Lawrence G. Ruppert v. Alliant Energy Cash Balance Pension Plan

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 12‐3067
LAWRENCE G. R UPPERT and T HOMAS A. LARSON, on behalf of
themselves and all others similarly situated,
Plaintiffs‐Appellees,
v.
A LLIANT ENERGY C ASH BALANCE P ENSION P LAN,
Defendant‐Appellant.
____________________
Appeal from the United States District Court for the
Western District of Wisconsin.
No. 3:08‐cv‐00127‐bbc — Barbara B. Crabb, Judge.
____________________
A RGUED A PRIL 3, 2013 — D ECIDED A UGUST 9, 2013
____________________
Before P OSNER , WOOD , and HAMILTON, Circuit Judges.
P OSNER , Circuit Judge. This is an appeal by the defendant
in a class action suit brought by participants in a cash bal‐
ance defined benefit pension plan, alleging that the plan as
administered violated ERISA, and seeking recovery of bene‐
fits denied the participants as a consequence of the violation.
29 U.S.C. § 1132(a)(1)(B). The district judge granted sum‐
mary judgment in favor of the class—actually classes, be‐

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2 No. 12‐3067
cause the judge divided the class into two subclasses: sub‐
class A challenges the projection rate used by the defendant,
subclass B the defendant’s handling of the pre‐mortality re‐
tirement discount. We explain these terms in due course.
The employee participating in a cash balance plan has a
“notional” retirement account (notional because the individ‐
ual account is not funded) to which every year the employer
adds a specified percentage of the employee’s salary plus in‐
terest at a specified rate on the amount in the account. If the
employee remains employed by the plan sponsor until re‐
tirement age, either the balance in his notional retirement
account will be used to purchase an annuity for him or, if he
prefers, he can receive the cash balance as a lump sum.
But suppose the employee leaves the employ of the
plan’s sponsor before reaching retirement age. Between his
leaving and his reaching retirement age his cash balance will
grow because it will still earn interest every year. Critically
so far as this case is concerned, that interest is an accrued
benefit—an indefeasible entitlement. Thompson v. Retirement
Plan for Employees of S.C. Johnson & Son, Inc., 651 F.3d 600, 602
(7th Cir. 2011); Berger v. Xerox Corp. Retirement Income Guar‐
antee Plan, 338 F.3d 755, 758–59 (7th Cir. 2003). But if he
leaves early and decides to take his retirement benefit as a
lump sum at that time, ERISA provides that the lump sum
will be not his current cash balance but the present value of
the lump sum retirement benefit that he would be entitled to
receive if he deferred receipt until he reached retirement age.
29 U.S.C. § 1054(c)(3); Thompson v. Retirement Plan for Em‐
ployees of S.C. Johnson & Son, Inc., supra, 651 F.3d at 602; Ber‐
ger v. Xerox Corp. Retirement Income Guarantee Plan, supra, 338

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No. 12‐3067 3
F.3d at 758–59; Esden v. Bank of Boston, 229 F.3d 154, 158–59
(2d Cir. 2000).
So calculating the lump sum entitlement of an employee
who departs before reaching retirement age requires increas‐
ing his cash balance by the amount of interest he could ex‐
pect to receive until retirement and then discounting the re‐
sulting increased cash balance to reflect the benefit of receiv‐
ing money now rather than in the future. This opposed ac‐
tion of increasing the cash balance by future interest on it
and then discounting that increased cash balance to present
value is called “whipsawing.” It involves projecting forward
to the value of the retirement benefit at retirement age (mov‐
ing up) and then discounting backward to the present (mov‐
ing down), and thus resembles the action of a two‐person
saw (a “whipsaw”). Johnson v. Meriter Health Services Employ‐
ee Retirement Plan, 702 F.3d 364, 367 (7th Cir. 2012); Esden v.
Bank of Boston, supra, 229 F.3d at 159.
When a plan entitles participants to interest credits at a
variable rate, as this plan does, the interest credits that
would have accrued between the lump sum distribution that
an employee who left early took and his reaching normal re‐
tirement age cannot be known for certain; they can only be
estimated. The rate picked to estimate those interest credits
is called the “projection rate.” It will not generate an exact
match to the interest credits because the variations in future
interest credits cannot be known. But it must be a reasona‐
ble, good‐faith estimate. Thompson v. Retirement Plan for Em‐
ployees of S.C. Johnson & Son, Inc., supra, 651 F.3d at 609–10;
Berger v. Xerox Corp. Retirement Income Guarantee Plan, supra,
338 F.3d at 760; Esden v. Bank of Boston, supra, 229 F.3d at 166–
67.

