Kifafi v. Hilton Hotel Retire
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Opinion
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA
JAMAL J. KIFAFI, individually and on behalf of all others similarly situated,
Plaintiff,
v. Civil Action No. 98-1517 (CKK) HILTON HOTELS RETIREMENT PLAN, et al.,
Defendants.
MEMORANDUM OPINION (September 7, 2010)
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)(C), 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) (Kifafi III). Having found that Defendants violated ERISA, the Court requested that the
parties submit briefs regarding the equitable relief appropriate to remedy the violations. Plaintiff
filed a [211] Brief on Equitable Relief, to which Defendants filed a [219] Response Brief on
Equitable Relief, and Plaintiff filed a [223] Reply Brief on Equitable Relief. Defendants have filed a [224] Motion for Leave to File Sur-Reply on Equitable Relief and for Expert Discovery in
Advance of Remedies Hearing, to which Plaintiff has filed an Opposition, and Defendants have
filed a Reply.
The parties’ briefs on equitable relief reflect a number of significant disagreements about
the proper scope of equitable relief that should be ordered by the Court. The parties have filed
competing proposals to remedy the benefit accrual and vesting violations previously found by the
Court, and the parties also dispute how each party’s proposal should be applied to the certified
classes. This Memorandum Opinion sets forth the Court’s ruling as to a number of the issues
disputed by the parties. However, a final order of equitable relief cannot be issued until the
parties further confer about the proper means of implementing this Court’s rulings and a hearing
is held to resolve certain disputed factual issues.
As explained below, the Court shall generally endorse Defendants’ proposal for
remedying the backloading violations, but the Court rejects Defendants’ contention that relief
should be limited to participants who separated from service after 1987. With respect to
Defendants’ failure to credit union service for purposes of vesting, the Court shall order
Defendants to credit union but not other non-participating service; the Court shall require Hilton
to search its corporate records for information relating to class members’ union service and
permit class members to submit claims based on union service not reflected in records. With
respect to Defendants’ violation of the 1000 hours of service standard, the Court shall adopt the
parties’ proposal to apply the 870/750 hours worked standard with hours equivalencies but reject
Plaintiff’s proposal to apply equivalencies to periods of time for which there are no records of
hours of service. With respect to Defendants’ failure to credit the first year of participation, the
2 Court shall reject Plaintiff’s proposal to credit participants with a year of service for the first year
in which there is any record of participating service. With respect to Defendants’ failure to credit
leaves of absence, the Court shall not order additional discovery of corporate records as
requested by Plaintiff. The Court declines to order additional discovery of Hilton’s records
except with respect to union service, as mentioned above. The Court also does not see the need
to appoint a class action administrator to oversee the implementation of final relief, but the
parties should develop a more limited mechanism for monitoring Hilton’s implementation of
remedies. The Court shall not approve lump sum payments in lieu of future benefits owed to
participants, nor shall it include a cy pres provision in its final order. Other disputed issues of
fact, such as the alleged application of unlawful equivalencies or elapsed time methods and
discrepancies between versions of the Plan’s database, shall be decided at a final remedies
hearing.
I. BACKGROUND
The factual and procedural history of this case was thoroughly discussed by the Court in
its Memorandum Opinion issued on May 15, 2009. See 616 F. Supp. 2d at 10-21. The Court
incorporates that discussion herein and assumes familiarity with that opinion. Nevertheless, the
Court shall briefly summarize its prior ruling and the relevant background facts.
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
3 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”).1
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
1 The benefit-accrual class is defined as follows:
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UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA
JAMAL J. KIFAFI, individually and on behalf of all others similarly situated,
Plaintiff,
v. Civil Action No. 98-1517 (CKK) HILTON HOTELS RETIREMENT PLAN, et al.,
Defendants.
MEMORANDUM OPINION (September 7, 2010)
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)(C), 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) (Kifafi III). Having found that Defendants violated ERISA, the Court requested that the
parties submit briefs regarding the equitable relief appropriate to remedy the violations. Plaintiff
filed a [211] Brief on Equitable Relief, to which Defendants filed a [219] Response Brief on
Equitable Relief, and Plaintiff filed a [223] Reply Brief on Equitable Relief. Defendants have filed a [224] Motion for Leave to File Sur-Reply on Equitable Relief and for Expert Discovery in
Advance of Remedies Hearing, to which Plaintiff has filed an Opposition, and Defendants have
filed a Reply.
The parties’ briefs on equitable relief reflect a number of significant disagreements about
the proper scope of equitable relief that should be ordered by the Court. The parties have filed
competing proposals to remedy the benefit accrual and vesting violations previously found by the
Court, and the parties also dispute how each party’s proposal should be applied to the certified
classes. This Memorandum Opinion sets forth the Court’s ruling as to a number of the issues
disputed by the parties. However, a final order of equitable relief cannot be issued until the
parties further confer about the proper means of implementing this Court’s rulings and a hearing
is held to resolve certain disputed factual issues.
As explained below, the Court shall generally endorse Defendants’ proposal for
remedying the backloading violations, but the Court rejects Defendants’ contention that relief
should be limited to participants who separated from service after 1987. With respect to
Defendants’ failure to credit union service for purposes of vesting, the Court shall order
Defendants to credit union but not other non-participating service; the Court shall require Hilton
to search its corporate records for information relating to class members’ union service and
permit class members to submit claims based on union service not reflected in records. With
respect to Defendants’ violation of the 1000 hours of service standard, the Court shall adopt the
parties’ proposal to apply the 870/750 hours worked standard with hours equivalencies but reject
Plaintiff’s proposal to apply equivalencies to periods of time for which there are no records of
hours of service. With respect to Defendants’ failure to credit the first year of participation, the
2 Court shall reject Plaintiff’s proposal to credit participants with a year of service for the first year
in which there is any record of participating service. With respect to Defendants’ failure to credit
leaves of absence, the Court shall not order additional discovery of corporate records as
requested by Plaintiff. The Court declines to order additional discovery of Hilton’s records
except with respect to union service, as mentioned above. The Court also does not see the need
to appoint a class action administrator to oversee the implementation of final relief, but the
parties should develop a more limited mechanism for monitoring Hilton’s implementation of
remedies. The Court shall not approve lump sum payments in lieu of future benefits owed to
participants, nor shall it include a cy pres provision in its final order. Other disputed issues of
fact, such as the alleged application of unlawful equivalencies or elapsed time methods and
discrepancies between versions of the Plan’s database, shall be decided at a final remedies
hearing.
I. BACKGROUND
The factual and procedural history of this case was thoroughly discussed by the Court in
its Memorandum Opinion issued on May 15, 2009. See 616 F. Supp. 2d at 10-21. The Court
incorporates that discussion herein and assumes familiarity with that opinion. Nevertheless, the
Court shall briefly summarize its prior ruling and the relevant background facts.
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
3 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”).1
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
1 The benefit-accrual class is defined as follows:
all former and current employees of Hilton Hotels Corporation who were employed by Hilton Hotels Corporation after January 1, 1976 and have, or may obtain, a vested right to pension benefits from the Hilton Hotels Retirement Plan, and whose Hilton Hotels’ pension benefits have been, or will be, reduced as a result of the Defendants’ failure to accrue retirement benefits at the annual rates that ERISA requires.
Kifafi v. Hilton Hotels Retirement Plan, 189 F.R.D. 174, 176 (D.D.C. 1999) (Kifafi I).
4 or her accrued benefits.2 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.
2 As the Court previously explained, vesting and accrual are distinct but related concepts. 616 F. Supp. 2d at 10. “Vesting” concerns when an employee has a right to pension, whereas “accrual” refers to the amount of benefits to which an employee is entitled. Id. at 10-11. “Because ‘vesting is tied to length of employment’ and the accrual of benefits ‘depends upon participation in the plan,’ it is possible for employees to ‘earn credit toward vesting without accumulating any pension benefits.’” Id. at 11 (quoting Holt v. Winpisinger, 811 F.2d 1532, 1537 (D.C. Cir. 1987)).
5 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
vesting3; (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.
