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Pender v. Bank of Am. Corp.

United States Court of Appeals, Fourth Circuit

June 8, 2015

WILLIAM L. PENDER; DAVID L. MCCORKLE, Plaintiffs -- Appellants,
v.
BANK OF AMERICA CORPORATION; BANK OF AMERICA, NA; BANK OF AMERICAN PENSION PLAN; BANK OF AMERICA 401(K) PLAN; BANK OF AMERICA CORPORATION CORPORATE BENEFITS COMMITTEE; BANK OF AMERICA TRANSFERRED SAVINGS ACCOUNT PLAN, Defendants -Appellees, and ANITA POTHIER; KATHY L. JIMENEZ; MARIELA ARIAS; RONALD R. WRIGHT; JAMES C. FABER, JR., On behalf of themselves and on behalf of all others similarly situated, Plaintiffs, and UNKNOWN PARTY, John and Jane Does #1-50, Former Directors of NationsBank Corporation and Current and Former Directors of Bank of America Corporation & John & Jane Does #51-100, Current/Former Members of the Bank of America Corporation Corporate Benefit; CHARLES K. GIFFORD; JAMES H. HANCE, JR.; KENNETH D. LEWIS; CHARLES W. COKER; PAUL FULTON; DONALD E. GUINN; WILLIAM BARNETT, III; JOHN T. COLLINS; GARY L. COUNTRYMAN; WALTER E. MASSEY; THOMAS J. MAY; C. STEVEN MCMILLAN; EUGENE M. MCQUADE; PATRICIA E. MITCHELL; EDWARD L. ROMERO; THOMAS M. RYAN; O. TEMPLE SLOAN, JR.; MEREDITH R. SPANGLER; HUGH L. MCCOLL; ALAN T. DICKSON; FRANK DOWD, IV; KATHLEEN F. FELDSTEIN; C. RAY HOLMAN; W. W. JOHNSON; RONALD TOWNSEND; SOLOMON D. TRUJILLO; VIRGIL R. WILLIAMS; CHARLES E. RICE; RAY C. ANDERSON; RITA BORNSTEIN; B. A. BRIDGEWATER, JR.; THOMAS E. CAPPS; ALVIN R. CARPENTER; DAVID COULTER; THOMAS G. COUSINS; ANDREW G. CRAIG; RUSSELL W. MEYER-, JR.; RICHARD B. PRIORY; JOHN C. SLANE; ALBERT E. SUTER; JOHN A. WILLIAMS; JOHN R. BELK; TIM F. CRULL; RICHARD M. ROSENBERG; PETER V. UEBERROTH; SHIRLEY YOUNG; J. STEELE ALPHIN; AMY WOODS BRINKLEY; EDWARD J. BROWN, III; CHARLES J. COOLEY; ALVARO G. DE MOLINA; RICHARD M. DEMARTINI; BARBARA J. DESOER; LIAM E. MCGEE; MICHAEL E. O'NEILL; OWEN G. SHELL, JR.; A. MICHAEL SPENCE; R. EUGENE TAYLOR; F. WILLIAM VANDIVER, JR.; JACKIE M. WARD; BRADFORD H. WARNER; PRICEWATERHOUSE COOPERS, LLP, Defendants

Argued January 27, 2015

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Appeal from the United States District Court for the Western District of North Carolina, at Charlotte. (3:05-cv-00238-GCM). Graham C. Mullen, Senior District Judge.

ARGUED:

Eli Gottesdiener, GOTTESDIENER LAW FIRM, PLLC, Brooklyn, New York, for Appellants.

Carter Glasgow Phillips, SIDLEY AUSTIN, LLP, Washington, D.C., for Appellees.

ON BRIEF

Thomas D. Garlitz, THOMAS D. GARLITZ, PLLC, Charlotte, North Carolina, for Appellants.

Irving M. Brenner, MCGUIREWOODS LLP, Charlotte, North Carolina; Anne E. Rea, Christopher K. Meyer, Chicago, Illinois, Michelle B. Goodman, David R. Carpenter, SIDLEY AUSTIN LLP, Los Angeles, California, for Appellees.

Before KEENAN, WYNN, and FLOYD, Circuit Judges. Judge Wynn wrote the opinion, in which Judge Keenan and Judge Floyd joined.

OPINION

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WYNN, Circuit Judge

In this Employee Retirement Income Security Act of 1974 (" ERISA" ) case, an employer was deemed to have wrongly transferred assets from a pension plan that enjoyed a separate account feature to a pension plan that lacked one. Although the transfers were voluntary and the employer guaranteed that the value of the transferred assets would not fall below the pre-transfer amount, an Internal Revenue Service audit resulted in a determination that the transfers nonetheless violated the law.

Plaintiffs, who held such separate accounts and agreed to the transfers, brought suit under ERISA and sought disgorgement of, i.e., an accounting for profits as to, any gains the employer retained from the transaction. The district court dismissed their case, holding that they lacked statutory and Article III standing. For the reasons that follow, we disagree and hold that Plaintiffs have both statutory and Article III standing. Further, we hold that Plaintiffs' claim is not time-barred. Accordingly, we reverse and remand the matter for further proceedings.

I.

A.

In 1998, NationsBank[1] (" the Bank" ) amended its defined-contribution plan (" the 401(k) Plan" ) to give eligible participants a one-time opportunity to transfer their account balances to its defined-benefit plan (" the Pension Plan" ). The Pension Plan provided that participants who transferred their account balances would have the same menu of investment options that they did in the 401(k) Plan. Further, the Bank amended the Pension Plan to provide the guarantee that participants who elected to make the transfer would receive, at a minimum, the value of the original balance of their 401(k) Plan accounts (" the Transfer Guarantee" ).

