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Interest Rates – Amara - D. Conn.

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  • Interest Rates – Amara - D. Conn.

    Here’s a new District of Connecticut decision on the Amara case. In this matter, the plaintiff’s motion for reconsideration of ruling on interest rates is denied. The plaintiffs argue unsuccessfully that the court’s calculation of interest rates should be based upon yearly rates and not a fixed rate.

    Plaintiffs argue throughout their Motion that the Court's decision to fix interest rates as of the date the benefit commenced is an unrealistic approximation of what a hypothetical risk-averse investor would have been likely to invest in at the time. ( See, e.g., Pls.' Mot. Reconsideration at 6) ("No plan participant did what Cigna's counsel now says all of them should have done, and no Cigna plan administrator or other fiduciary advised them to do that"; "Except in hindsight, no one, including Cigna, knew in 1998-2001 that buying a 30-year bond in that period was the best course as opposed to a more conventional, conservative, and diversified investment strategy[]"; "Cigna itself did not go out in the bond market in 1998-2001 and buy up 30-year Treasury bonds to insulate either its retirement portfolio or its corporate portfolio as its counsel would now have this Court assume all participants should have done.") But Plaintiffs' argument proves too much: Plaintiffs do not explain why, if this is the case, Plaintiffs' proposal of using a variable interest rate for each year up through the present, then switching to a fixed interest rate, is any less artificial or more accurate an approximation of how a risk-averse investor would have acted.

    Plaintiffs argue that it would be unfair to "permit the misleading or similarly inequitable conduct that led to the reformation to edge its way back in through the interest rates used for an offset." (Pls.' Mot. Reconsideration at 11.) But Plaintiffs do not explain how their proposal better reflects Plan Participants' reasonable expectations such that Plaintiffs should be entitled to reformation along those lines. See Amara v. CIGNA Corp., 775 F.3d 510, 526 (2d Cir. 2014) ("The facts required to satisfy the elements of reformation must be proven by clear and convincing evidence." (citations omitted)). As Plaintiffs acknowledge, "equity does not demand the lowest possible set off[.]" (Pls.' Mot. Reconsideration at 11.)

    Plaintiffs argue, to this effect, that the Frommert v. Conkright line of decisions bars the use of "'phantom' interest rates to enhance offsets from ERISA relief." (Id. ( citing 433 F.3d 254, 268 (2d Cir. 2006); 153 F.Supp.3d 599, 605 (W.D.N.Y. 2016).) But Frommert is inapposite, as it involved an ERISA violation by an employer who impermissibly used phantom interest rate offsets, and did not address the scope of a federal district court's discretion in crafting an equitable remedy. See 433 F.3d at 262 (ERISA's objective of "protecting employees' justified expectations of receiving the benefits their employers promise them . . . was thwaited . . . [where] defendants attempted to implement the phantom account offset without properly amending the terms of the Plan or providing adequate notice to rehired employees that their benefits would be reduced because of the hypothetical growth attributed to their prior lump sum distributions." (internal quotation marks and citation omitted)). This argument, therefore, is unavailing.
    The court disagrees.

    Judge Kravitz explicitly held that these two rates should travel together, so in interpreting this decision, his analysis of the proper rate for prejudgment interest is wholly relevant in determining the methodology used to calculate the rate used for both purposes- prejudgment interest and the offset rate. With this in mind, Judge Kravitz held that the rate should reflect "a reasonable rate of return[,]" which Judge Kravitz further defined as the rate used "to calculate the lump-sum present value of retiring participants' annuities (i.e., the equivalent actuarial value)." Id. The Court's July 14, 2017 Order "conclude[d] that it is more appropriate to fix the rate as of the date the benefits commence[,]" and Plaintiffs have not shown why this is an inappropriate way to calculate the "present value of retiring participants' annuities[,]" or more broadly why this rate does not reflect a "reasonable rate of return[.]" Plaintiffs' remaining arguments similarly fail to raise any "controlling decisions or data that the [C]ourt overlooked[,]" and accordingly, Plaintiffs' Motion must be denied. See Shrader, 70 F.3d at 257 (2d Cir. 1995).
    The relatively short opinion is attached below.
    Attached Files