II. LEGAL STANDARD
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
3 Although there was evidence in the record to suggest that Hilton failed to credit other types of nonparticipating service for purposes of vesting, the Court declined to expand the scope of the subclass beyond employees’ union service for the reasons stated in that opinion. 616 F. Supp. 2d at 30 n.18.
6 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).
III. DISCUSSION
The parties have each filed briefs in support of their separate proposals for remedying the
minimum accrual rate and vesting violations previously found by the Court. After Plaintiff filed
its Reply Brief on Equitable Relief, Defendants filed a Motion for Leave to File Sur-Reply on
Equitable Relief and for Expert Discovery in Advance of Remedies Hearing. Defendants ask the
Court for permission to file a Surreply, which they attached to their motion, in order to rebut
certain arguments raised by Plaintiff in his Reply regarding Defendants’ proposed remedies.
Plaintiff opposes this request, arguing that Defendants’ motion is untimely and that the Surreply
merely restates arguments that were or could have been raised in Defendants’ Response Brief on
7 Equitable Relief. While the Court notes that surreplies are generally disfavored, Plaintiff’s Reply
Brief does contain detailed criticisms of Defendants’ proposals as well as a supplemental
declaration from its expert, to which Defendants should be permitted to respond. Moreover,
Plaintiff has failed to identify any prejudice suffered by any delay in filing,4 which occurred
while the parties were in mediation. Therefore, the Court shall grant Defendants’ motion for
leave to file a Surreply, and the Court shall consider the Surreply in ruling on the appropriate
equitable relief.
With respect to Defendants’ request for discovery in advance of a remedies hearing, the
Court agrees with Plaintiff that discovery is not warranted at this time. The Court has not yet
determined that there are material factual issues in dispute that require a remedies hearing. Cf.
United States v. Microsoft Corp., 253 F.3d 34, 101 (D.C. Cir. 2001) (holding that courts must
conduct an evidentiary hearing to resolve disputed factual issues in determining appropriate
relief). The parties have submitted separate proposals for equitable remedies that rely on the
declarations of experts who disagree about the propriety of the other party’s proposals under
ERISA. This Court shall make a legal ruling about what equitable relief is appropriate based on
its prior decision as to liability, relying on facts that are not in dispute. The Court shall then hold
a remedies hearing to resolve any factual disputes as to methodology, if necessary. Accordingly,
the Court shall deny Defendants’ motion for expert discovery.
The parties agree that all relief should be provided in the form of benefits to be provided
from Hilton’s tax-qualified plan. However, the parties disagree regarding the benefit calculations
that should be required to remedy the minimum accrual rate and vesting violations previously
4 Defendants’ motion was filed 63 days after Plaintiff’s Reply Brief was filed.
8 found by the Court. The Court shall address each of their proposals below.
A. Remedies for the Minimum Accrual Rate Violation
The parties agree that the cause of the unlawful “backloading” of benefits under the Plan5
is the fact that the Plan’s benefit formula includes an offset for Social Security benefits that is
disproportionately large during an employee’s early years of plan participation. Generally
speaking, the Plan’s benefit formula provides that the amount of benefits payable at retirement
age is equal to 2%6 of the employee’s average monthly compensation (as defined by the Plan)
multiplied by the number of years of service for that employee, minus an offset for “Integrated
Benefits,” which includes, inter alia, an estimate of the Social Security benefits that the worker
will receive at retirement. See Hilton Hotels Retirement Plan (As Amended and Restated
Effective January 1, 1987), Decl. of Jonathan K. Youngwood, Ex. B (“1987 Plan”)7 § 4.1.8 Thus,
the amount of benefits an employee accrues each year under the Plan depends in part on his
estimated Social Security benefits. Due to the payment structure of the Social Security program,
the Plan’s offset for Social Security payments is relatively high during an employee’s early years
and relatively low during the employee’s later years. The result is that the accrual rates during
5 In discussing the remedies for benefit-accrual class, the Court refers to the Plan in effect prior to the 1999 amendment, unless otherwise noted. 6 The parties agree that for workers who separated from service prior to 1982, the rate is 1.5%. 7 The 1987 Plan was actually signed on December 29, 1994 and made effective as of January 1, 1987. 8 The Plan defines “Integrated Benefits” as including 50% of the estimated primary Social Security benefit that will be available to the employee at retirement based on the employees’ earnings. See 1987 Plan at 19. “Integrated Benefits” may also include certain amounts earned under other pension plans or programs. See id. at 19-20.
9 the early years of the Plan are very low compared to later years, violating the 133-1/3% rule.
The parties agree that for purposes of remedying the backloading violations in the Plan,
the maximum annual accrual rate under the Plan is 1.91% of the employee’s average monthly
compensation (“AMC”).9 To comply with the 133 1/3% rule, the annual accrual rate in any
given year cannot be more than 133 1/3% of the annual accrual rate in any previous year.
Therefore, the minimum accrual rate allowable under the Plan is 1.91% divided by 133 1/3%,
which is 1.4325%.10
Plaintiff’s proposed remedy, stated most simply, is to increase the benefits paid to
participants so that any annual accrual rate below 1.4325% will be raised to 1.4325%, and all
annual accrual rates at or above 1.4325% remain unchanged. Plaintiff’s actuarial expert, Claude
Poulin, has calculated a schedule of revised benefits for members of the benefit-accrual class
based on this proposed remedy. Plaintiff’s proposal calls for participants to receive a “base
benefit increase” that varies based on the year the participant separated from the Plan, with
certain adjustments. See Pl.’s Br., Decl. of Claude Poulin (“Poulin Decl.”) ¶¶ 5-18. Mr. Poulin
contends that different base benefit amounts are necessary to account for changes in the Social
Security wage base and schedule each year. See Pl.’s Reply, Supp. Decl. of Claude Poulin
(“Supp. Poulin Decl.”) ¶ 23. According to Mr. Poulin’s calculations, 22,015 participants who are
9 The maximum accrual rate is somewhat less than 2% because the Social Security offset will always be greater than zero (and in this case, the parties agree, it will always be at least .09% of AMC). 10 For participants who separated before 1982, Defendants contend that the maximum accrual rate was 1.41%, requiring a minimum accrual rate of 1.0575% in order to comply with the 133 1/3% rule. Plaintiffs agree that the maximum rate is no higher than 1.5% but have not stated whether they agree with Defendants’ 1.41% figure.
10 currently vested should receive benefit increases to remedy the backloading violation. Poulin
Decl. ¶ 22. Plaintiff relies on a complex set of schedules and adjustments to ensure that each
participant’s benefits are adjusted accordingly.
Defendants’ proposed remedy is simpler and rather more elegant. Defendants propose
amending the benefits formula by capping the Social Security offset at .5676% of AMC, thereby
mathematically ensuring that the annual accrual rate never falls below the required minimum of
1.4325%.11 Under this approach, Plan participants will receive an increase if, as a result of the
original offset, they received a benefit that was less than what would have accrued had the Plan
ensured that the annual accrual rate could not fall below 1.4325% during the first 25 years of
service.12 Defendants propose providing these participants with “true up” payments to remedy
the deficiencies to date and increase their annuity payments going forward. However,
Defendants note that not all participants will receive an increase under their proposed remedy
because some participants would not have accrued higher benefits even if they had a minimum
annual accrual rate of 1.4325% during their first 25 years of service. See Defs.’ Br. at 9. Many
of these participants, Defendant argues, “outgrow” the backloading that occurs during their early
years of service. See id. at 14-15. Some other highly paid participants never had annual accrual
rates of less than 1.4325%. Id. at 12-14; Decl. of Ian H. Altman (“Altman Decl.”), Ex. 2 (Chart
2C).
Although they sound similar, the parties’ proposals are distinctly different. Plaintiff’s
11 For participants who terminated before 1982, Defendants propose capping the offset at .4425% of AMC. 12 The benefits formula changes slightly after 25 years of service, and the parties’ proposals account for this change.
11 proposal essentially freezes the Plan’s existing accrual rates and then seeks to add benefits to
early years until the minimum annual accrual rate reaches 1.4325%. By contrast, Defendants’
proposal changes the benefits formula in a way that shifts benefits accrued in later years to earlier
years. The result is that under Defendants’ plan, the annual accrual rate decreases slightly during
some later years to make up for the fact that there are higher accrual rates in early years. This
happens purely by mathematical operation of Defendants’ modified benefits formula.
