                            In the

United States Court of Appeals
               For the Seventh Circuit

No. 09-3637

G RANT M. W ALKER, individually and on
behalf of all others similarly situated, et al.,

                                             Plaintiffs-Appellants,
                                v.

M ONSANTO C OMPANY P ENSION P LAN, et al.,

                                            Defendants-Appellees.


            Appeal from the United States District Court
               for the Southern District of Illinois.
             No. 3:04 C 00436—J. Phil Gilbert, Judge.



        A RGUED A PRIL 20, 2010—D ECIDED JULY 30, 2010




  Before B AUER, F LAUM, and E VANS, Circuit Judges.
  F LAUM, Circuit Judge. This is a class action lawsuit
challenging the manner in which certain credits accrue
in the Monsanto Company’s pension plan as inconsistent
with a provision of the Employee Retirement Income
Security Act (“ERISA”), 29 U.S.C. § 1054(b)(1)(H)(i),
which prohibits defined benefit plans from ceasing or
reducing an employee’s benefit accrual because of the
2                                                   No. 09-3637

attainment of any age. Finding that the employees’ rate
of benefit accrual does not decrease because of age, we
affirm the district court’s grant of summary judgment
to the defendants.


                        I. Background
   This case has its origins in a 1997 restructuring of
Monsanto Company’s pension plan.1 Monsanto converted
its classic defined benefit plan into a “cash balance
plan.” In a typical defined benefit plan, participants’
benefits are described as an annuity to be paid at regular
retirement age. Under a cash balance plan, each partici-
pant has a hypothetical account that represents the
value of his or her pension benefit as a lump sum (some,
but not all, plans give participants the option of taking
this lump sum at retirement rather than receiving
annuity payments). The account is hypothetical because
plan participants do not actually have individual ac-
counts. Instead, all of the plan’s assets are held in trust
for all participants, and the employer is responsible for
ensuring that the assets are sufficient to pay the promised
benefits. ERISA treats cash balance plans as a type of
defined benefit plan.


1
  After the pension plan was restructured, Monsanto split into
three separate corporations: Pharmacia Corporation, Solutia Inc.,
and a newly-created Monsanto Company. The district court
certified three separate classes, one for each of the corporate
spin-offs. Because the plans remain identical in all relevant
respects, we do not distinguish among the plans or defendants,
and refer to the defendants collectively as “Monsanto.”
No. 09-3637                                             3

   As part of the 1997 conversion, Monsanto estab-
lished two different cash balance accounts for each of its
employees. One account was intended to reflect only
new benefits earned after conversion. The second was
intended to preserve the age-65 benefits that employees
had already earned at the time of conversion. Only the
second account, called the “Prior Plan Account” or “PPA,”
is at issue in this case.
  Prior to conversion, the Monsanto retirement plan
was not wholly standardized, meaning that the retire-
ment options of individual employees varied. First, all
employees earned an age-65 retirement benefit, which
was expressed as a monthly annuity beginning at age 65.
For example, an employee who retired at age 55 might
be entitled to receive a $1,000 monthly annuity beginning
at age 65 until she died. Second, some of the prior plans
provided a discounted early retirement option to em-
ployees. These employees could begin receiving annuity
payments as early as age 55, although the payments
would be discounted by 3% for each year that the em-
ployee’s age was less than 65 to reflect the longer time
of payment. Finally, some of the prior plans provided for
a subsidized early retirement option. Eligible employees
could begin receiving their full age-65 benefit as early
as age 55, without taking a discounted monthly payment.
  The new PPA accounts were designed to preserve
each employee’s age-65 accrued balances, while stand-
ardizing the early retirement options of Monsanto em-
ployees. First, the PPA extended to all employees the
right to begin receiving full age-65 payments as early
4                                            No. 09-3637