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4 No. 12‐3067
If the projection rate used to calculate the cash balance at
retirement age is identical to the interest rate used to dis‐
count the cash balance to present value (the discount rate),
the early retiree’s lump sum is simply the cash balance on
the date he leaves the employ of the plan sponsor. That was
used in the defendant’s 1998 retirement plan used to calcu‐
late the lump sum retirement benefits of the early retirees,
the members of the projection‐rate subclass. The plan admin‐
istrator used the 30‐year Treasury bond rate for both the pro‐
jection rate and the discount rate. But the plan document
had promised the plan participants an interest‐crediting rate
of 4 percent, or 75 percent of the plan’s investment returns
for each year in which an employee was accruing benefits,
whichever was greater. The judge determined that the 30‐
year Treasury rate was not a reasonable estimate of the inter‐
est‐crediting rate and thus of the future interest credits to
which the plan entitled the participants. (The use of the 30‐
year Treasury rate as the discount rate was permitted by
ERISA in 1998, 29 U.S.C. § 1055(g)(3) (1998), and so is not
challenged.)
Once the judge decided that the projection rate had been
too low, she had next to decide the damages that the class
members had sustained. So she conducted a bench trial at
which expert witnesses presented evidence of what would
be the most reasonable projection rate. On the basis of the
expert testimony, the judge concluded that it was 8.2 percent.
She rejected the plan’s proposed method of calculating
the projection rate (not a method advocated by any of the
expert witnesses, however). The plan’s method would have
yielded a lower rate, hence a lower estimate of the future in‐
terest credits of the class members and thus a lower estimate

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No. 12‐3067 5
of the present value of those credits. The method based the
projection rate on a 1 to 5 year rolling average of the plan’s
past interest‐crediting rates, beginning in 1998. The rate for
1998 would be the rate in just that year, the rate for 1999
would be the average rate in that and the preceding year;
and so on until, beginning in 2002, the rate for each year
would be the average of the rate in that year and the rates in
the previous four years.
Rolling averages are a permissible method of estimating
interest rates for cash balance plans. Thompson v. Retirement
Plan for Employees of S.C. Johnson & Son, Inc., supra, 651 F.3d
at 610 n. 17; Berger v. Xerox Corp. Retirement Income Guarantee
Plan, supra, 338 F.3d at 760; Esden v. Bank of Boston, supra, 229
F.3d at 170; cf. Treas. Reg. § 1.401(a)(4)‐8(c)(3)(v)(B); 29 U.S.C.
§ 1054(b)(5)(B)(vi)(I). But of course there is no averaging
when only one year is used to estimate the interest rate. The
only reason the plan would have for choosing 1 to 5 years
rather than just 5 years was to exclude all years before 1998.
That arbitrary position—for of course the plan’s annual rates
of return for the five years preceding 1998 were known—was
doubtless intended to exploit the fact that the plan, like most
investors, had high earnings in the late 1990s—the years of
the dot‐com stock bubble—and low returns in 2000 through
2002 in the wake of the dot‐com crash. By excluding most of
the 1990s from the average, the defendant produced a lower
estimate of the future interest credits owed the participants
who took their lump sums in the early 2000s. The result of
this discreditable gimmickry, properly rejected by the district
judge, was to produce an average estimated projection rate
of only 7.27 percent (and for some participants only 5.45 per‐
cent), significantly below the judge’s 8.2 percent estimate.