In his Reply, Plaintiff argues that Defendants’ proposed remedy does not satisfy the 133
1/3% rule because it employs an “average rate of accrual” methodology that is explicitly rejected
by ERISA regulations. See Pl.’s Reply Br. at 5-11. Plaintiff (and his expert, Mr. Poulin) point to
an example in the Treasury Regulations in which the rate of accrual is 2% for the first five years,
1% for the next five years, and 1.5% for each following year. See 26 C.F.R. § 1.411(b)-
1(b)(2)(iii) (Example 3). Although the average rate of accrual under such a scheme “is not less
rapidly than ratably,” it nevertheless fails the 133 1/3% rule because 1.5% is more than 133 1/3%
of the lowest rate, 1%. Id. However, Defendants’ proposed solution caps the Social Security
offset so as to ensure that the minimum accrual rate in any given year is never less than 1.4325%
(or 1.0575% for participants who separated before 1982). Therefore, it does not, in fact, rely on
an “average rate of accrual” methodology. Plaintiff also relies on the IRS’s Technical Advice
Memorandum (“TAM”) issued in 2002, which analyzed the Plan and found that it failed to
comply with the 133 1/3% rule because the initial rate of accrual under the Plan is generally
.71%. See Supp. Poulin Decl., Ex. 4 (TAM). Plaintiff argues that the IRS’s analysis contradicts
Defendants’ assertion that some highly paid participants never had rates of accrual below
1.4325%. See Pl.’s Reply at 8-9. However, Defendant’s expert, Ian Altman, correctly explains
12 that the IRS’s analysis was based on Social Security calculations in 1996, which cannot be
applied retroactively to prior years when determining compliance with the 133 1/3% rule. See
Supp. Expert Report of Ian Altman ¶ 5.
Plaintiff’s criticism of Defendants’ proposal is founded on his view that because the Plan
violated the 133 1/3% rule, every Plan participant must be owed some remedy. But the
backloading violation in the Plan does not affect all participants equally. As the Court explained
in its decision on liability,
The primary purpose of [minimum accrual rates] is to prevent attempts to defeat the objectives of the minimum vesting provisions by providing undue “backloading,” i.e., by providing inordinately low rates of accrual in the employee’s early years of service when he is most likely to leave the firm and by concentrating the accrual of benefits in the employee’s later years of service when he is most likely to remain with the firm until retirement.
Langman v. Laub, 328 F.3d 68, 71 (2d Cir. 2003) (quoting H.R. Rep. No. 93-807 (1974)). Thus,
by preventing the backloading of benefits, ERISA protects employees who work only a short
period from vesting with only a minimal amount of accrued benefits. See Hoover v.
Cumberland, Maryland Area Teamsters Pens. Fund, 756 F.2d 977, 982 n.10 (3d Cir. 1985). But
employees who stayed in the Plan for a longer period of time eventually accrued those benefits
that were denied to them in earlier years of service. The term “backloading” is quite appropriate
to explain this phenomenon, as the benefits that did not accrue in early years of service are
loaded into the back end of an employee’s years of service. As Hilton describes it, longer-term
employees “outgrow” the violation of the 133 1/3% rule that would have affected them if they
had separated in early years. Thus, although Hilton’s proposed remedy provides additional
benefits to workers who were shortchanged because they terminated after a relatively brief period
13 of service, it does not provide additional benefits to longer-term workers who made up any initial
deficiency through their longevity with Hilton. That is not to say that there was no ERISA
violation with respect to these longer-term workers. But those workers suffered no decrease in
benefits as a result of the violation and therefore are not entitled to equitable relief. See Mertens,
508 U.S. at 256-58 & n.8 (holding that equitable relief under ERISA does not include
compensatory damages to fully remedy all injuries). Indeed, as Hilton points out, such workers
are not even a part of the benefit-accrual class, which is limited to employees whose benefits
“have been, or will be, reduced as a result of the Defendants’ failure to accrue retirement benefits
at the annual rates that ERISA requires.” Plaintiff’s proposal improperly provides a windfall to
many of these participants whose benefits were not reduced by backloading.
Therefore, the Court endorses Hilton’s proposed remedial benefits formula, which is
easier to implement and properly compensates individuals whose benefits were reduced as a
result of Defendants’ failure to comply with the 133 1/3% rule. The Court shall require 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.
The Court must also address Defendant’s contention that equitable relief should be
limited to Plan participants who separated from service after December 29, 1994 (or,
alternatively, January 1, 1987). Defendants argue that this is appropriate because the Plan did not
explicitly provide for compliance with the 133 1/3% rule until an amendment was signed on
December 29, 1994 (and made retroactive to January 1, 1987). In essence, then, Defendants ask
the Court to provide no remedy for 6096 participants whose benefits were calculated under an
14 unlawfully backloaded plan. That is not an equitable result. It is true that Plan participants could
not have relied on the Plan’s purported compliance with the 133 1/3% rule until the 1994
amendment was signed. However, the pre-amendment Plan did not comply with any of the three
minimum accrual tests under ERISA, and it is appropriate for the Court to reform the Plan so as
to comply with ERISA. See Carrabba v. Randalls Food Mkts., Inc., 145 F. Supp. 2d at 773
(“Due to the absence of an accrual method in the plan, the court is called upon to select for use in
the calculations of the awards to be made to the participants against defendant one that, in equity,
most appropriately recognizes the objectives of the [plan] in an ERISA context.”) The 1994
amendment explicitly adopted the 133 1/3% rule, and it did so without substantially changing the
benefits formula that existed previously.13 By contrast, when Hilton amended the Plan in 1999 to
comply with the fractional rule, it made substantial modifications to the benefits that would be
paid to participants. 616 F. Supp. 2d at 16. The parties have never urged the Court to consider
the 3% rule. Id. at 11 n.2. For these reasons and the reasons stated in the Court’s prior decision
on liability, the Court finds it is appropriate to conform the pre-amendment Plan to the 133 1/3%
rule, including participants who separated before 1987.
B. Remedies for Vesting Violations
The parties have filed separate proposals to remedy the vesting violations previously
found by the Court. Unfortunately, the parties have agreed on little, and the number of disputes
13 The benefits formula in the 1976 Plan provided that the normal retirement benefit is equal to 1.5% of an employee’s final average earnings multiplied by his years of service, minus his Integrated Benefits. See Hilton Hotels Retirement Plan (As Amended and Restated Effective January 1, 1976), Decl. of Jonathan K. Youngwood, Ex. A (“1976 Plan”) § 4.1. The benefits formula in the 1987 Plan is virtually the same, except with a 2% rate and slightly altered definitions for the input variables. See 1987 Plan § 4.1. By contrast, the 1999 Amendment significantly altered this benefits formula so as to comply with the fractional rule.
15 remained to be resolved by the Court is substantial. The Court shall address what appear to be
the parties’ largest disagreements regarding vesting remedies.
1. Remedies for Failure to Credit Union Service
This Court previously determined that under the terms of the Plan, Hilton was required to
credit employees’ union service for purposes of vesting, yet it failed to do so. Defendants
propose to remedy this violation by crediting any union service that is reflected in the Plan
records. Plaintiff, however, argues that Defendants should be required to credit all years of non-
participating service. Plaintiff argues that it is necessary to credit all non-participating service,
not just union service, because ERISA requires that an employer credit all years of service toward
vesting. Pl.’s Br. at 21. Accordingly, Plaintiff proposes to credit participants with vesting
service for any period of time between their original date of hire according to corporate records
and their date of hire according to Plan records. Id. at 25. Additionally, Plaintiff proposes to
credit participants with vesting service for any period of time they were employed by a
“Participating Employer” or Affiliate. Id. at 25-26.
