           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT  United States Court of Appeals
                                                    Fifth Circuit

                                                 FILED
                                                                         November 17, 2009

                                     No. 09-50381                      Charles R. Fulbruge III
                                   Summary Calendar                            Clerk



KATHLEEN A. STEWART, Individually and on behalf of all others similarly
situated,

                                                   Plaintiff - Appellant
v.

AT&T INC; AT&T PENSION BENEFIT PLAN-NONBARGAINED
PROGRAM,

                                                   Defendants - Appellees




                   Appeal from the United States District Court
                        for the Western District of Texas
                              USDC No. 5:08-cv-272


Before KING, STEWART and HAYNES, Circuit Judges.
PER CURIAM:*
       This appeal arises under the Employee Retirement Income Security Act
(ERISA). 29 U.S.C. § 1001 et seq. Appellant Kathleen A. Stewart asserts that
her employer’s plan administrator failed to pay her the full amount of the
lump–sum       payment      that    she   was    entitled    to   under     the   company’s
defined–benefit pension plan.              Specifically, she argues that the plan

       *
         Pursuant to 5TH CIR . R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR .
R. 47.5.4.
                                       No. 09-50381

administrator abused its discretion by using a pre–retirement mortality discount
to calculate her lump–sum retirement payment. The parties filed cross–motions
for summary judgment. The district court held that the plan administrator did
not abuse its discretion, and granted the employer’s motion for summary
judgment. Stewart appeals. We AFFIRM.
                       I. FACTS & PROCEDURAL HISTORY
      Appellant Kathleen A. Stewart worked for Ameritech Services, Inc.
(Ameritech) from 1971 to 1996.1            As an employee, she participated in the
Ameritech Management Pension Plan (AMPP), a defined–benefit pension plan.2
Prior to her termination, Stewart’s accrued benefit under the AMPP was
expressed as a defined lump sum.3 AMPP § 5.1(a). When her employment was
terminated in 1996, the defined lump–sum amount was converted into an
age–65 annuity, the standard means of receiving retirement benefits under the
plan. AMPP § 5.1(b). However, the plan allowed Stewart to elect—within 60
days of her termination—to receive her retirement benefit in a lump–sum
payment. AMPP § 7.3(b). Stewart exercised this option.
      To calculate the lump–sum payment due to Stewart, the plan
administrator converted the defined lump–sum amount into the age–65 annuity.
The amount of the annuity was determined by calculating the future value of
Stewart’s defined lump sum, in recognition of the fact that Stewart was not then
65, and thus the annuity would only be payable in the future. In doing so, the
plan administrator applied pre– and post–retirement mortality discounts, as



      1
          Ameritech is now known as AT&T Inc., the appellee in this action.
      2
        In 2004, the AMPP merged into AT&T Pension Benefit Non-Bargained Program, the
appellee in this action. Co-appellee AT&T administers the AT&T Pension Benefit Non-
Bargained Program or the ATTP.
      3
         The defined lump sum was calculated based on Stewart’s final average compensation
multiplied by her aggregate lump–sum percentage.

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                                       No. 09-50381

well as the applicable interest rates set by the Pension Benefit Guaranty
Corporation (PBGC). The mortality discounts accounted for the probability that
Stewart would either die before reaching the age of 65, in which case her annuity
would be forfeited, or the probability that Stewart would die after her annuity
payments had commenced, in which case the payments would cease.4
       After determining the amount of Stewart’s annuity, the plan administrator
converted the figure into a lump–sum amount based on its present value. In
reducing the annuity to its present value, the plan administrator relied upon the
same PBGC interest rates and mortality tables used to calculate the future value
of the annuity.       As a result, when her employment was terminated in 1996,
Stewart received a lump–sum payment of $110,450.36. This amount is equal to
the amount of her defined lump sum.
       Stewart filed an administrative claim challenging the plan administrator’s
calculation of her lump–sum payment. She argued that the plan administrator
erred by using a pre–retirement mortality discount to calculate the amount of
her lump–sum payment. Specifically, she asserted that the pre–retirement
mortality discount applies only to the disbursement of the age–65 annuity, but
does not apply when a participant elects a lump-sum payment. As a result,
Stewart sought to recover over $21,000.00 in benefits.5
       The plan administrator denied her claim. After exhausting her
administrative remedies, Stewart brought a civil action under 29 U.S.C.
§ 1132(a)(1)(B) to recover the amount of money discounted based on the




       4
         The plan provides certain exceptions to the general rule that the annuity payment
may be forfeited if the participant dies before reaching the age of 65. Because those exceptions
are not before this court, we do not address them here.
       5
           Specifically, Stewart argues that she should have received $132,358.66.

