or a union during periods of concurrent service, as the Plan currently provides. Plaintiff argues that these offsets simply create another backloading violation that, if left unremedied, would effectively nullify the Court's other remedies for the backloading violation. However, offsets for benefits earned from the NYHA or a union during concurrent periods of service were not a part of Kifafi's claims as litigated during summary judgment. In Plaintiff's brief in support of his motion for summary judgment, he argued that "an offset of benefits earned from another plan based on a non-concurrent period of service is not permissible." Pl.'s  Mot. for Summ. J. at 15 (emphasis added). Plaintiff acknowledged that "[a]lthough years of union service are required to count for vesting, they do not generally count for purposes of benefit computations." Id. at 35. Plaintiff explicitly stated that "ERISA's accrual rules do not allow benefits from another plan to be offset unless the benefits are based on 'concurrently operating' periods." Id. at 35. Therefore, Plaintiff conceded at the summary judgment stage that offsets based on concurrent periods of service in another plan are permissible, and the Court did not make any finding of liability with respect to these offsets.
During the remedies hearing, Plaintiff argued that his concession was limited to concurrent periods of service in another plan offered by the same employer, i.e., Hilton. In other words, Plaintiff concedes that participants' benefits could be offset by the benefits earned in another Hilton plan but not by the NYHA or union plans because they were not offered by Hilton. Plaintiff relies on Revenue Ruling 76-259, which explained that a benefit offset based on an employer-provided profit-sharing plan would not violate ERISA's anti-backloading provision. See Rev. Rul. 79-259, 1976-2 C.B. 111. Plaintiff reads Revenue Ruling 76-259 as providing only a limited exception for offsets based on other employer-provided plans. But the ruling can also be interpreted as saying that benefits can be tested for backloading on a gross basis (before offsets for other plans), which would support Hilton's practice. The IRS has never ruled that offsets for benefits earned in multiemployer plans such as the NYHA must be taken into account when assessing compliance with ERISA's anti-backloading rules. In fact, when the IRS examined the Plan in 2002 for compliance with the 133 1/3% rule, it examined only the Social Security offset and did not object to Plan's offsets for NYHA or union benefits. See Suppl. Poulin Decl., Ex. 4 (Technical Advice Memorandum), ECF No. 223-10.
Several courts have recognized that when an employee is enrolled in two pension plans for concurrent periods of service, ERISA does not prohibit offsets as long as they are explicitly prescribed in the plan. See, e.g., Potter v. Eaton Corp., 9 F.3d 1553, 1993 WL 438764, at *2 (9th Cir. Oct. 28, 1993) (Table) ("[T]he action of the administrators in applying the offset provision of the Eaton Plan did not deprive Potter of any vested interest in the Eaton Plan or of any interest in the Union Plan, it merely precluded double payment for the same years of employment with Eaton."); accord Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504 (1981) (holding that ERISA permits offsets of pension benefits based on workers' compensation awards). Hilton's offsets for union or NYHA benefits in concurrent periods of service are designed to prevent participants from earning two pensions for the same period of service; they do not reduce participants' benefits under the Plan or shift those benefits to later years, which is what ERISA's anti-backloading rules are aimed at preventing. Therefore, the primary purpose of the anti-backloading rules-protecting employees who work for only a short period of time from vesting with a minimal amount of accrued benefits-would not be served by preventing Hilton from applying the offsets for NYHA and union benefits earned in concurrent periods of service as prescribed by the Plan.
Accordingly, the Court rejects Plaintiff's proposal to declare that the offsets based on concurrent periods of NYHA/union service are in violation of ERISA's anti-backloading rules, and therefore the Court's remedial order shall not include such a provision.
B. Remedies for Vesting Violations
The parties have raised four issues with respect to the remedies for the vesting violations previously found by the Court. ...