Foot Locker employees seeking to have a retirement plan reformed had an ally in court when the Department of Labor filed a brief in support of a district court's decision that the company should reform its plan.
Foot Locker converted its traditional pension plan to a cash balance plan, but, according to a suit before the 2nd Court of Appeals, Geoffrey Osberg said that the company put out false and misleading summary plan descriptions that "violated ERISA by intentionally misrepresenting to plan participants that their retirement benefits would continue to increase after the conversion."
In fact, the opposite was true, according to the brief, which said, "the conversion, in fact, was designed to and actually did cause many participants, including Osberg, to experience a sometimes-lengthy period during which participants temporarily stopped accruing benefits."
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After an initial dismissal of the case, on appeal the dismissal was vacated and subsequently the district court "certified a class, conducted a bench trial, and issued an order and final judgment in Osberg's and the class's favor," ordering the plan be reformed.
Foot Locker appealed, and the Department of Labor's brief argues that the judgment in favor of the plaintiffs is correct for a number of reasons.
Foot Locker, contrary to what it said in SPDs, used a 9 percent discount rate rather than the 6.06 percent rate it should have used to calculate benefits, which resulted in a "wear-away" of benefits rather than continued accrual.
The wear-away period was never mentioned, the DOL said, and the change was in fact undertaken to save the company money without revealing how it was doing so—thus avoiding the negative press and poor morale that would result if it were known that employees' retirement benefits were actually being reduced.
In addition, said the DOL, Foot Locker's arguments in its appeal of the judgment are erroneous, including its interpretation of another case's judgment that actually supports the plaintiffs' argument rather than Foot Locker's.
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