                                               3
                                       No. 09-50381

pre–retirement mortality calculation.6             The parties filed cross–motions for
summary judgment in the district court. The district court granted AT&T’s
motion for summary judgment and held that the lump–sum payment awarded
to Stewart complied with the terms of the plan. Accordingly, the district court
held that the plan administrator did not abuse its discretion by using a
pre–retirement mortality discount.
       On appeal to this court, Stewart argues that the district court erred by
concluding that the plan administrator did not abuse its discretion. She argues
that § 7.4(d) of the AMPP prohibits the plan administrator from using a
pre–retirement mortality discount to compute lump–sum pension benefits.
Because the plan provides that the lump sum will still be paid in the event that
the employee dies in the short time between electing the lump sum and receiving
the payment, Stewart argues that the plan administrator violated ERISA’s
anti–forfeiture rule by applying a discount for the probability that Stewart
would die before reaching age 65. See 29 U.S.C. § 1053(a).
                             II. STANDARD OF REVIEW
       We review a district court’s grant of summary judgment de novo, applying
the same standard as the district court. Crowell v. Shell Oil Co., 541 F.3d 295,
312 (5th Cir. 2008). Because the terms of the AMPP give the plan administrator
discretionary authority to construe the terms of the plan and apply its
provisions, we review the plan administrator’s decision for an abuse of
discretion.7 Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989); see


       6
          Stewart initially filed this case in the United States District Court for the Southern
District of Ohio; the case was later transferred to the United States District Court for the
Western District of Texas.
       7
          Section 11.1(c) of the AMPP confers discretion upon the plan administrator to
interpret the terms of the plan. Stewart briefly asserts that the plan administrator failed to
exercise any discretion in the administrative proceedings, but this argument is without merit.
The administrative record shows that the plan administrator interpreted the plan provisions
to require a computation of Stewart’s lump–sum benefit by using a pre–retirement mortality

                                               4
                                        No. 09-50381

also Stone v. UNOCAL Termination Allowance Plan, 570 F.3d 252, 257 (5th Cir.
2009) (“Because the Plan gives the Committee discretionary authority to
construe Plan terms and apply its provisions, its decision is reviewed under an
abuse of discretion standard.”). In reviewing the plan administrator’s decision,
we limit our review to the administrative record and ask “only whether the
record adequately supports the administrator’s decision.” Jenkins v. Cleco
Power, LLC, 487 F.3d 309, 314 (5th Cir. 2007) (quotation marks and citation
omitted).8
       This court applies a two–step process to determine whether a plan
administrator has abused its discretion. Stone, 570 F.3d at 257.                     First, this
court asks whether the plan administrator’s decision was legally correct. Id. If
the decision was legally correct, our inquiry ends there. But if we determine
that the administrator’s decision was not legally correct, we ask whether the
decision was an abuse of discretion. Id.               “A plan administrator abuses its
discretion where the decision is not based on evidence, even if disputable, that
clearly supports the basis for its denial.” Holland v. Int’l Paper Co. Ret. Plan,
576 F.3d 240, 246 (5th Cir. 2009) (quotations and citations omitted). An abuse
of discretion occurs if the plan administrator has acted arbitrarily or
capriciously. Id.       We make a finding of arbitrariness only if the decision is
“made without a rational connection between the known facts and the decision
or between the found facts and the evidence.” Bellaire Gen. Hosp. v. Blue Cross
Blue Shield of Michigan, 97 F.3d 822, 828 (5th Cir. 1996).9


discount.
       8
          The parties make numerous arguments that were not presented during the
administrative proceedings. We limit our review of the administrator’s decision to the
evidence contained in the administrative record. Jenkins, 487 F.3d at 314.
       9
          Stewart does not assert that the plan administrator operated under a conflict of
interest. If she did, we would “weigh the conflict of interest as a factor in determining whether
there is an abuse of discretion in the benefits denial.” Metro. Life Ins. Co. v. Glenn, 128 S. Ct.