The Court previously ruled that it would not expand Plaintiff’s union service claim to
include all “non-participating” service because Kifafi never moved to expand the scope of the
subclass and the Court never certified a “non-participating service” subclass. 616 F. Supp. 2d at
30 n.18. Having declined to expand the claim at the liability stage, the Court will not do so now
at the remedy stage. Thus, the Court agrees with Defendants that the objective of any injunctive
relief should be to compensate individuals with vesting credit for years of union service. The
relevant question with respect to the remedy, however, is whether Hilton’s records of union
service are accurate enough to be relied upon on their own or whether non-participating service
16 should be used as a proxy for union service because the records are inadequate.
Plaintiff claims that the Plan’s records of union service are not reliable because they are
not coded to show union service that occurred before an employee became a participant or after
an employee’s participation ended. See Pl.’s Reply, Supp. Decl. of Allison C. Pienta (“Supp.
Pienta Decl.”) ¶ 24. In other words, where Plan records indicate pre- or post-participation
service, Plaintiffs contend that there is no way to tell whether or not the employee was in a union
position. Plaintiff cites a number of examples of employees who served at unionized Hilton
properties but whose years of service are not credited in Plan records. See Supp. Pienta Decl.
¶ 25; Pl.’s Mot. for Summ. J., Ex. 54 (Supp. Decl. of Martha Anderson).14 These examples were
found by Plaintiff based on Plan participants’ responses to a questionnaire. Supp. Pienta Decl.
¶ 25. Plaintiff also cites the example of Kifafi, whose union service was not reflected in his
pension records. Plaintiff contends that “Hilton has declined to produce any corporate records
that would show whether employees were in union positions.” Pl.’s Reply at 30.
Therefore, Plaintiff argues that there are only two viable remedial options: either (1)
count all years of non-participating service identified in the Plan’s records (which would capture
union service as well as some non-union service); or (2) establish a claims procedure to identify
14 Plaintiff also cites the example of Diann McKinney, whose “Service Date” is listed as “4/13/1979” but whose participation in the Plan does not begin until 1985. See Pl.’s Mot. for Summ. J., Ex. 66. Plaintiff argues that Ms. McKinney served in a union position from 1979 to 1985 and that this union service is not reflected in the records. See Pl.’s Reply at 29-30. However, Ms. McKinney’s declaration actually states that she was a “full-time, non-union employee” for Hilton from 1979 to 1986. See Pl.’s Mot. for Summ. J., Ex. 50 (Decl. of Diann McKinney) ¶ 2. Therefore, Ms. McKinney’s example does not support Plaintiff’s position. There appear to be other mistakes in Plaintiff’s examples, as well. For example, at least one participant referenced in Ms. Pienta’s supplemental declaration is identified as having worked in a non-union location. See Supp. Pienta Decl. ¶ 25; Pl.’s Mot. for Summ. J., Ex. 54 (Supp. Decl. of Martha Anderson), Ex. E, line 12.
17 individuals whose years of service were not credited by Hilton. The first option would not be
inequitable for Hilton, Plaintiff contends, because ERISA already requires all non-participating
years to be counted for vesting purposes. See Holt v. Winpisinger, 811 F.2d at 1537. Plaintiff
argues that the second option would likely result in incomplete relief for the subclass because of
the likelihood of low response rates. See Pl.’s Reply at 30.
Although Defendants filed a surreply in order to respond to the claims raised in Plaintiff’s
reply brief, Defendants failed to directly address the adequacy of Plan records with respect to
union service in light of Plaintiff’s cited examples. Defendants’ expert, Ian Altman, contends in
his report that there are a number of reasons why the date of hire would precede the first date of
service in Plan records, such as an error in recording a hire date or a period of service for which
benefits were earned and distributed before a re-hire. See Defs.’ Br., Expert Report of Ian H.
Altman, FSA (“Altman Report”) at 22 n.3 & ¶ 56. Therefore, he argues that a discrepancy
between a hire date and service date does not support a claim for uncounted union service hours.
See Altman Report ¶ 56 (“Without evidence of hours worked as a union employee, it is
unreasonable to award vesting for phantom service.”)
The Court does not agree with Defendants that no credit can be awarded for union service
where the records do not explicitly show that an employee had eligible union service. As the
Court noted in its decision on liability, there is evidence in the record that Hilton never “kept
track of nonparticipating properties’ employees (hours/earning) to give them vesting.” See 616
F. Supp. 2d at 19 (citing Pl.’s Ex. 27 at 4 (5/9/02 Email Exchange between V. Stoicof and G.
Trotter)). In light of this record evidence and the examples cited by Plaintiff in its Reply Brief on
Equitable Relief of employees whose union service was not reflected in the Plan’s records, the
18 Court cannot conclude that Defendants’ proposed remedy—crediting union service solely as
reflected in Plan records—is adequate to remedy the violation found by the Court.
However, based on the present record, the Court also cannot conclude that Plaintiff’s
proposed remedy—crediting participants with vesting credit for all years of non-participating
service reflected in Plan records (which would presumably include some union service and some
other non-participating service)—is an equitable result. It is not clear to the Court, based on the
parties’ submissions, why the Plan has records of some union service but not other union service.
It is also not clear how many participants who did not have any union service would become
vested under Plaintiff’s proposed remedy, making it difficult to determine whether the benefits to
such persons would be purely incidental to relief for the subclass or constitute an end-run around
the Court’s class certification ruling.
Because there is uncertainty about whether there are corporate records that would indicate
union service beyond what the Plan records show, the Court shall order Defendants to conduct a
search of their corporate records. Defendants shall be required to identify and produce any
records that demonstrate, with respect to the potential subclass members identified by Plaintiff,15
whether or not those subclass members had union service that is not reflected in Plan records.
Defendants shall be required to certify by affidavit that they have conducted a thorough search
for any such records. Once that search is complete, Defendants shall administer a claims
procedure that will notify all subclass members for whom union service has not been identified
that they may submit a claim if they believe they have union service that is not reflected in the
15 Initially, Plaintiff identified 962 participants who it believed would become vested if union and non-participating service were credited. It appears that Defendants agree that at least 183 of these individuals should become vested. See Altman Report, Ex. 5.
19 records.16 The parties shall confer regarding the standards for claim administration and jointly
propose a procedure to be approved by the Court. Defendants shall bear the cost of
administering the claims procedure. Alternatively, if Defendants prefer to avoid the costs of
searching corporate records and establishing a claims procedure, they may agree to Plaintiff’s
proposal to credit all non-participating service.
2. Remedies for Violations of the 1000 Hours of Service Standard
This Court previously determined that Hilton violated the terms of the Plan’s vesting
provisions by using a 1000 hours of service standard when it failed to maintain the records
necessary to implement it. Under ERISA regulations, when a plan fails to keep records adequate
to determine all of the hours that an employee should be credited (which includes hours for
which the employee was entitled to be paid as well as hours for vacation, holiday, illness, leave
of absence, etc.), the plan may use an “equivalency.” See 29 C.F.R. § 2530.200b-3(a). Under the
“hours worked” equivalency, an employee is credited with a year of service if he has 870 hours
worked during a twelve-month period (or 750 for a salaried employee). Id. § 2530.200b-3(d).
Alternatively, a plan may use an equivalency based on periods of employment, such that for each
month of employment in which the employee would otherwise be credited with at least one hour
of service, the employee is credited with 190 hours of service. Id. § 2530.200b-3(e)(1)(iv).
Defendants’ proposed remedy calls for the 870/750 “hours worked” equivalency to be
applied in lieu of the 1000 hours of service standard where an employee’s records are sufficient
16 The Court anticipates that class counsel may seek to obtain records of union service directly from the unions.
20 to indicate the hours worked.17 Where records of hours worked are unavailable (or where a
record indicates 500 hours of service as a placeholder18), Defendants propose to use the 190
hours of service per month equivalency, and participants whose hours are calculated under the
190-hour equivalency shall be credited with a year of service if they have 870 hours during the
year (750 for salaried employees).19 ERISA regulations permit these equivalencies to be used in
combination. See 29 C.F.R. § 2530.200b-3(e)(7). Defendants’ expert maintains that the 190-
hour equivalency may be used because the Plan has records that shows participants’ months of
service. See Altman Report ¶ 49.