The 401(k) Plan participants' accounts reflected the actual gains and losses of their investment options. In other words, the money that 401(k) Plan participants directed to be invested in particular investment options was actually invested in those investment options, and 401(k) Plan participants' accounts reflected the investment options' net performance.

By contrast, Pension Plan participants' accounts reflected the hypothetical gains and losses of their investment options. Although Pension Plan participants selected investment options, this investment was purely notional. By design, Pension Plan participants' selected investment options had no bearing on how Pension Plan assets were actually invested. Instead, the Bank invested Pension Plan assets in investments

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of its choosing,[2] periodically crediting each Pension Plan participant's account with the greater of (1) the hypothetical performance of the participant's selected investment option, or (2) the Transfer Guarantee.

Plaintiffs William Pender and David McCorkle (collectively with those similarly situated, " Plaintiffs" ) are among the eligible participants who elected to transfer their account balances. Participants who elected to transfer their 401(k) Plan balances to the Pension Plan may not have appreciated the difference between the plans, particularly if they maintained their original investment options. But for the Bank, each transfer represented an opportunity to make money.[3] As long as the Bank's actual investments provided a higher rate of return than Pension Plan participants' hypothetical investments, the Bank would retain the spread. And although the spread generated by each account might have been relatively small, in the aggregate and over time, this strategy could yield substantial gains for the Bank.[4]

B.

To illustrate by way of example, consider 401(k) Plan participants Jack and Jill. They each have account balances of $100,000, and each has selected the same investment option, which generates a 60-percent return over a 10-year period. Jack decides to keep his 401(k) Plan account, and Jill decides to make the transfer to the Pension Plan.

When Jill transfers her assets to the Pension Plan, she selects the same 60-percent-return investment option she had in the 401(k) Plan. But instead of actually investing the $100,000 Jill transferred to the Pension Plan according to her selected investment option, the Bank periodically notes the value that her assets would have gained on her selected investment options but actually invests it in an investment portfolio that generates a 70-percent return over 10 years.

Fast forward ten years: Jack's actual investment of the initial $100,000 generates $60,000 in actual returns. Jill's hypothetical investment of the $100,000 she transferred from the 401(k) Plan to the Pension Plan generates $60,000 in investment credits. The accounts are both valued at $160,000.

Jack's $160,000 401(k) Plan account balance represents the full value of the initial balance plus his actual investment performance. But the $160,000 balance of Jill's Pension Plan account does not represent the full value of the $100,000 that she transferred from the 401(k) Plan and the actual investment performance of that money. Because the Bank actually invested that money in investment options with a 70-percent return over the ten-year period,

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it generated $70,000. Due to the difference between the Bank's actual rate of return and the rate of return of Jill's selected investment option, the Bank retains $10,000 after it credits her Pension Plan account with $60,000. The spread between the actual investment returns ($70,000) and the hypothetical returns ($60,000) may be small on the individual account level ($10,000 for Jill's Pension Plan account). But it is greater than the amount of money the Bank stands to gain from Jack's account ($0). And with the thousands of Jills working for a large employer like the Bank, it has the potential to add up.

C.

In the wake of a June 2000 Wall Street Journal article covering these types of retirement plan transfers,[5] the Internal Revenue Service opened an audit of the Bank's plans. In 2005, the IRS issued a technical advice memorandum, in which it concluded that the transfers of 401(k) Plan participants' assets to the Pension Plan between 1998 and 2001 violated Internal Revenue Code § 411(d)(6) and Treasury Regulation § 1-411(d)-4, Q& A-3(a)(2). According to the IRS, the transfers impermissibly eliminated the 401(k) Plan participants' " separate account feature," meaning that participants were no longer being credited with the actual gains and losses " generated by funds contributed on the participant[s'] behalf." J.A. 518.

In May 2008, the Bank and the IRS entered into a closing agreement. Under the terms of the agreement, the Bank (1) paid a $10 million fine to the U.S. Treasury, (2) set up a special-purpose 401(k) plan, (3) and transferred Pension Plan assets that were initially transferred from the 401(k) Plan to the special-purpose 401(k) plan. The Bank also agreed to make an additional payment to participants who had elected to transfer their assets from the 401(k) Plan to the Pension Plan if the cumulative total return of their hypothetical investments was less than a certain amount.[6] All settlement-related transfers were finalized by 2009.

D.

Plaintiffs filed their original complaint against the Bank in the U.S. District Court for the Southern District of Illinois in 2004, alleging several ERISA violations stemming from plan amendments and transfers. The Bank moved under 28 U.S.C. § 1404(a) to change venue, and the case was transferred to the Western District of North Carolina. There, the district court dismissed three of the four counts contained in the complaint. See McCorkle v. Bank of America Corp., 688 F.3d 164, 169 n.4, 177 (4th Cir. 2012).

Plaintiffs' lone remaining claim alleges a violation of ERISA § 204(g)(1), 29 U.S.C. § 1054(g)(1),[7] which states that an ERISA-plan participant's " accrued benefit" " may not be decreased by an amendment of the plan" unless specifically provided for in ERISA or regulations promulgated pursuant to ERISA. According to Plaintiffs, the Bank improperly decreased the accrued benefit of the separate account feature. Relying, at least in part, ...


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