                                                5
                                    No. 09-50381

                                   III. ANALYSIS
      We begin our analysis by asking whether the plan administrator’s decision
was legally correct. In making this determination, we consider
             (1) whether the administrator has given the plan a
             uniform construction,

             (2) whether the interpretation is consistent with a fair
             reading of the plan, and

             (3) any unanticipated costs resulting from different
             interpretations of the plan.

Crowell v. Shell Oil Co., 541 F.3d 295, 312 (5th Cir. 2008) (quotation marks and
citation omitted).      The second question—whether the plan administrator’s
interpretation is consistent with a fair reading of the plan—is the “most
important factor to consider.” Id. (citation and quotation omitted).
A. The Terms of the Plan
      The plan administrator concluded that the terms of the plan authorize the
application of a pre–retirement mortality discount when computing the amount
of the lump–sum payment. The administrator based its decision on §§ 5.1 and
7.3(b) of the plan. See AR 000000088. Section 5.1(a) of the plan defines a
participant’s accrued benefit as a defined lump sum prior to termination.
Section 5.1(b) states that at and after a participant’s termination date, the
accrued benefit is converted into an age–65 annuity based on the applicable
PBGC interest rates and the plan mortality tables. When an employee elects to
receive a lump–sum payment, § 7.3(b) states that the payment will be calculated
based on the present value of the age–65 annuity, determined using the PBGC
interest rates and the plan mortality tables.10             The plan administrator


2343, 2350-51 (2008).
      10
         Section 7.3(b) states that a participant may—within 60 days of the participant’s
termination date—elect to receive a

                                           6
                                       No. 09-50381

interpreted the plan language to require the same actuarial factors to be used
in calculating the age–65 annuity under § 5.1(b) and § 7.3(d).11 Thus, the plan
administrator applied the same pre– and post–retirement mortality discounts
to make the lump–sum calculation as it did to make the age–65 annuity
calculation.
       Stewart argues that the use of a pre–retirement mortality discount is
prohibited when an employee elects to receive a lump–sum payment. She does
not dispute the use of a post–retirement mortality discount to calculate the
lump–sum payment; rather, Stewart argues only that a pre–retirement
mortality discount may not be used. She asserts that § 7.4(d) of the AMPP
makes the lump-sum payment non–forfeitable in the event that she dies before
turning 65.
       Section 7.4(d) states:
               If a Participant who has filed a valid distribution
               election dies prior to his Annuity Starting Date, such
               election shall be void and his Accrued Benefit shall be
               paid in accordance with subsection 9.2 or 9.3, whichever
               is applicable. If a Participant who has properly elected




               Lump Sum payment which is the present value of the
               Participant’s Accrued Benefit under paragraph 5.1(b),
               determined using (i) the applicable PBGC rate for the January 1
               of the calendar year in which the Participant’s Annuity Starting
               Date occurs and (ii) the Plan’s Mortality Table. Except as
               expressly provided in subsection 7.4 a Lump Sum payment will
               only be made to the Participant as of his Termination Date.


       11
           Stewart asserts that the plan administrator never performed a present-value
computation, but this assertion is in error. The plan administrator communicated its
calculations to Stewart by letter during the administrative proceeding, and explained that it
converted Stewart’s defined lump sum into an annuity payment by determining the
“actuarially equivalent benefit to her age 65 benefit.” The administrator then converted this
sum into a lump–sum payment. AR 000000089.

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                                       No. 09-50381

              a Lump Sum dies after his Annuity Starting Date 12 but
              prior to actual receipt of such distribution, the Lump
              Sum shall be paid to his estate when it would otherwise
              have been paid to the Participant or as soon as
              practicable thereafter.