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6 No. 12‐3067
The case should have ended there, but did not because in
2011, before any distribution of damages to the class, the de‐
fendant had amended the 1998 plan. The aim was to moot
the lawsuit and by doing so reduce the defendant’s damages.
For the amended plan was retroactive. It purported to re‐
place the rights that the class members had obtained in the
lawsuit (the 8.2 percent projection rate) with the 1 to 5 year
rolling average. But because the rolling average yielded in‐
terest rates below the 8.2 percent that the judge had already
determined the participants to be entitled to, she ruled that
the rolling average could not be applied to them.
Anyway the retroactive modification of a plan can’t be
used to diminish damages to which participants have been
held entitled, even if the modification is lawful. In effect the
defendant is arguing that okay, we screwed our participants
unlawfully, but we could have screwed them lawfully, and
that’s what we’ve now done by amending the plan, and since
the amendment is retroactive it wipes out the claims on
which the case is based, mooting the lawsuit.
The defendant argues that at least it shouldn’t have to
project forward, at the 8.2 percent rate fixed by the district
judge, a retroactive supplement to account balances that it
gave most participants in 2011. The supplement changed the
formula for calculating interest credits between January 1
and the date of the distribution of the lump sum. But the
amendment was retroactive to 1998. So an employee who
quit in the mid‐2000s and elected to receive a lump sum is
entitled to the present value of the retroactive increase in
partial‐year credits, for partial‐year credits are accrued bene‐
fits under this plan just like full‐year ones.

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No. 12‐3067 7
The plan administrator also reduced each participant’s
lump sum for the risk that the participant might have died
before reaching retirement age and thus lost all benefits un‐
der the plan. This reduction in the participant’s lump sum
payment, derived from the probability that the plan partici‐
pant would have died after receiving the lump sum but be‐
fore reaching retirement age, is called a “pre‐retirement mor‐
tality discount.” The discount the defendant wants to impose
(and that the district judge held to be unlawful) assumes that
a participant or his survivor would receive no interest be‐
tween the date of the participant’s death and the date on
which he would have reached retirement age had he lived.
But the plan document provides that the survivor is entitled
to the “Actuarial Equivalent present value of the Participant’s
Cash Balance Account payable in a Single Life Annuity.” To
be the “Actuarial Equivalent” that annuity would have to in‐
clude interest accretions to the cash balance account up to
the date on which the participant would have reached re‐
tirement age had he not died. The plan is also explicit that a
survivor who wants a lump sum may delay receipt to the
date when the participant would have reached retirement
age had he survived till then; by waiting the survivor obtains
benefits identical to what the participant would have re‐
ceived. In other words, upon the participant’s death the sur‐
vivor could choose to take the participant’s place in the plan
with no loss of future interest credits. Berger v. Xerox Corp.
Retirement Income Guarantee Plan, supra, 338 F.3d at 764; West
v. AK Steel Corp., 484 F.3d 395, 410–11 (6th Cir. 2007).
The defendant also raises issues concerning the six‐year
statute of limitations applicable to the claims. ERISA pro‐
vides a statute of limitations for some types of ERISA suits,
for example suits for breach of fiduciary duty, see 29 U.S.C. §

