In Jensen v. Solvay Chemicals, Inc., No. 11-8092 (July 2, 2013), the Tenth Circuit recently affirmed a district court’s determination that employees were not entitled to any relief for their employer’s violation of ERISA Section 204(h)’s notice requirements because the employees failed to establish that the notice deficiency was “egregious.”  The Court also held that the employees could not a maintain a claim for promissory estoppel pursuant to ERISA Section 502(a)(3) because they could not demonstrate that they were influenced by the notice’s deficiency. 

ERISA Section 204(h) requires the administrator of a defined benefit plan to provide advance notice of a plan amendment that reduces future benefit accruals, or reduces early retirement benefits on a prospective basis.  Failure to provide the Section 204(h) notice can result in the imposition of a $100 per participant penalty tax for each day until the failure is corrected.  In addition, an “egregious” failure to provide the notice can result in the amendment being nullified, so that the benefits eliminated by the amendment are restored.  Solvay dealt only with whether the failure was egregious, and not with the potential implication of the $100 per day penalty tax.

On January 1, 2005, Solvay converted its defined benefit plan into a “cash balance” plan.  The company’s conversion resulted in the elimination of early retirement subsidies popular with company employees, and they brought suit alleging that the conversion violated ERISA and the Age Discrimination in Employment Act of 1967 (ADEA).  The U.S. District Court for the District of Wyoming granted summary judgment in favor of Solvay on all of the employees’ claims.  The Tenth Circuit affirmed on nearly all counts but held that Solvay violated ERISA Section 204(h)’s notice requirements in one respect when it came to describing the company’s preexisting early retirement subsidies.  The Tenth Circuit remanded the case to the district court to determine whether and what relief was warranted for this single violation.

Following a bench trial, the district court concluded that no relief was warranted because the employees had not proved that the notice failure was “egregious,” as defined by ERISA.  ERISA Section 204(h)(6)(B)(i), 29 U.S.C. § 1054(h)(6)(B)(i), provides in part that a company’s Section 204(h) notice failure is “egregious” if the failure was “within [its] control” and was “intentional,” or if the failure was “within [its] control” and the company failed “to promptly provide the required notice or information after [it] discover[ed] an unintentional failure to meet the requirements of” Section 204(h). 

On appeal, the Tenth Circuit upheld the district court’s conclusion that, even under the “intentional” definition advanced by the employees, Solvay “wanted to make all the disclosures the law required, that the company’s omission was accidental, no more than an oversight in the process of drafting a complex statutorily mandated notice.”  The Tenth Circuit noted testimony from Solvay executives that they never intended to leave out details regarding existing early retirement benefits, and testimony from outside lawyers and actuaries that they were directed by the company to ensure the Section 204(h) notice contained everything ERISA required and that no Solvay executive ever pushed back against their recommendations regarding what to include in the notice.  The Tenth Circuit rejected the employees’ contention that Solvay had a financial motive to omit information and that at least some company executives were aware of the company’s disclosure obligations.  The Tenth Circuit also affirmed the district court’s finding that Solvay did not discover its unintentional notice deficiency until after the employees commenced their lawsuit, and that Solvay immediately consulted with ERISA counsel to correct the omission upon discovering it.

The employees alternatively brought a Section 502(a)(3) claim for promissory estoppel asserting that the company’s 204(h) notice also violated ERISA Section 102(a), 29 U.S.C. § 1022(a), which requires a company to furnish its employees with “a summary of any material modification in the terms of the plan.”  

Relying on the Supreme Court’s decision in Cigna Corp. v. Amara, 131 S. Ct. 1866 (2011), the Tenth Circuit held that Section 502(a)(3) incorporates whatever requirements “come from the law of equity” when “the specific remedy being contemplated imposes” them.  Applying traditional equity principles, the Court determined that the employees were not able to recover under a promissory estoppel theory because they were admittedly not influenced by the deficient notice in that they were well aware that they were losing certain benefits under the new plan.

Conversions to cash balance plans have frequently been the target of ERISA class action lawsuits challenging notices under Section 204(h).  The Tenth Circuit’s decision in Solvay is significant because it provides additional guidance regarding what constitutes an “egregious” notice deficiency as defined by Section 204(h), and the burden a plaintiff must meet to prevail on a claim for promissory estoppel pursuant to ERISA Section 502(a)(3) post-Amara.