ERISA-Sixth Circuit Rules That Claim Of Impermissible Cutback Is Time Barred

In Durand v. The Hamover Insurance Group, Inc., No. 14-5648 (6th Cir. 2015), the plaintiffs were appealing a magistrate judge’s holding that their claims were time-barred. In this case, on March 3, 2007, lead plaintiff Jennifer Durand filed the complaint initiating this ERISA class action against her former employer, The Hanover Insurance Group, Inc. (the “Company”), and the pension plan it sponsors, Allmerica Financial Cash Balance Pension Plan (the “Plan”). The complaint challenged the projection rate used by the Plan to calculate the lump-sum payment Durand elected to receive after ending her employment at the Company in 2003. At the time Durand elected to receive her lump-sum payment, the Plan used a 401(k)-style investment menu to determine the interest earned by members’ hypothetical accounts. Durand alleged that defendants impermissibly used the 30-year Treasury bond rate instead of the projected rate of return on her investment selections in the “whipsaw” calculation required under pre-2006 law, in violation of ERISA.

One defense to the complaint raised by the defendants is the assertion that the claims of putative class members, who received lump-sum distributions after December 31, 2003, were time barred due to an amendment to the Plan that took effect after that date (the “2004 Amendment”). The 2004 Amendment changed the interest crediting formula from the 401(k)-style investment menu to a uniform 30-year Treasury bond rate. The plaintiffs argued that the 2004 Amendment was an illegal reduction or “cutback” in benefits. The magistrate judge, presiding over the case with the consent of the parties, held that the plaintiff’s “cutback” claims were time-barred and did not relate back to the “whipsaw” claim asserted in the original class complaint in March 2007.

In analyzing the case, the Sixth Circuit Court of Appeals (the “Court”) said that, because ERISA does not provide a statute of limitations for non-fiduciary claims such as those made here, the plaintiffs’ cutback claims are governed by the most analogous state statute of limitations. The district court adopted the five-year limitations period in Kentucky law applicable to statutory claims pursuant to Kentucky Revised Statutes § 413.120(2). On appeal, the plaintiffs concede that their cutback claims accrued on January 1, 2004 and that the limitations period expired in January 2009–more than eleven months before the first amended complaint was filed on December 15, 2009. Plaintiffs argue that the cutback claims are nonetheless timely because they relate back to the whipsaw claims alleged in the original complaint in 2007. The Court rejected this argument, since the cutback claims and whipsaw claims challenge different plan policies, which were adopted at different times, as illegal under distinct provisions of ERISA, and consequently do not arise from or otherwise relate to the same transaction. The earlier claims do not give defendants any notice of the later claims. As such, the Court affirmed the magistrate judge’s decision.

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