as age 55 (the most generous of the old early retirement
options). Second, the new plan gave all employees
the opportunity to begin receiving benefits even before
age 55. If an employee chose this option, his or her
benefit would be discounted by 8.5% per year for each
year the participant was younger than age 55. It is the
mechanism through which this discount was imple-
mented that is at the center of this lawsuit.
  To calculate the opening balance of each participant’s
PPA, Monsanto applied a conversion formula by which
the account was “credited with an amount equal to the
Actuarial Equivalent lump sum value of the Participant’s
Predecessor Plan Accrued Benefit . . . discounted using
an interest rate of eight and one-half percent per annum
for each month, if any, by which the Participant’s age as
of January 1, 1997 precedes age 55.” (Plan § 6.2(b)). In
other words, each employee’s benefit under the old
plan, which had been expressed as an annuity, would be
converted to a lump sum equivalent to the cost of that
annuity. That lump sum would then be discounted by
8.5% per year for each year younger than 55 the em-
ployee was at the time of conversion.
  Once established, each individual’s PPA increases by
way of two monthly “credits”: “pay credits” and “interest
credits.” Pay credits, which are intended to reward em-
ployees for the length of their service, are equal to the
current PPA balance multiplied by the monthly equiva-
lent of 4% per annum. Employees continue to receive
pay credits as long as they work for Monsanto, regardless
of age. Interest credits are equal to the current PPA
No. 09-3637                                                5

balance multiplied by the monthly equivalent of 8.5%
per annum. Interest credits cease once “the Participant
attains age 55.” (Plan § 6.2(d)).
  In mid-1996, before the effective date of the plan con-
version, Monsanto distributed literature to employees
to explain the new plan. These communications ex-
plained that the 8.5% discount applied to the initial
balance of employees younger than 55 and the corre-
sponding 8.5% credits then applied until age 55. Each of
these communications described the 8.5% discount as
an early retirement benefit and the 8.5% interest credits
as necessary to restore the full previously accrued benefit
to employees.
  On June 23, 2004, plaintiffs filed Walker v. Monsanto
Company Pension Plan, No. 04-436, in the Southern
District of Illinois. On September 1, 2006, the district
court entered an order consolidating the Walker action
with three related actions: Davis v. Solutia, Inc. Employees’
Pension Plan, No. 05-736 (filed October 12, 2005); Donaldson
v. Pharmacia Pension Plan, No. 06-3 (filed January 3, 2006);
and Hammond v. Solutia, Inc. Employees’ Pension Plan,
No. 06-139 (filed February 15, 2006). The consolidated
complaint alleges, among other things, that the substan-
tively identical cash balance defined benefit plans vio-
late ERISA’s prohibition on ceasing or reducing an em-
ployee’s benefit accrual because of the attainment of
any age.
  On May 22, 2008, the district certified three identical
“Age 55 Cut-off claims.” On June 11, 2009, the district
court granted defendants’ motion for summary judgment
6                                               No. 09-3637

on the Age-55 Cut-off claims and denied plaintiffs’ cross-
motion for summary judgment on those same claims.
After additional proceedings in which the plaintiffs
prevailed on an unrelated claim (not challenged on ap-
peal), the district court entered final judgment disposing
of all claims with respect to all parties on September 29,
2009. Plaintiffs timely appealed.


                      II. Discussion
  Plaintiffs’ argument is that the plan violates ERISA on its
face. First, they argue that the interest credits are part of
a participant’s “benefit accrual” because they are an
input credited by the employer to the participant’s
stated account balance. Second, they argue that the
express terms of the plan terminate this benefit when
a participant reaches age 55.
  ERISA prohibits defined benefit plans from reducing
“an employee’s rate of benefit accrual . . . because of the
attainment of any age.” 29 U.S.C. § 1054(b)(1)(H)(i). As
an initial matter, then, we must address whether
interest credits, which are intended to reverse the 8.5%
per annum discount applied to employees’ opening
balances, constitute “benefit accrual.”
  ERISA does not define the phrase, “benefit accrual.”
However, we have considered its meaning previously.
See Cooper v. IBM Personal Pension Plan, 457 F.3d 636 (7th
Cir. 2006). In Cooper, the defendant, IBM, ran a cash
balance pension plan that operated in a manner similar
to a defined contribution plan. Each employee received a
5% pay credit (based on the employee’s current salary)
No. 09-3637                                                  7

