Today’s ERISA question is an important one: when, for limitations purposes, does a claim accrue against a pension plan for miscalculating the participant’s benefit? After considering several alternative formulae developed in different circuits and district courts, the Second Circuit holds that the claim begins only “when there is enough information available to the pensioner to assure that he knows or reasonably should know of the miscalculation.”
Novella v. Westchester County, No. 09-4061 (2d Cir. Nov. 3, 2011): This case, amazingly enough, commenced in 1995 and concerns a plan-specific issue about what the correct rate for paying a pension ought to be.
The participant, a tradesman who took disability retirement in that year, discovered a discrepancy in his pension check. Instead of receiving his defined-benefit payments at the 1995 rate he thought the plan promised, the 1995 rate applied only to work he performed during or after 1987. Prior years’ work (going back to 1962) was paid out at a lower, 1981 rate. The employee exhausted plan administrative remedies challenging the calculation, He then sued in 2002 on his own behalf and also on behalf of a putative class of participants.
Before plaintiff filed his motion for class certification, the parties filed cross-motions for summary judgment on the ERISA § 502(a)(1)(B) claim to recalculate the benefits. The district court sided with the plaintiff, holding that the plan unambiguously required that the entire pension be calculated at the 1995 rate.
Here’s what happened on class certifications, as the panel summarizes:
“Novella then moved to certify a class action on behalf of either of two classes: one including recipients of various types of pensions whose benefits were calculated using multiple per-credit rates, and the other limited to disability pensioners whose benefits were affected by the same practice. The district court concluded that in light of Novella’s success on his individual claims, only the narrower class of disability pensioners was eligible for certification. The court determined that the statute of limitations for the absent class members’ claims did not accrue until each class member affirmatively challenged the defendants’ two-rate benefit calculation, and was rebuffed. The court found twenty-four putative class members whose claims were timely and determined that this number met the numerosity requirement of Rule 23(a)(1) of the Federal Rules of Civil Procedure. Finding the other requirements of Rule 23(a) and (b) to have been met, the court certified this narrower class of disability pensioners.”
The court awarded the same relief to the class of participants, along with pre-judgment interest. Both parties cross-appealed.
On appeal, the panel upholds the central ruling that the plan committee abused its discretion when it construed the plan to split the retiree’s service into different periods, and pay a lower benefit for the earlier work. The plan contained no authorization for a two-rate calculation. Of particular note, the panel rejects the plan’s leading argument – that the pension would have been reduced to reflect his age, had he taken early retirement instead of disability retirement – on the ground that the plan failed to raise that issue during the administrative process. The panel also upholds the award of prejudgment interest (not insubstantial in this case – going back 15 years at 7.5%!).
But the plaintiff suffers a different setback – the panel vacates the class award and certification. The class certification issue turned on whether the class was sufficiently numerous under Rule 23(a)(1) to make joined impracticable. The panel notes that as a rule of thumb, 40 class members is the presumptive threshold for numerosity, 21 or fewer members is presumptively too small, and the in-between number is (apparently) a gray area. The question of how many class members there might be, the panel holds, merged how many persons had timely claims:
“In this case, the question of whether the certified class was sufficiently large to satisfy Rule 23 hinges on whether the statute of limitations for each class member’s claim began to run upon receipt of his first pension payment, as the defendants contend, or upon a class member’s first inquiry to the Fund regarding the amount of his benefits and the Fund’s rejection of his request that his pension be calculated using one rate, as the district court concluded and as Novella urges on appeal.”
The limitations period for the claim (the parties agreed) was six years from the date that the participant was put on notice of the claim, but the panel observes that there was no Second Circuit authority concerning when a participant may be deemed to have sufficient knowledge. The panel rejects the suggestions that limitations should be measured by (1) the first benefit check received by the participant (the defendant’s argument); (2) the formal denial by the plan of a plaintiff’s administrative appeal (as the plaintiff argued and several district courts have used); and (3) continuing-violation, making each check a fresh violation (apparently the rule in the Ninth Circuit).
Instead the panel holds that “notice of a miscalculation can be imputed to a pensioner — and the statute of limitations will start to run — when there is enough information available to the pensioner to assure that he knows or reasonably should know of the miscalculation,” following (in substantial part) the rule of the neighboring Third Circuit. Because of the individualized nature of this inquiry the panel vacates and remand to allow the district court to assess how many participants claims would be timely under this rule.