(CN) - Hilton Hotels improperly calculated employee retirement benefits and must enact specific changes to its plan, the D.C. Circuit affirmed.
In the late 1990s, Jamal Kifafi, a Hilton employee, noticed a problem with the retirement benefits calculation on his statement and filed suit under the Employee Retirement Income Security Act, or ERISA.
Almost 15 years later, a federal judge in Washington determined that Hilton's retirement plan was improperly backloaded, and that the hotel chain failed to credit certain years of service when calculating the vesting credit of participants.
A backloaded pension plan means that employees accumulate benefits slowly at first, then at a faster rate the longer they work for the employer. To prevent abusive backloading, employers must comply with one of three anti-backloading rules. One of these, the 133 1/3 percent rule, requires annual accruals to be no greater than 133 1/3 percent of the participant's accruals in any prior year.
A three-judge panel of the D.C. Circuit affirmed Friday, dismissing claims that plan revisions mooted the case.
"Once the court determined the plan violated ERISA, it entered the world of equity," Judge Janice Brown wrote for the panel. "And Hilton's premise that a plan's prospective compliance with ERISA's anti-backloading mandate circumscribes a court's remedial options in the face of past violations cannot be sustained. We see no reason why the court's remedy need be a perfect reflection of the legal violations supporting the remedy; the district court exercised a discretion informed by much more than just the ERISA violation."
"To reduce the district court's remedy to nothing more than a demand that Hilton comply with any of the anti-backloading rules would - like evaluating a movie by analyzing a single frame - ignore too much," Brown added.
The court noted that this case took an extraordinary length of time to conclude, and that Hilton amended its plan numerous times to address Kifafi's legal claims.
"We understand the District Court's remedial order to be an attempt to pin Hilton down, denying it the opportunity to avoid the consequences of its ERISA violations," the 25-page opinion states.
"Just as an employer would not remedy its failure to pay overtime by 'retroactively revising the base rate of pay down from $10 per hour to $6.50 per hour and offering to multiply the reduced rate by the required "time and one-half,"' the district court did not abuse its discretion by requiring Hilton to provide a remedy it considered meaningful," Brown added.
Kifafi also failed in a cross-appeal to challenge a finding that plan participants could "outgrow" the improper backloading if they remained in the plan long enough.
"The District Court's refusal to apply its remedy to employees whose benefits were not reduced by the backloading - to penalize Hilton for the fact of the backloading - is far from an abuse of discretion," Brown wrote.