Ninth Circuit Revives ERISA Breach of Fiduciary Duty Claims in Class Action Against Northrop Grumman

Baleja v. Northrop Grumman Space and Mission Systems Corp. Salaried Pension Plan, et al., No. 22-56042, 2024 WL 3858720 (9th Cir. Aug. 19, 2024) (Before: Tashima, Graber, and Christen, Circuit Judges) involves an ERISA class action brought by Plaintiff-Appellant John Baleja, on behalf of himself and a class of former employees of ESL, Inc., against Defendants Northrop Grumman Space and Mission Systems Corp. Salaried Pension Plan, Northrop Grumman Benefit Plans Administrative Committee, and Northrop Grumman Corp. for failing to sufficiently disclose a pension offset and the effects of the offset. Plaintiff-Appellant Baleja appealed the district court’s grant of partial summary judgment and partial judgment after a bench trial in favor of Defendants. The Ninth Circuit affirmed in part, reversed in part, and remanded the matter to the district court for further proceedings.

Plaintiffs originally benefited from the ESL Retirement Fund before they were transferred to the TRW Salaried Pension Plan, which provided that the ESL employees’ benefits would be reduced by an amount representing the age 65 actual annuity value of the participant’s account balance under the ESL Retirement Fund, excluding certain portions of the account balance. Plaintiffs claim that Defendants breached their fiduciary duties by issuing misleading statements about the pension offset.

The Ninth Circuit first concluded that Plaintiffs timely filed their claim for equitable relief for Defendants’ breach of fiduciary duty. Defendants issued a 2014 summary plan description which was the last action in a series of allegedly misleading statements about the pension offset. The action was filed in 2017, before the end of the six-year statute of limitations. Therefore, it is timely.

The district court did not address the merits of the 29 U.S.C. § 1132(a)(3) claim but the Ninth Circuit exercised its discretion to reach this issue. The court found that “evidence in the record supports the conclusion that Defendants breached their fiduciary duty of disclosure by issuing a series of misleading statements that ‘rendered obscure’ the pension offset.” The offset was purportedly listed in Appendix J which was never completed for ESL employees. Various summary plan descriptions indicated that former ESL employees’ pension offsets would be a relatively small amount. However, the offset resulted in significant pension reductions. The court concluded that there are genuine issues of material fact as to whether Defendants breached their fiduciary duty of disclosure by failing to reasonably and accurately apprise former ESL employees of their rights under the ERISA plans.

With respect to the claim for benefits under 29 U.S.C. § 1132(a)(1)(B), the court found that the plan administrator did not abuse its discretion in interpreting the plan as authorizing offsets for payouts from the ESL Retirement Fund. Though the court described the result as “arguably unfair” due to the severe reduction or even elimination of many class members’ pensions, the plan administrator did not abuse its discretion in applying actuarial assumptions, including an 8.5% rate of return on the payout from the prior pension plan. But, the court did find that the plan administrator abused its discretion by failing to interpret the TRW plan as providing a guaranteed minimum monthly benefit irrespective of the ESL offset. The court concluded that the plan’s text provides for the guaranteed minimum monthly benefit.