Plaintiff does not object to Defendants’ proposal in principle.20 However, Plaintiff
17 Effective January 1, 2003, the Plan was amended so as to enable participants to earn years of vesting service under the 870/750 “hours worked” standard for each year in which they are earning years of benefit service. See Pl.’s Mot. for Summ. J., Ex. 41 (Amendment 2002-04) at 1. For periods in which participants would not be earning years of benefit service (such as union service), the Plan amendment calls for an “elapsed time” method to applied to determine vesting credit. Id. at 3; see 26 C.F.R. § 1.410(a)-7. 18 According to Defendants’ expert, Hilton recorded “500 hours” as a placeholder in 725 employees’ records to indicate that the employee was hired mid-year or left mid-year and did not work enough hours to be credited with a year of service. See Altman Report ¶ 49. Plaintiff disputes that those participants would not have been credited with a year of service had their hours been properly counted. In any event, the parties now agree that because records of hours of worked were not actually kept with respect to these participants, an equivalency must be used to determine whether they are entitled to a year of vesting service. Accordingly, the Court expects Hilton to apply a time-based equivalency to all entries with a “500 hours” placeholder. 19 As defined in the regulations, the 190 hours per month equivalency credits an employee with hours of service rather than hours worked. However, Defendants’ proposal effectively treats the equivalent 190 hours as hours worked, meaning that an employee needs only 870 (or 750) hours instead of 1000 hours to earn a year of vesting credit. This is consistent with the example described in 29 C.F.R. § 2530.200b-3(e)(8). 20 Although it was initially unclear as to whether Plaintiff supported the application of the 870/750 “hours worked” equivalency where existing records were sufficient to determine the number of hours worked, Plaintiff has clarified that it does not object to this standard. See Pl.’s
21 contends that the Plan’s records are inadequate or insufficient to apply Defendants’ proposal. As
with his union service claim, Plaintiff argues that if the equivalencies are applied only to the
records as they were kept by Hilton, members of the subclass will be deprived of vesting credit
for months of service for which Hilton failed to keep adequate records. Therefore, Plaintiff
proposes modifications to account for Hilton’s failure to keep proper records of participants’
service. The Court shall discuss each of Plaintiff’s specific proposals below.21
a. Credit for time after the last record of service.
There are some participants whose last record of service, i.e., the last date for which any
hours are recorded, does not match up with their date of termination of employment (“DOTE”).
For these participants, Plaintiff proposes to have the Court presume that the employee had at
least one hour of service in each month between the last record of service and the DOTE, even
though Plan records do not indicate any hours of service. If the Plan records do not indicate any
DOTE and there is no other explanation of an absence in the employee’s records, Plaintiff would
have the Court presume that the employee worked until the end of the last calendar year for
which there is any record of employment or earnings. Plaintiff would also seek an audit of
termination dates of “12/31” to determine whether they are actual termination dates or merely
placeholders in the records. See Pl.’s Br. at 24-25.
Plaintiff provides no clear explanation as to why the Court should assume that there were
Reply at 24. 21 The Court notes that the parties have made it very difficult to identify the specific points on which the parties agree or disagree. The parties’ briefs on equitable relief largely attack each other’s proposals without setting forth with clarity why a participant should or should not be awarded vesting credit in a particular circumstance. The Court has done its best to understand the major points of contention and make a ruling based on the evidence in the record.
22 additional hours of service for employees between their last record of service and their date of
termination of employment. Plaintiff refers to the Plan Manual, which defines the termination
date as “the date the employee terminated from the active status (vested term, retirement, death,
etc.”; and it says that “[i]f the employee is still working, then this date is blank.” See Pl.’s Reply,
Ex. 3 (Pension Admin. Manual) at 6; Pl.’s Reply at 18. Plaintiff apparently concludes that an
employee remains on active status until the date of termination and therefore should be credited
with vesting service during that time. The relevant question, however, is not whether the
individual continued to be employed, but whether the employee had any additional hours of
service. ERISA defines an “hour of service” as “each hour for which an employee is paid, or
entitled to payment.” 29 C.F.R. § 2530.200b-2(a)(1). Thus, an employee may remain on the
payroll for a period of time without having any hours of service by, for example, taking unpaid
leave. Plaintiff has not provided the Court with any reasonable basis for presuming that an
employee worked (or was otherwise entitled to be paid) at least one hour for every month that he
was an employee.
In his motion for summary judgment, Plaintiff argued that Hilton improperly used a 1000
hours standard “in years where its pension database contains records of hours.” See Pl.’s Mot.
for Summ. J. at 40. Plaintiff pointed to evidence in the record that Hilton had failed to credit pay
after termination, such as accrued vacation and lump sum severance payments. Id. The Court
agreed with Plaintiff in its decision on liability. See 616 F. Supp. 2d at 30. Defendants’ proposal
remedies this violation by relying instead on the 870/750 hours worked standard. Applying that
standard necessarily means that where there are no hours worked by an employee, there will be
no vesting credit awarded. In other words, Plaintiff cannot assume that wherever the Plan
23 records show no hours of service, records of hours worked are “unavailable.” Plaintiff’s
proposal to “assume” that there are hours worked until the end of employment where the Plan
records show none more closely resembles the “elapsed time” method for determining vesting
credit, which is an alternative to counting hours of service (with or without equivalencies) that
does not require plans to keep detailed records of employee hours. See 26 C.F.R. § 1.410(a)-7
(defining “elapsed time” method).
As the Court previously explained, Hilton amended the Plan in 2002 to retroactively
apply the elapsed time method to periods of non-participating service. 616 F. Supp. 2d at 19-20.
The Court found that this amendment did not moot Plaintiff’s claim that the 1000 hours standard
had been violated because it was mathematically possible that a participant would earn more
vesting credit under an hours standard than the elapsed time method. Id. at 34. Accordingly, the
Court held that participants must be awarded vesting credit under an hours standard if it would
result in more credit awarded than under the elapsed time method. Id. Hilton has never
proposed applying the elapsed time method to periods of time when employees were
participating in the Plan (and their hours were recorded), and this Court’s rulings do not require it
to do so. Plaintiff’s proposal resembles a hybrid between the elapsed time method and the hours
worked standard, as it would require Hilton to count the hours worked (where there are hours
shown) and count at least one “presumed hour” for every other month that elapses (where there
are no hours shown). See Altman Report ¶ 44. In other words, Plaintiff is trying to get the best
of both worlds by taking the upside of each method without the downside of either. That is not
an equitable remedy.
It is possible that the Plan failed to record hours leading up to the date of termination of
24 employment and that Plaintiff’s proposal would remedy that failure. But it is also possible (and
more likely) that Plaintiff’s proposal would drastically overcompensate members of the subclass
by awarding them vesting service for periods of time in which they performed no service. Unlike
Plaintiff’s union service claim, Plaintiff has not even proffered examples of participants who
should be entitled to this relief. Therefore, the Court declines to endorse Plaintiff’s proposal to
presume that a participant had at least one hour of service in each month before his date of
termination of employment (or, if there is no DOTE, the end of the calendar year).
b. Credit for time between the initial service date and the first year of participation.
Plaintiff also contends that its presumption of at least one hour of service per month
should apply to participants whose “Service Date” reflected in the Plan records does not coincide
with the first year of participation in the Plan. See Pl.’s Reply at 24. Plaintiff wants to credit
participants with 190 hours for each month between the “Service Date” (which reflects the
beginning of an employee’s service with Hilton) and the first year of participation in the Plan.
Defendants’ expert, Ian Altman, admits that “[t]he date active service commences–the ‘service
date’ reflected on the plan records–is the correct starting point for counting service.” Supp.
Altman Report ¶ 29. However, this period of time would be non-participating service. As
explained in the previous section, the Court shall only order equitable relief with respect to
periods of union service.
c. Credit for time after properties stopped reporting service to the Plan when accruals were frozen in 1996.
Plaintiff claims that “it is indisputable that the Plan’s records of hours necessarily stop
once a property stops reporting service to the Plan, even if the individual continues to be
25 employed,” and that “much of the reporting of service to the Plan stopped once benefit accruals
were frozen at the end of 1996.” Pl.’s Reply at 26. In her supplemental declaration, Allison C.