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8 No. 12‐3067
1113, but not for others, such as the present one, which seeks
recovery of benefits under section 1132. In such a case the
court borrows a statute of limitations from an analogous
state law. Young v. Verizonʹs Bell Atlantic Cash Balance Plan,
615 F.3d 808, 815–16 (7th Cir. 2010); see generally Reed v.
United Transportation Union, 488 U.S. 319, 323–24 (1989). The
parties agree that the state law most analogous to section
1132 is Wisconsin contract law, which has a six‐year statute
of limitations. Wis. Stat. § 893.43. So that’s the statute of limi‐
tations applicable to the claims in this case.
The defendant argues that communications that the plan
administrator made to plan participants in 1998 put them on
notice that the 30‐year Treasury rate would be the projection
rate, and so, since the suit was filed in 2008, the statute of
limitations bars all the claims made in it. We disagree. Those
communications were, as in the nearly identical case of
Thompson v. Retirement Plan for Employees of S.C. Johnson &
Son, Inc., supra, 651 F.3d at 605–06, too murky to give the
participants adequate notice that the projection rate would
or could fall short of what the plan had promised. As in
Thompson, participants in the defendant’s plan, though told
they could “receive [their] vested account balance as a lump
sum” or the “vested portion of their plan benefit” if they left
the company before retirement, were not told how that bal‐
ance or benefit would be calculated, what exactly had vest‐
ed, the terms of the applicable whipsaw, or even whether
there would be a whipsaw.
The defendant also pleads an alternative, narrower but
meritorious, statute of limitations defense. Many members of
the class (we’ve not been told how many) took their lump
sums more than six years before the suit was filed (that is,

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No. 12‐3067 9
took them between 1998 and 2002). The district judge ruled
that the further violation of ERISA committed when the de‐
fendant adopted the 2011 amendment restarted the limita‐
tions period. It was indeed a fresh violation, but it did not
revive claims, based on the projection rate, extinguished by
the statute of limitations because they had accrued when the
claimants had received their lump sum payouts more than
six years before suit was filed.
The class points to our decision in Martin v. Bartow, 628
F.3d 871, 876 (7th Cir. 2010). The petitioner had been civilly
committed pursuant to a judgment rendered in 1996. In 2005
a further judgment was entered, continuing his civil com‐
mitment. The statute of limitations for challenging the 1996
judgment had expired, but we held that the statute of limita‐
tions applicable to the 2005 judgment had not expired. The
renewed decision to continue his commitment was a fresh
injury. There is no fresh projection‐rate injury (as distinct
from a fresh projection‐rate violation) in this case. The 2011
amendment was merely a failed effort to rectify the projec‐
tion‐rate injury caused by the 1998 plan.
The defendant also raises a statute of limitations issue
concerning subclass B’s claim. But that claim relates to a vio‐
lation of ERISA that first occurred in 2011, when the plan for
the first time reduced benefits pursuant to a pre‐retirement
mortality discount. The statute of limitations for subclass B
did not begin to run until then.
The defendant’s final argument is that one of the two
class representatives was not an adequate representative. See
Fed. R. Civ. P. 23(a)(4). That is an absurd argument for a de‐
fendant to make—a defendant benefits from a class repre‐
sentative who is inadequate to represent the interests of the

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10 No. 12‐3067
class. The argument is especially absurd when made when
the case is over and we know that the class representatives
did an excellent job. See Sosna v. Iowa, 419 U.S. 393, 403
(1975); Gonzales v. Cassidy, 474 F.2d 67, 71–72 (5th Cir. 1973).
But while the class representatives have been adequate
up to now, on remand (for a remand is necessary in light of
our ruling on the application of the statute of limitations to
the projection‐rate subclass) a new representative or repre‐
sentatives will have to be appointed for subclass A. The two
named plaintiffs, Ruppert and Larson, have up to now been
the representatives of both subclasses, and they remain ade‐
quate representatives of subclass B—the subclass challeng‐
ing the pre‐retirement mortality discount—because the lump
sum retirement benefits that they received in 2011 had been
subjected to the discount. But Ruppert is no longer a mem‐
ber of subclass A, because he received his lump sum in 2011
calculated on the basis of a projection rate higher than 8.2
percent. And Larson is out as well, by virtue of our statute of
limitations ruling; for he had received his lump sum in 2000.
The judgment is reversed and remanded with respect to
the statute of limitations regarding class members who took
their lump sum more than six years before the suit was filed,
and also with respect to the adequacy of the class representa‐
tives, and is otherwise affirmed.
A FFIRMED IN P ART , R EVERSED IN P ART , AND R EMANDED.

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