and an interest credit (equal to 1% above the Treasury
rate multiplied by the account’s balance) each year.
Interest credits continued to accrue until retirement age,
whether or not the participant ceased working for the
company. At retirement, an employee could either take
the balance as cash or roll it over into an annuity. Id. at
637. The plaintiffs in Cooper alleged that this plan discrim-
inated against older workers. Because a younger worker
would receive more years of interest before retirement,
a year of service at age 35 would increase an employee’s
total accrued benefit more than a year of service (at the
same salary) at age 55. We rejected the Cooper plaintiffs’
arguments, noting that it “treats the time value of money
as age discrimination.” Id. at 638. Instead, we held that
“benefit accrual” addresses “the rate at which value is
added (or imputed) to an account, rather than the annual
pension at retirement age.” Id. at 639. In reaching this
decision, we relied on the fact that IBM’s method of
crediting retirement accounts would certainly have been
permissible for a defined contribution plan. Id. at 638;
see also 29 U.S.C. § 1054(b)(2)(A) (requiring that, for
defined contribution plans, “allocations to the em-
ployee’s account are not ceased, and the rate at which
amounts are allocated to the employee’s account is not
reduced, because of the attainment of any age.”). Finally,
we noted that a draft Treasury regulation acknowl-
edged that for cash balance plans that operated in a
manner similar to a defined contribution plan, “benefit
accrual” should be treated as “the additions to the par-
ticipant’s hypothetical account for the plan year.” Cooper,
457 F.3d at 639; see also 67 Fed. Reg. 76,123, 76,125 (Dec. 11,
2002).
8                                                 No. 09-3637

  Plaintiffs argue that in Cooper, we adopted a bright-line
rule that any credit to a participant’s cash balance
account amounts to benefit accrual. Since the interest
credits here increase the stated cash balance, they argue,
they must be benefit accruals. Defendants, on the other
hand, argue that the interest credits cannot be benefit
accruals because they do not increase the total “accrued
benefit”—the amount of the annuity to which the em-
ployee is entitled at normal retirement age. See Cooper,
457 F.3d at 638; 29 U.S.C. § 1002(23)(A).
  The disagreement stems from the flexible nature of
cash balance plans. The most common type of cash
balance plan operates in a manner similar to a defined
contribution plan, as did the plan at issue in Cooper. See also
Berger v. Xerox Corp. Retirement Income Guarantee Plan,
338 F.3d 755, 757 (7th Cir. 2003) (describing a cash balance
plan that “resembles” a defined contribution plan). For
these cash balance plans, which pay participants a
yearly interest rate on their plan balances, we must look
to “the additions to the participant’s hypothetical
account for the plan year” to avoid treating compound
interest as age discrimination. See Cooper, 457 F.3d at 639
(quoting 67 Fed. Reg. at 76,126). But plaintiffs point to
no requirement that a cash balance plan operate in this
way. The plan at issue in this case instead mimics a
defined benefit plan (likely because it was intended to
preserve the benefits already earned by employees under
Monsanto’s old defined benefit plan). Participants are
promised a certain benefit at retirement, which is de-
scribed as a lump-sum cash balance. Because this is not
an “eligible cash balance plan,” see 67 Fed. Reg. at
No. 09-3637                                                9