Pienta claims that there are 37 individuals who have employment termination dates after Hilton
properties stopped reporting service to the Plan. See Supp. Pienta Decl. ¶ 18. According to Ms.
Pienta, the Plan’s records for these individuals show “1000” or “500” hour entries or no entries at
all after 1996, indicating that the property was no longer actually reporting service under the
Plan. Id. However, in each of the four examples cited by Ms. Pienta in her supplemental
declaration, it appears that the participants were in fact credited with vesting service after 1996,
and they would not be entitled to any additional service if the 190-hours standard were applied
according to Plaintiff’s presumption of at least one hour each month until the date of termination.
See Supp. Pienta Decl., Ex. Grp. 1(e).
Defendants’ expert, Ian Altman, states in his supplemental report that properties only stop
reporting service to the Plan when they become disassociated from Hilton, such as through
closure or a sale. See Supp. Altman Report ¶ 31. At that point, Mr. Altman says, employees are
no longer entitled to credit under the Plan because the property is no longer a part of Hilton. Id.
Therefore, he contends there is no reason to credit vesting service after a property stops reporting.
Id. Mr. Altman provides no evidentiary basis for this assertion, and Plaintiff did not have an
opportunity to rebut this contention, as it was raised for the first time in the supplemental report
filed with Defendants’ Surreply. Therefore, the record is unclear as to whether properties
stopped reporting service altogether after 1996 (or any other time) or whether Hilton failed to
track any vesting service during this time. Hilton’s use of “1000” and “500” hour placeholders in
the records cited by Ms. Pienta suggests that even if exact service hours were not being reported
26 after 1996, some measure of vesting service was being credited to participants.
At this stage, because Plaintiff has failed to identify any participants who were deprived
of vesting credit to which they were entitled after 1996, the Court declines to order Defendants to
provide additional vesting credit based on hours of service after 1996.
d. Credit for time between the corporate hire date and the hire date reflected in the Plan’s records.
Plaintiff proposes that participants who have earlier original dates of hire in corporate
records than Plan records receive years of service credit for the time in between the conflicting
dates, to be determined according to the agreed-upon equivalencies. See Pl.’s Reply at 25. In
other words, where corporate records show that a participant was hired on a date that is earlier
than the Plan’s hire date, Plaintiff would have the Court presume that the participant had at least
one hour of service for each month in between the conflicting dates. Plaintiff points to a Hilton
press release showing that one particular participant was hired in October 1973, but Plan records
show a hire date of September 1, 1975. See Pl.’s Reply at 25; Pl.’s Mot. for Summ. J., Ex. 45.
Plaintiff also points to a 1998 report on Plan data indicating that for a number of participants, the
date of hire is earlier than the first record of earnings. See Pl.’s Mot. for Summ. J., Ex. 52 (Data
Clean-up Project July 20, 1998) at 3. Neither party has provided an adequate explanation as to
why there would be any discrepancy in hire dates. To the extent that earlier corporate hire dates
would reflect earlier periods of non-participating service, the Court has already addressed this
issue in the context of Plaintiff’s union service claim. To the extent that an earlier corporate hire
date would reflect a period of participating service for which Hilton has failed to provide vesting
credit, that time period falls within the scope of the claim that Hilton failed to comply with the
27 1000 hours standard by failing to keep track of hours necessary to implement it.
Plaintiff concedes that he has not made any calculations based on discrepancies between
corporate hire dates and Plan hire dates because corporate records were not produced during
discovery. See Pl.’s Reply at 25. Accordingly, Plaintiff has failed to identify any members of the
vesting class who would become vested if hours of service were presumed between the earliest
corporate hire date and the Plan’s earliest record of service. Rather, Plaintiff speculates that “the
corporate records of hire dates are, in fact, likely to show additional service.” Id. If that is the
case, it was Plaintiff’s obligation to uncover that evidence during discovery and bring it to the
Court’s attention. Plaintiff’s core claim with respect to this subclass is that Hilton improperly
used a 1000 hours service standard rather than an 870/750 hours standard; Plaintiff now seeks to
order additional discovery to find out whether Hilton failed to count any hours of participating
service that predate the Plan’s earliest record of service. Plaintiff shall not be afforded a second
bite at the apple to expand his claim. There is no evidence that participants are entitled to vesting
credit for the period between the earliest hire date in corporate records and the Plan’s hire or
service date. Therefore, the Court shall not order Hilton to provide vesting credit for this period
of time.
e. Unlawful equivalencies applied to salaried employees.
Plaintiff contends that Hilton has applied an unlawful equivalency of 36 hours per week
to certain salaried employees in order to produce years in which the hours fall short of 750, thus
depriving them of years of vesting credit. See Pl.’s Reply at 24; Supp. Pienta Decl. ¶ 7. Plaintiff
cites three examples of salaried participants who would be credited with a year of vesting if the
proper equivalency were applied (45 hours per week of service, see 29 C.F.R. § 2530.200b-
28 3(e)(1)(ii)) to the number of weeks of service indicated by Plan records. Defendants dispute this,
claiming that these three participants were credited with service based on the actual number of
hours that they worked, not based on application of an equivalency. See Defs.’ Surreply at 21 &
n.24; Supp. Altman Report ¶ 32. Defendants point out that the number of hours credited for two
of the three individuals cited by Plaintiff is not an even multiple of 36 hours, thus refuting
Plaintiff’s contention that a 36-hour equivalency was used. Defendants’ expert also cites other
examples from the database suggesting that actual hours were tracked for exempt employees.
See Supp. Altman Report ¶ 32. The parties dispute whether the Plan recorded actual hours
worked for exempt (i.e., salaried) employees. If Defendants are correct that these participants’
records show actual hours worked, it is not necessary to apply an equivalency, as urged by
Plaintiff. It is unclear why Plaintiff assumes that hours were not kept for these employees.
Nevertheless, this is a disputed issue of fact impacting methodology that the Court must resolve
at a remedies hearing.
f. Records from “Services Prior” table.
Plaintiff contends that there are 181 individuals who, according to the “Services Prior”
table in an earlier version of the database, should be vested because they have sufficient hours to
earn additional years of vesting credit. See Pienta Decl. ¶¶ 2(A), 4; Supp. Pienta Decl. ¶¶ 16-17.
Plaintiff argues that these individuals’ records of service were dropped or revised in Hilton’s
current “Services” table to show lesser years of service. Ms. Pienta states in her declaration that
there were close to three thousand downward revisions to years of benefit service22 for non-
22 Ms. Pienta does not state that there were downward revisions to years of vesting service. See Pienta Decl. ¶ 5. There may have been reductions in years of benefit service without reducing the years of vesting service.
29 vested participants between the “Services Prior” and “Services” tables. Pienta Decl. ¶ 5. In
response, Defendants do not provide an explanation for these discrepancies and state that they
need more information from Plaintiff to determine its claim. See Altman Report ¶ 54.
Defendants do state that they reviewed 80 records for participants whose sole claim is based on
“Services Prior” records and determined that 38 of those participants should be vested for a
variety of reasons. Id.
In her supplemental declaration filed with Plaintiff’s Reply, Ms. Pienta provides
documentation for four participants who appear to have additional years of vesting service in
“Services Prior” records but which are not reflected on current Plan records. See Supp. Pienta
Decl., Grp. 1d. These years of service appear to be after dates of termination in 1996.
Defendants do not address this issue in their Surreply. Based on the records presented to the
Court, it appears that the individuals identified by Plaintiff should be entitled to additional
vesting credit. However, because there is no explanation from Defendants for the discrepancy in
the records, the Court is reluctant to make a finding with respect to these individuals. If Hilton
has made downward revisions to a participant’s years of vesting service during the pendency of
this litigation, it is required that there be a valid reason for doing so. To the extent that Plaintiff
can identify years of vesting service for participants reflected on earlier records, the Court
expects Hilton to credit the participant with those years of vesting service unless it provides a
valid explanation for any change in the records. The Court shall resolve any discrepancies during
a remedies hearing.
g. Elapsed time.