       Stewart     asserts    that    this   provision    prevents     application     of   a
pre–retirement mortality discount—which discounts for the probability that the
benefit will be forfeited by death prior to age 65—to lump–sum payments under
§7.3(b). This is not so.
       A plain reading of §§ 5.1(b) and 7.3(d) supports the plan administrator’s
interpretation of the plan.
       First, both § 5.1(b) and § 7.3(d) contain the same language authorizing use
of the applicable PBGC interest rates and plan mortality tables to calculate the
amount owed to the participant.13 Stewart acknowledges that the language of
§ 5.1(b) allows the plan administrator to apply a pre–retirement mortality
discount to calculate the future value of her annuity. The plan administrator
interpreted the plan language to require the same actuarial factors to be used
in calculating the age–65 annuity under § 5.1(b) and § 7.3(d).                          This
interpretation provides a uniform construction of the plan.14




       12
          As relevant here, the “Annuity Starting Date” “means the day [s]he retires or
otherwise terminates employment.” AMPP § 7.1.
       13
          Stewart correctly points out that the plan mortality tables do not state which
mortality decrements should be used; rather, that determination depends on whether the
benefit may be forfeited. Nonetheless, the language used in § 7.3(d) does not suggest a
different calculation than the one performed under § 5.1(b).
       14
        Stewart argues that the plan administrator provided divergent rationales for denying
her benefits in the administrative proceedings and the district court. To the extent that both
of the parties raised new arguments in the district court, we confine our review to the
administrative record and ask only whether the record evidence shows that the plan
administrator’s decision was legally correct.

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                                  No. 09-50381

      Second, the plan administrator’s interpretation is consistent with a fair
reading of the plan. Section 7.3(d) states that the lump–sum payment should
equal the present value of the age–65 annuity.     Stewart was not yet 65 when
she elected to receive her lump–sum payment. Because it was still possible for
Stewart to die prior to reaching the age of 65, it makes logical sense for the plan
administrator to discount for the probability that Stewart would forfeit her
annuity before reaching the age of 65. Thus, the plan administrator took this
probability into account in determining the present–value of Stewart’s annuity.
      Stewart’s reliance on § 7.4 is unavailing. Section 7.4 states only that the
lump–sum payment will be made to the participant’s estate in the event the
participant dies during the relatively short time period after electing a
lump–sum payment but before the payment is actually received. It addresses
the happenstance of, for example, a participant making the election one morning
and then dying in a car accident that afternoon. Thus, this provision deals with
payment, but it has no bearing on the method by which the lump sum is
calculated. Section 7.3 governs the computation of the lump–sum payment, and
provides that the amount due must be the present value of the age–65 annuity.
It also provides that the present value must be determined by using the
applicable PBGC interest rates and the plan mortality tables.
      Third,   § 7.4(d) does not preclude a participant’s benefits from being
forfeited by death as a general matter, but only in limited circumstances. The
parties agree that a participant who elects the standard monthly age–65 annuity
payment may forfeit the annuity if he or she dies before reaching the age of 65.
Stewart acknowledges this but argues that lump–sum payments are made
non–forfeitable under § 7.4(d). But that provision does not provide a different
mechanism of valuing the participant’s annuity. For example, § 7.4 does not
provide that, by electing a lump–sum payment, the participant becomes entitled
to the full value of the age–65 annuity without regard to the probability of the

                                        9
                                  No. 09-50381

participant dying before reaching the age of 65. Nor does such an argument
make sense. The lump–sum payment is intended to be the present value of the
annuity, which remains subject to forfeiture if the participant dies before
reaching normal retirement age.         Section 7.4 simply does not entitle a
participant to the full value of an age–65 annuity when that participant has yet
to turn 65.
      Put another way, the pre–retirement mortality table discounts for the
probability that the annuity will be forfeited if Stewart dies before reaching the
age of 65; it does not discount for the probability that the lump–sum payment
will be forfeited upon election of that option.     Thus, the application of the
pre–retirement mortality discount does not result in a forfeiture of the
lump–sum payment. It merely calculates the present value of the participant’s
annuity, and reduces that to a lump–sum payment.              Once vested by the
participant’s election and calculated according to § 7.3, the lump sum is not
forfeitable – as § 7.4 provides, the sum goes to the participant’s estate should the
participant die between election and receipt. In sum, the plan administrator’s
interpretation produces a fair reading of the plan that accords with common
sense.
      Finally, AT&T urges that Stewart’s interpretation would result in a more
costly payout because the lump–sum payment would become more valuable than
the age–65 annuity. This argument, while clearly insufficient on its own, also
demonstrates why Stewart’s interpretation of the plan is illogical.
      Based on our review of the record, we conclude that the plan
administrator’s interpretation of the plan is legally correct.        We base this
conclusion on our finding that the administrator gave the plan a uniform
construction, and that interpretation is consistent with a fair reading of the
plan’s language. Accordingly, we affirm the district court’s conclusion that the
plan administrator’s interpretation of the plan is legally correct.