76,125, the general mechanism for determining benefit
accrual applies—“the increase in the participant’s accrued
normal retirement for the benefit year.” Cooper, 457 F.3d at
639 (quoting 67 Fed. Reg. at 76,125). The draft Treasury
Regulation makes clear that this general method may
be used by all defined benefit plans (including cash
balance plans); it is only the method used in Cooper that
is limited to certain qualifying cash balance plans. 67 Fed.
Reg. at 76,125 (stating that the general rule “may be used
by all defined benefit plans” while the “second approach
may be used only by an eligible cash balance plan”).
  One might wonder how these two mechanisms can
coexist. The reason is that while retirement plans are
prohibited from discriminating against older workers,
they are not prohibited from favoring them. Traditional
defined benefit plans and the cash balance plans that
mimic them treat younger workers less favorably than
older workers. These plans do not address the fact that an
employer will have to save more to pay out a particular
accrued retirement benefit for an older worker (who is
close to retirement, giving the employer less compound
interest on the savings) than to pay that same benefit to
a younger worker (who is further from retirement, al-
lowing the employer to earn more compound interest on
the savings). See Cooper, 457 F.3d at 639 (noting that
traditional defined benefit plans favor older workers).
Imagine two workers who, for a given year, both earn an
identical increase in their monthly annuity at retirement. If
one worker is at retirement age, the employer will have
to set aside the full value of that annuity immediately.
But for a young worker, the present value of the annuity
10                                                No. 09-3637

is significantly less, because setting aside a smaller
amount of money to earn interest for several years will
suffice to pay the benefit. Because a plan that increases
the accrued benefit at retirement equally for young and
old workers actually favors the older workers, treating
the “rate of benefit accrual” as “the increase in the par-
ticipant’s accrued normal retirement benefit for the
year” will never mask age discrimination where it exists.
   Looking at the rate of increase in the participant’s
accrued normal retirement benefit, it becomes clear that
the interest credits here are not benefit accruals. This is
because they never increase the accrued benefit at re-
tirement. Imagine, for example, a 50-year-old employee
who accrued prior to conversion a retirement benefit
worth $1,000 per month at normal retirement age.
Further assume the value of this benefit as a lump sum
is $125,000. Under the new plan, the employee would be
entitled to collect this benefit at age 55. This $125,000
lump sum is discounted at the rate 8.5% for the five
years left before the worker reaches age 55. In 1997, at age
50, her account balance would be $83,131.2 But if she
retired at age 50 and waited to receive her benefits until
age 55, she would receive five years of interest on that




2
  Assuming that interest is compounded annually, the dis-
counted opening balance is arrived at by dividing the lump-sum
accrued benefit by 1.085 (one plus the interest rate) raised to
the fifth power (the number of years of discounting).
No. 09-3637                                                  11

balance, resulting in a lump sum of $125,000. 3 At age 51,
her account balance would increase by 8.5%, or $7,066, to
$90,197. But if she retired at age 51 and waited until
normal retirement age to collect her benefit, she would
receive four more years of interest credits, again
resulting in a balance of $125,000. And if she worked
beyond age 55, her accrued benefit would remain at
$125,000 (in the PPA account—remember that she would
continue to earn new benefits, but these are tracked in
a separate account). Viewed as the increase in her
accrued benefit at normal retirement age, the hypothetical
employee’s rate of benefit accrual is zero, both before
and after reaching age 55.4 The only time the value of the


3
  The value of the age 50 balance at age 55 is arrived at by
multiplying the discounted opening balance by 1.085 (one
plus the interest rate) raised to the fifth power (the number of
years remaining until she reaches age 55 and is eligible for
the full retirement benefit).
4
  This hypothetical is a simplification, because it ignores the
4% annual “pay credit,” which continues to accrue as long as
the plan participant works for Monsanto. Plaintiffs argue that
even if the 8.5% interest credits would not otherwise be
benefit accruals, they become benefit accruals because they
also apply to the 4% pay credit. This argument fails as a
matter of mathematics. The 4% pay credit applies to balance
of the PPA account, which for workers under age 55, has
already been discounted at a rate of 8.5% per year. Applying
the 4% pay credit for each new year of service to the dis-
counted cash balance is equivalent to applying the pay credit
for each new year of service to the accrued benefit and then
                                                 (continued...)
12                                                   No. 09-3637

account at retirement would be different than $125,000
is if the employee began receiving payments before age
55—in other words, if she took advantage of the dis-
counted early retirement option provided by Monsanto.
Plaintiffs’ argument, if adopted, would treat all dis-
counted early retirement programs as violations of
§ 1054(b)(1)(H)(i).
  In this respect, plaintiffs’ argument is quite similar to
the argument rejected by the Eighth Circuit in Atkins v.
Northwest Airlines, Inc., 967 F.2d 1197 (8th Cir. 1992). In
Atkins, the defendant airline’s retirement plan offered
a normal retirement benefit to pilots at age 60 and an
early retirement benefit that was discounted for pilots
younger than 60. Because of the discounting, the monthly