Plaintiff contends that Hilton has failed to count actual hours for certain participants,
30 relying instead on an elapsed time method that has left some participants with fractional years of
vesting service. See Pienta Decl. ¶ 2(A); Supp. Pienta Decl. ¶ 9. Plaintiff contends that there are
at least 218 participants who should be vested when their hours are counted properly with
equivalencies instead of using the elapsed time method. Defendants’ expert, Ian Altman,
reviewed the 124 participants whose sole claim was in this subclass and determined that 96
should be vested. See Altman Report ¶ 53. Thus, Defendants agree that hours should be counted
for participants. In her supplemental declaration, Ms. Pienta identifies a number of additional
participants who appear to be entitled to vesting credit See Supp. Pienta Decl., Grp. 1b.
Defendants fail to address these additional examples in their Surreply. Therefore, the Court
expects Defendants to credit participants for service based on the hours reflected in the Plan
records and the proper equivalencies, not the elapsed time method.
3. First Year of Participation
Plaintiff proposes that “the first year of participation shall be counted for vesting in all
cases (even if the recorded number of hours of service is low or zero).” Pl.’s Br. at 26. As this
Court previously explained, an employee becomes a participant in the Plan only upon meeting
the Plan’s minimum eligibility requirements, which includes completing 1000 hours of service
within the 12-month period following his date of hire or during any subsequent plan year. 616 F.
Supp. 2d at 32. Accordingly, the Court found that “Hilton’s application of this first year
provision is inextricably intertwined with Hilton’s violations of the 1000 hours standard.” Id.
Because an employee does not become a Plan participant until he has obtained the necessary
hours for a year of service, Plaintiff’s request is, on its face, tautological. However, the Plan
records appear to show that some participants have low numbers of hours of service during their
31 first year of participation. These participants have less than the requisite number of hours during
the first year that is marked “P” for participating service. Plaintiff contends that there are over
1300 individuals who have not been credited with a year of vesting service for this first year of
participation and who would become vested if they were given this credit. See Pl.’s Reply at 26.
Defendants dispute Plaintiff’s interpretation of the “P” code in Plan records, noting that
the “P” indicates only that the hours of service are participating service, not that the employee is
a participant. See Defs.’ Surreply at 22; Supp. Altman Report ¶ 34. Defendants point to the Plan
Manual, which shows that the “P” code is one of three codes used to indicate that service is
participating service. See Pl.’s Reply, Ex. 3 (Pension Admin. Manual) at 22-23. It is clear from
the Plan Manual, as well as from the Plan records that have been provided by the parties, that the
“P” code does not automatically indicate that an employee is a Plan participant. As the Court
noted in its decision on liability, an individual only becomes a participant when he has met the
minimum hours requirements for eligibility. Therefore, a participant should not automatically be
credited with a year of vesting service for the first year in which he has any hours of participating
service.
4. Leaves of Absence
This Court previously found that Hilton had violated the Plan by failing to properly credit
employees’ leaves of absences for purposes of vesting. Plaintiff has identified 99 individuals
who should be vested based on leaves of absences in Plan records that were not credited, and
Defendants have agreed to vest those 99 individuals. See Defs.’ Br. at 35. However, Plaintiff
also contends that there are leaves of absence in corporate records that were not transmitted to
the Plan, and Plaintiff urges the Court to compel Defendants to disclose corporate records
32 showing leaves of absences. See Pl.’s Br. at 26-27; Pl.’s Reply at 34-35.23 The only example
cited of an individual who was not credited with vesting service for a leave of absence is Mr.
Kifafi, whose leave of absence was not reflected in Plan records. See Pl.’s Reply at 34; 616 F.
Supp. 2d at 15. Plaintiff also points to documents showing how Hilton coded various leaves of
absence in corporate records (e.g., maternity, military, disability) that are not reflected in the Plan
records. See Pl.’s Mot. for Summ. J., Ex. 29 (Decl. of Martha L. Anderson & Hilton Human
Resources Employee Master Data Dictionary).
Defendants do not directly address Plaintiff’s claim that corporate records would show
additional leaves of absence not reflected in Plan records. However, Plaintiff has failed to
demonstrate that corporate records would be likely to show additional leaves of absence that
would result in the vesting of additional members of the subclass. As the Court noted above with
respect to alleged discrepancies between corporate hire dates and Plan hire dates, it was
Plaintiff’s obligation to obtain evidence of violations during discovery, not to merely raise the
possibility of additional violations. Defendants have conceded that it is proper, based on the
Court’s prior ruling, to credit vesting service for leaves of absences identified in Plan records. It
is too late at this stage of the litigation for Plaintiff to seek recovery for additional violations for
which it has no direct evidence.
5. Fixing “Revisions” to the Plan Database
Plaintiff argues that the Court must take certain steps to “reverse Hilton’s revisions of
23 Plaintiff contends that “[l]eaves of absence before participation began and after it ended are never recorded in the Plan’s records.” Pl.’s Reply at 34. However, because the Court shall not be ordering relief with respect to non-participating service (except for union service), any omissions during this time period are immaterial.
33 records” since 2002. See Pl.’s Br. at 27. Specifically, Plaintiff argues that Hilton has applied
forfeiture codes to individual records based on the improper application of break-in-service rules,
causing some individuals to lose credit for years of vesting service to which they are entitled. Id.
Additionally, Plaintiff contends that Hilton has mistakenly removed other years of vesting service
and misapplied the Plan’s 10-year vesting rule to participants with at least one hour of service
after 1988, when a 5-year vesting rule was adopted. Id. at 27-28. Defendants contend that
Plaintiff has failed to provide any basis for this claim and that the Court’s order does not prevent
Hilton from revising the Plan records to fix errors in the pension database. Defs.’ Br. at 31.
The parties’ briefs on equitable relief do not provide an adequate basis for this Court to
make any ruling regarding Defendants’ changes to Plan records. It is Plaintiff’s burden to show
that the particular equitable relief it seeks is appropriate, and Plaintiff has failed to show that
Defendants have misapplied the break-in-service rules or the Plan’s vesting rules to the detriment
of any members of the vesting subclasses. Accordingly, the Court declines to adopt Plaintiff’s
proposed remedy at this time with respect to Defendants’ revisions to the Plan database.
C. Collection of Plan Data and Corporate Records
Plaintiff contends that in order to remedy the violations of the Plan previously found by
the Court, the Court must order Hilton to produce additional corporate records relating to the
Plan. See Pl.’s Br. at 29-30. Specifically, Plaintiff seeks to compel the production of corporate
personnel records of (a) original dates of hire; (b) leaves of absence; (c) marital records; (d)
employment with former Participating Employers/Affiliates that participated in the Plan; and (e)
employment records for any Related Companies including “Managed Properties” that never
participated in the Plan. Id. at 30. Plaintiff contends that such production is required by
34 Magistrate Judge Alan Kay’s October 31, 2001 Order, which required production of electronic
databases and programs within 30 days. Plaintiff contends that Defendants have “never
provided” some of this information and were obliged to provide it on a continuing basis.
Defendants argue that it is too late for Plaintiff to complain about Defendants’ alleged
failure to produce documents pursuant to Magistrate Judge Kay’s order. The parties agree that in
August 2005, Hilton provided Plaintiff with a copy of its entire pension database containing data
on over 140,000 participants. Hilton also provided an updated pension database to Plaintiff in
October 2009. The Court agrees with Defendants that Plaintiff should have sought to compel
further production during discovery or, alternatively, before the briefing on equitable relief was
completed. The Court has already addressed several aspects of Plaintiff’s request for additional
records; the Court shall not order additional production beyond what has been previously
discussed.