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                                  No. 09-50381

B. ERISA Compliance
      Stewart asserts that use of a pre–retirement mortality discount to
determine her lump–sum payment violates ERISA because it results in a partial
forfeiture of her benefits.   ERISA provides that, once a retirement benefit is
fully vested, a plan participant may not forfeit their benefits unless the plan
expressly provides for such forfeiture upon the death of the participant. 11
U.S.C. § 1053(a); see also Treas. Reg. § 1.411(a)-4 (stating that a right to an
accrued benefit is non–forfeitable if it is expressed as an unconditional right).
      Here, the terms of the plan make clear that the age–65 annuity are
forfeited if the participant dies before reaching the age of 65. Stewart again
relies on § 7.4 to argue that the lump–sum payment may not be forfeited upon
death, even if the annuity payments may be. But this argument fails for the
reasons set forth above. As a result, the use of a pre–retirement mortality
discount was permissible under ERISA because the plan expressly conditioned
receipt of the annuity payments upon reaching the age of 65. See Treas. Reg.
§ 31.3121(v)(2)-1(c)(2)(ii) (stating that “present value [of an annuity] means the
value as of a specified date of an amount or series of amounts due thereafter,
where each amount is multiplied by the probability that the condition or
conditions on which payment of the amount is contingent will be satisfied, and
is discounted according to an assumed rate of interest to reflect the time value
of money”) (emphasis added).        Accordingly, the plan administrator was
authorized to discount for the probability that Stewart would die before the
annuity benefits commenced in calculating the lump–sum payment. Id.
      Stewart argues that the district court’s decision is contrary to West v. AK
Steel Corp. Retirement Accumulation Plan, 484 F.3d 395 (6th Cir. 2007), and
Berger v. Xerox, 338 F.3d 755 (7th Cir. 2003). In West and Berger, the courts
found that the plan administrators erred in calculating the lump–sum payments



                                       11
                                        No. 09-50381

owed to beneficiaries under the terms of the cash–balance benefit plans.15 Those
cases addressed plans with different terms than the one at issue here.
       In contrast to the plans in Berger and West, the annuity in the present
case may be forfeited if the participant dies before reaching the age of 65.
Consequently, applying a pre–retirement mortality discount in the present case
does not cause a participant to forfeit an already accrued benefit. Instead, the
plan administrator used the pre–retirement mortality discount to reduce the
annuity—which is subject to forfeiture—to its present value by taking into
account the probability that Stewart would not reach the age of 65.
       In sum, the plan administrator’s use of a pre–retirement mortality
discount was permissible under ERISA.                   Stewart is thus not entitled to
monetary or equitable relief under ERISA.16
                                     IV. CONCLUSION
       We conclude that the plan administrator’s interpretation of the AMPP
plan was legally correct and did not violate any provision of ERISA. The district
court did not err in granting summary judgment in favor of the appellees.
AFFIRMED.




       15
          Cash balance plans differ substantially from the plan at issue in this case. A cash
balance plan “entitles the employee to a pension equal to (1) a percentage of his salary every
year that he is employed (5 percent, in the case of the Xerox plan) plus (2) annual interest on
the ‘balance’ created by each yearly ‘contribution’ of a percentage of the salary to the
employee’s ‘account,’ at a specified interest rate . . . These annual increments of interest are
called future interest credits.” Berger, 338 F.3d at 758. In contrast, the AMPP is more aptly
characterized as a standard defined benefit plan because it entitles the participating employee
to a pension equal to percentage of his or her final years’ salary multiplied by years of service.


       16
         In her complaint, Stewart also sought equitable injunctive relief under § 502(a)(3).
Because we determine that the plan administrator’s decision was legally correct, we find that
Stewart is not entitled to any relief under ERISA, and do not reach the issue of whether she
preserved a claim for equitable relief.

                                               12