4
  (...continued)
discounting the accrued benefit to a cash balance. An example
may be helpful. If we include the pay credits, at age 51 our
hypothetical employee’s cash balance account will have in-
creased to $93,805: $83,131 (the initial balance) plus $3,325
(the pay credit) plus $7,349 (the interest credit on the sum of the
initial balance and the pay credit). This results in an age-55
benefit of $130,000 ($93,805 times 1.085 to the fourth power).
Alternately, one could apply a 4% pay credit to the age-55
balance of $125,000. This equals an accrued benefit of $130,000;
discounted by the four years remaining until age 55, this
yields a cash balance of $93,805 ($130,000 divided by 1.085 to
the fourth power). Thus, at any time, the only increase in the
value of an employees’ cash balance or accrued benefit is
solely attributable to the 4% pay credits, which do not cease
upon reaching any age.
No. 09-3637                                                    13

benefit of pilots who did not take early retirement
would appear to increase each year that they postponed
receipt of their benefits (as each passing year meant one
less year of discounting for early payment); but at age 60,
the increases ceased, as the pilot was then entitled to the
full retirement benefit.5 The pilots argued that when the
airline ceased giving them increases to reverse the early
retirement discount, it had ceased their benefit accrual
on account of age and thereby violated 29 U.S.C.
§ 1054(b)(1)(H)(i). The Eight Circuit rejected this argu-
ment, noting that ERISA permits early retirement dis-
counts and holding that because they do not affect the
pension payment a retiree receives at normal retirement
age, the reversal of early retirement discounts are not
“accrued benefits” under ERISA. 967 F.2d at 1201.
   Plaintiffs’ attempts to distinguish Atkins are unavailing.
They argue that unlike Atkins, this case involves neither
a service cap nor an early retirement feature. They do not
explain why the presence of a service cap makes any
difference, and we see none. Their claim that the plan at
issue here does not include an early retirement benefit
is misleading. We have already explained why the mecha-


5
  The perceived inequality was exacerbated in Atkins because
the airline also had a service cap of 25 years (which is permitted
under ERISA). A pilot who reached 25 years of service be-
fore age 60 would see his “benefit” increase each year until
he reached 60 as the early retirement discount phased out, but
a pilot who reached 25 years of service after 60 would see
no increase after the 25th year (because no early retirement
discount would apply to his payment).
14                                             No. 09-3637

nism of discounting the opening cash balance of em-
ployees under age 55 and then crediting back that
discount until the employee reaches age 55 functions like
an early retirement discount, never changing the accrued
benefit at normal retirement age but reducing the benefit
if employees choose to receive payment early. Plaintiffs
object to the characterization of the 8.5% interest credits
as a reversal of the earlier 8.5% discounting; they dis-
miss it as “mathematically convenient” but unfounded be-
cause there is no cross-reference between Section 6.2(b)
of the plan, which discounts the opening balance, and
Section 6.2(d), which describes the interest credits. This
argument is spurious. Whether or not there is a cross-
reference, the concrete result of applying the two
formulas is that a participant’s accrued benefit never
changes. Moreover, it is undisputed that this mechanism
was described to employees as the way the discounted
early retirement feature was being implemented. The
only evidence plaintiffs cite in support of their claim
that the 8.5% interest credits were not part of a dis-
counted early retirement option is an excerpt from a 2002
submission to the IRS in which Monsanto indicated that
there is no early retirement benefit formula in the plan.
This statement was correct—because the early retirement
discount was built into the opening balance of the PPA
accounts, there is no separate early retirement formula
in the plan. In any event, it is irrelevant to this appeal
whether the discount and subsequent credits are de-
scribed as an early retirement discount or not. The ap-
plicable statute makes no mention of early retirement
discounts but rather asks whether a participant’s rate of
No. 09-3637                                               15

