Class Action Update
Underwood v. Carpenters Pension Trust Fund Detroit & Vicinity ("Pension Plan") et. al.
Case No. 2:13-cv-14464; U.S. Dist. Ct. E.D. Mich.; Hon. Laurie J. Michelson
For those of you who have been following this Pension Plan class action, here's a review of the main events from the beginning:
Procedural History of the Pension Plan Class Action
In May of 2013, I started receiving calls from participants in the Pension Plan whom the Trustees had determined were totally and permanently disabled from performing any more work in the construction industry. These disabled Pension Plan participants told me they had received a notice that the Pension Plan was amended, effective 8/1/2013, so as to drastically reduce their disability retirement benefits. I subsequently determined that the average reduction was over 60%! I also determined that the reductions were illegal. Therefore, on 10/24/2013, I and my partners Bob Geller and Brad Schram filed a class action against the Pension Plan and its Trustees seeking to recover the disability retirement benefits wrongfully withheld and to have the original amount of the disability retirement benefit reinstated. Thereafter, the parties extensively briefed the merits of the Claim and whether the proposed Class should be certified.
On September 15, 2014, the Court ruled that the amendment reducing the disability retirement benefits was illegal and that the Class should be certified.We subsequently mailed a formal notice to all Class members informing them about the class action and filed briefs in the Court on a range of damages, including whether Defendants should pay our costs and attorneys' fees and prejudgment interest on the disability retirement benefits wrongfully withheld.
In the course of the litigation, we discovered that some Class members converted their disability retirement benefit to an early retirement benefit before age 62 (the age at which their disability retirement benefit would otherwise convert to a full unreduced retirement benefit) because they were unable to pay their bills on the drastically reduced disability retirement benefit. Unfortunately, by being forced to make this terrible "Hobson's" choice, these Class members ("the Early Converts") will never be eligible for the full unreduced retirement benefit at age 62. This means they will experience a significant lifetime loss of benefits. Calculations for some of these Early Converts reveal lifetime losses ranging from $130,000 to over $450,000! Worse, Defendants have taken the position that the Early Converts are not entitled to any damages after the date they converted their disability retirement benefit to an early retirement benefit. We strongly disagree and have briefed this issue for the Court, although there likely will be additional briefs on this issue in the future.
In February of this year (2015), we discovered that, in October of last year (2014), Defendants amended the Pension Plan again to make the same benefit cuts the Court had just ruled a few weeks earlier were unlawful. Defendants memorialized these changes in a fully restated Pension Plan ("the Restatement"). Defendants have taken the position that the Restatement eliminates or severely reduces the Class members' damages. However, before we had an opportunity to brief the Restatement issues for the Court, the Court ordered the parties to participate in settlement negotiations with a neutral facilitator. The settlement negotiations took place on May 20, 2015, but did not result in a settlement. Since then, the parties have filed two rounds of briefs on the effect of the Restatement on the Defendants' liability and the Class members' damages. A third round of briefs on this issue is due September 8, 2015.
Payment of the Disability Retirement Benefits Will Have Almost No Impact on the Pension Plan's Funded Stated
Throughout the litigation, Defendants have contended that they made the drastic cuts to the Class members' disability retirement benefits because the Pension Plan is underfunded and the cuts were needed to "save" the pension Plan. This is a specious argument for the following reasons:
First, the Pension Plan's actuarial valuation as of May 1, 2014 shows that there were 18,831 participants in the Pension Plan as of that date. The Class consists of only 307 Class members (1.63% of the total number of participants), which alone suggests that payment of the back benefits and reinstatement of the original disability retirement benefit will have little impact on the Pension Plan's funded status.
Second, we hired a highly qualified actuary to calculate (i) the aggregate amount of the Class members' disability retirement benefit damages (including those for the Early Converts), and (ii) the impact that payment of those disability retirement damages would have on the Pension Plan's funded status. Our actuary determined that if the disability retirement benefits owed the Class members as of 9/1/2015 were paid on that date, the impact on the Pension Plan's funded status, rounded to two decimal places, would equal-
(i) at 00.0% prejudgment interest: 0.22%
(ii) at 7.5% prejudgment interest: 0.23%
(iii) at 12.0% prejudgment interest: 0.24%
(iv) at 15.0% prejudgment interest: 0.24%%
Our actuary further determined that if all future disability retirement benefit damages payable to the Class members after 9/1/2015 were paid on that date, the impact on the Pension Plan's funded status, rounded to two decimal places, would equal 0.64%. No prejudgment interest was assumed for this calculation because these damages are payable in the future.
Finally, our actuary determined that, if all past and future disability retirement benefit damages due and payable to the Class were paid on 9/1/2015, including prejudgment interest on the back disability retirement benefit damages at a rate of 15%, the impact on the Pension Plan's funded status, rounded to two decimal places, would equal 0.88%.
In summary, our actuary's calculations reveal that payment of the disability retirement benefits owed and payable to the Class will have a minuscule impact on the Pension Plan's funded status. By contrast, non-payment of these disability retirement benefits has had an horrific and devastating impact on the lives of the Class members, as evidenced by their many emails, letters, and faxes to me. See Fourth Affidavit of Eva T. Cantarella with attached communications from Class members.
Given the merits of our Claim (as evidenced by the Court's 9/15/14 ruling) and that payment of the disability retirement benefits will have a de minimis impact on the Pension Plan's funded status, it is difficult to fathom why Defendants reduced the disability retirement benefits in the first place. At any rate, we are confident that we will prevail in this litigation, including any appeal of the dispute. So, stay tuned for further updates about this Pension Plan class action!
Eva T. Cantarella
Eva T. Cantarella, Attorney for the Class