D. Appointment of a Class Action Administrator
Plaintiff argues that the Court should appoint a Class Action Administrator to carry out
the terms of the equitable relief that will be ordered by the Court. In addition to an administrator,
Plaintiff would have the Court appoint an oversight committee. Plaintiff contends that a Class
Action Administrator is necessary to ensure that corporate records have been completely
produced and ensure that Hilton complies with the Court’s order. See Pl.’s Br. at 35-36; Pl.’s
Reply at 44-50. Defendants argue that there is no need for a Class Action Administrator because
the parties have already calculated the benefits to be paid to the class members and Hilton is
capable of implementing any remedy ordered by the Court. Defendant contends that an
administrator would be intrusive and remove authority from Hilton to administer the Plan. See
35 Defs.’ Surreply at 24.
The Court is not inclined at this point to appoint a Class Action Administrator in this
case. The Court is not convinced that a Class Action Administrator will ultimately be necessary
to implement the equitable relief in this case, which consists primarily of recalculated benefits for
class members and reformation of the Plan. Based on the Court’s rulings, the parties should be
able to agree on the benefit calculations for each class member to be incorporated in the final
judgment. Plaintiff argues that Hilton should not be trusted to implement the remedies in this
case because of its history of violations. See Pl.’s Reply at 49. The Court shares Plaintiff’s
concern. Defendants’ proposal does not provide for this Court’s continuing jurisdiction or
establish any protocols for monitoring compliance. While Plaintiff’s proposal is too intrusive,
Defendants’ proposal is too lax. Therefore, once the remaining issues are resolved at a remedies
hearing, the Court shall urge the parties to jointly propose a more limited monitoring plan to
ensure that Defendants comply with the Court’s remedial order. This may involve regular
reporting to Class Counsel or to an independent third party monitor selected by the parties.
E. Payment Provisions
Under Defendants’ proposed remedy, class members who are entitled to additional
benefits (either because of the change in benefits formula or because they are newly vested) shall
receive “true up” payments reflecting benefits owed to them to date and increased annuity
payments in the future reflecting their additional benefits. See Defs.’ Br. at 9. Plaintiff does not
disagree with these aspects of Defendants’ proposal but offers several additional proposals. For
example, Plaintiff argues that all benefit increases of less than $5 per month should be discharged
with a lump sum payment rather than a series of future benefit payments. See Pl.’s Br. at 30-32.
36 Plaintiff also proposes that prejudgment and post-judgment interest be applied at a uniform rate
of 6%. See id. at 32-33. Plaintiff also proposes a specific procedure to notify class members of
increased benefit obligations due in the future. Id. at 33-34. Defendants do not specifically
address Plaintiff’s proposals.
With respect to Plaintiff’s suggestion that benefit increases of less than $5 per month be
discharged with a lump sum distribution, it is unclear why this would be administratively cost
effective. If a participant is entitled to monthly pension benefits, Hilton already bears the
administrative cost of distributing that benefit; it would not make sense to separate out the
“increased” benefit owed due to this litigation as a lump sum payment. There may be some
administrative savings with respect to participants who are newly vested and will receive less
than $5 per month in benefits. However, participants may prefer an annuity to a lump sum
payment, even if the monthly payment received is small; Plaintiff’s proposal does not consider
this possibility. Accordingly, the Court is not inclined to allow a lump sum payment option to
replace future periodic payments. The Court has no problem with lump sum payments for
benefits that are past due, as both parties’ proposals contemplate.
The D.C. Circuit has held that prejudgment interest on unpaid ERISA benefits is
presumptively appropriate. Moore v. CapitalCare, Inc., 461 F.3d 1, 13 (D.C. Cir. 2006).
Accordingly, the Court agrees with Plaintiff that interest should be awarded to compensate
participants for the time value of their benefits, particularly in light of the protracted nature of
this litigation. The decision on how to calculate prejudgment interest is subject to the Court’s
discretion. Forman v. Korean Air Lines Co., 84 F.3d 446, 450 (D.C. Cir. 1996). The Court shall
not decide an appropriate interest rate without input from Defendants on this issue. Accordingly,
37 the Court shall reserve this issue for later determination.
With respect to notice, Plaintiff proposes that participants who are not immediately due
benefits be provided with notice of the original and increased benefit obligations and how
benefits may be claimed, including return envelopes for participants to submit additional contact
information. See Pl.’s Br. at 33-34. Defendants have not raised any specific objections to these
procedures, and the Court does not foresee any problems with Plaintiff’s notice proposal.
F. Cy Pres Provision
Plaintiff proposes that the Court’s remedial order include a cy pres provision to govern
the distribution of benefits to class members and beneficiaries who cannot be located within three
years. See Pl.’s Br. at 37-38. Pursuant to § 4.11 of the Plan, if a participant or beneficiary cannot
be located within three years of the date on which benefits are payable, his or her benefit is
forfeited, although it may be reinstated if a claim is later asserted by the participant or
beneficiary. See 1987 Plan § 4.11. The cy pres doctrine, as used in the class action context,
permits unclaimed funds to be distributed to the “next best” class, thus maximizing the number
of individuals compensated. See Democratic Central Comm. v. Wash. Metro. Area Transit
Comm’n, 84 F.3d 451, 455 (D.C. Cir. 1996). Generally speaking, cy pres provisions are
warranted in situations where “identifying, locating, and notifying” class members would be
difficult. See id. at 456. Here, however, the class members have all been individually identified,
and there is no evidence that Hilton will have difficulty locating them. Moreover, any benefits
forfeited under § 4.11 would remain in the Plan fund to be paid out to other participants, which is
arguably the “next best” class. This is not the type of case for which the cy pres doctrine was
intended. Therefore, the Court shall not include a cy pres provision in its order of equitable
38 relief.
G. Attorneys Fees and Incentive Awards
Plaintiff indicates that he intends to apply for an incentive award of $50,000 for the
named plaintiff, Jamal Kifafi, as well as for attorneys’ fees and expenses. See Pl.’s Br. at 37-40.
The Court shall reserve any decision as to attorneys’ fees and incentive awards until after a final
judgment is entered in this case.
H. Further Proceedings in this Action
Based on the Court’s rulings as stated above, the parties should confer in an effort to
determine what issues remain disputed. To the extent there are disputes remaining regarding the
proper equitable relief for the minimum accrual rate and vesting violations, the Court shall
require further briefing and hold a hearing to decide disputed issues of material fact. Plaintiff
should identify each class member whom it believes (and Defendants dispute) should be
provided with additional benefits or vesting service, and Defendants shall provide a legal and
factual basis for the benefit and vesting determinations it makes with respect to each disputed
class member’s remedy. Once the parties have filed these additional briefs and supporting
schedules, the Court shall schedule a hearing to resolve any final factual disputes. This hearing
will not consider individual class member claims but class claims and issues impacting the
methodology.
//
39 IV. CONCLUSION
The Court has reviewed the parties’ submissions on remedies and made rulings on the
major issues contested by the parties. With respect to the backloading violation, the Court shall
generally adopt Defendants’ proposed revision to the benefits formula but reject Defendants’
contention that relief should only be provided to participants who separated from service after
1987. With respect to Defendants’ failure to credit union service for purposes of vesting, the
Court shall order Defendants to credit union but not other non-participating service, and the
Court shall require Hilton to search its corporate records for information relating to class
members’ union service and permit class members to submit claims based on union service not
reflected in records. With respect to Defendants’ violation of the 1000 hours of service standard,
the Court shall adopt the parties’ proposal to apply the 870/750 hours worked standard with
hours equivalencies but reject Plaintiff’s proposal to apply equivalencies to periods of time for
which there are no records of hours of service. With respect to Defendants’ failure to credit the
first year of participation, the Court shall reject Plaintiff’s proposal to credit participants with a
year of service for the first year in which there is any record of participating service. With
respect to Defendants’ failure to credit leaves of absence, the Court shall not order additional
discovery of corporate records. The Court declines to order additional discovery of Hilton’s
records except with respect to union service, as mentioned above. At this time, the Court does
not see the need to appoint a class action administrator to oversee the implementation of final
relief, but the parties should develop a more limited mechanism for monitoring Hilton’s
implementation of remedies. The Court shall not approve lump sum payments in lieu of future
benefits owed to participants, nor shall it include a cy pres provision in its final order. Other
40 disputed issues of fact, such as the alleged application of unlawful equivalencies or elapsed time
methods and discrepancies between versions of the Plan’s database, shall be decided at a final
remedies hearing. An appropriate Order accompanies this Memorandum Opinion.
Date: September 7, 2010
/s/ COLLEEN KOLLAR-KOTELLY United States District Judge
Related
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