benefit accrual ceases or is reduced on account of reaching
a certain age. 29 U.S.C. § 1054(b)(1)(H)(i). Like the cred-
its to reverse the early retirement discounts in Atkins,
the interest credits here have no impact on the accrued
benefit at normal retirement age and therefore have
no effect on an employee’s rate of benefit accrual.
  Plaintiffs’ final argument is that the Monsanto plan
works an “impermissible forfeiture” by not extending the
interest credits to age 65. Citing IRS Notice 96-8 and
Revenue Ruling 2008-7, they argue that all cash balance
plans must add any “interest” through a plan’s normal
retirement age. See Rev. Rule 2008-7, 2008-7 I.R.B. 419, 2008
WL 274325 (“[I]n determining the accrued benefit of a
participant under a cash balance plan at any time prior
to normal retirement age, the balance in the cash balance
plan must be projected with interest credits to normal
retirement age.”); Notice 96-8, 1996-8 I.R.B. 23, 1996 WL
17901 (“Under a cash balance plan, the retirement
benefits payable at normal retirement age are determined
by reference to the hypothetical account balance as of
normal retirement age, including benefits attributable
to interest credits to that age.”) These regulations do not
help plaintiffs’ cause. The notice and revenue ruling
provide only that when a plan promises interest credits
prior to normal retirement age that are not conditioned
on future employment, then the plan must include the
value of the interest credits when converting an em-
ployee’s accrued benefit to an immediately payable lump
sum. See Cooper, 457 F.3d at 640 (Notice 96-8 requires that
“a plan must . . . add all the interest that would accrue
through age 65, then . . . discount the resulting sum to its
16                                               No. 09-3637

present value.”); see also Fry v. Exelon Corp. Cash Balance
Pension Plan, 571 F.3d 644, 645 (7th Cir. 2009) (in cal-
culating lump-sum distributions, pension plans were
required to “start with the current balance and add any
contractually promised interest (or any other form of
guaranteed increase in benefits) through the employee’s
‘normal retirement age’ ” before discounting them to a
present value). These regulations follow from the
principle that a lump-sum substitute for an accrued
pension benefit must be the “actuarial equivalent” of that
benefit. See 29 U.S.C. § 1054(c)(3); Berger, 338 F.3d at 759.
Thus, promised future interest credits that increase the
accrued benefit must be included when calculating the
lump sum paid to someone who chooses to take their
benefit before regular retirement age. Id. at 760. We have
already explained that the interest credits here, unlike
those at issue in Berger, do not increase the accrued
benefit at normal retirement age. But plaintiffs’ argument
also fails at a more fundamental level. They are not
arguing that the plan forfeits retirement-age benefits
when a participant elects to take a lump-sum payment
early; rather, they seek to increase the retirement-age
benefit by requiring interest credits through age 65.6 But


6
  In particular, plaintiffs do not claim that the 8.5% early
retirement discount rate from age 55 works an impermissible
forfeiture by understating that present value of the partic-
ipant’s accrued benefit at normal retirement age. Cf. Berger,
338 F.3d at 759 (“[Plaintiffs] contend that the amount they
received was not the actuarial equivalent of what they would
                                                (continued...)
No. 09-3637                                                 17

the regulations do not prescribe what benefit a plan
must promise a participant at retirement age. They
only require that a participant receive the actuarial equiv-
alent of that benefit if the participant takes a lump-sum
payment early. Notice 96-8 and Revenue Ruling 2008-7
are thus wholly irrelevant to plaintiffs’ claims.


                      III. Conclusion
 We A FFIRM the district court’s grant of summary judg-
ment to the defendants.




6
  (...continued)
have received either as an annuity or a lump sum had they
waited until age 65.”); see also 29 U.S.C. § 1053(f) (no imper-
missible forfeiture when the present value of the accrued
benefit is, under the terms of the plan, equal to the amount
expressed as the balance in the cash balance account).




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