Case 5:17-cv-00235-JGB-SP Document 247 Filed 10/13/22 Page 1 of 25 Page ID #:10379

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 CENTRAL DISTRICT OF CALIFORNIA – EASTERN DIVISION 10 11 JOHN BALEJA, Case No. EDCV 17-235 JGB (SPx) 12 Plaintiff, 13 v. 14 NORTHROP GRUMMAN SPACE AND FINDINGS OF FACT AND 15 MISSIONS SYSTEMS CORP. SALARIED CONCLUSIONS OF LAW 16 PENSION PLAN, et al. 17 Defendants. 18 19 20 21 22 23 24 25 26 27 28 Case 5:17-cv-00235-JGB-SP Document 247 Filed 10/13/22 Page 2 of 25 Page ID #:10380

1 Plaintiff John Baleja brought this action on behalf of a class under the 2 Employee Retirement Income Security Act (“ERISA”) against Defendants 3 Northrop Grumman Space and Mission Systems Corp. Salaried Pension Plan, 4 Northrop Grumman Benefit Plans Administrative Committee, and Northrop 5 Grumman Corporation (collectively, Defendants). Defendants are successors to 6 ESL, Inc. (“ESL”) and Plaintiffs are former ESL employees. Mr. Baleja alleges 7 two causes of action under ERISA: first, that Defendants’ failure to pay benefits 8 due under the terms of the pension plan violates 29 U.S.C. § 1132(a)(1)(B); and 9 second, that Defendants’ plan amendments in 1989, 1996, and other informal 10 amendments diminished class members’ accrued benefits in violation of 29 U.S.C. 11 § 1054(g)(1). 12 The case was tried to the Court on January 25, 26, 27, and 28, 2022. Closing 13 arguments occurred on January 28, 2022. At the January 28, 2022 closing 14 arguments, the Court ordered supplemental briefing, which was submitted by both 15 sides on March 18, 2022. (“Pl’s Supp Br.,” Dkt. No. 242; “Defs Supp Br.,” Dkt. 16 No. 241.) On April 6, 2022, Defendants filed a motion for leave to file a response 17 to Plaintiff’s proposed findings of fact and conclusions of law (Dkt. No. 243), 18 which the Court granted on April 8, 2022 (Dkt. No. 244.) On April 18, 2022, 19 Defendants filed a response to Plaintiff’s proposed findings of fact. (“Opp. to Pl’s 20 Supp. Br,” Dkt. No. 245.) On May 9, 2022, Plaintiff replied. (“Reply to Pl’s Supp. 21 Br.,” Dkt. No. 246.) 22 The Court, having considered all the evidence presented by the parties, the 23 written submissions from both sides, and the argument of counsel, issues the 24 following Findings of Fact and Conclusions of Law. 25 // 26 // 27 // 28 // 2 Case 5:17-cv-00235-JGB-SP Document 247 Filed 10/13/22 Page 3 of 25 Page ID #:10381

1 I. FINDINGS OF FACT 2 3 A. The Relevant Pension Plans 4 1. ESL was a defense contractor that designed and developed data systems for 5 reconnaissance and communications applications. (“Stip. Facts,” Dkt. No. 6 221 ¶ 1.) In 1978, TRW, Inc. (“TRW”) acquired ESL, which became 7 TRW’s wholly owned subsidiary. (Id. ¶¶ 2, 3.) 8 2. At the time of ESL’s acquisition, it maintained an employee retirement plan 9 called the ESL Retirement Fund (the “ESL Plan”). (Id. ¶ 4.) 10 3. The ESL Plan was a defined contribution plan under ERISA. (Id. ¶ 5.) 11 Pursuant to ESL Plan terms, ESL contributed a fixed percentage of each 12 employee’s salary to their respective individual retirement account. (Id. 13 ¶ 6.) 14 4. TRW also maintained a retirement plan for its employees (the “TRW 15 Plan”). (Id. ¶ 4.) The TRW Plan was a defined benefit plan under ERISA. 16 (Id. ¶ 7.) Under the TRW Plan, a participant’s retirement benefit was 17 calculated in accordance with a defined benefit formula, which generated an 18 employee’s benefit based on the employee’s final average salary and total 19 years of service, among other things. (“Defs’ SOF,” Dkt. No. 241-1 ¶ 10.) 20 21 B. Class Members Transition from the ESL Plan to the TRW Plan 22 5. In 1984, TRW and ESL elected to terminate the ESL Plan. (Id. ¶ 12.) 23 6. The transfer of the plans included: (1) termination of the ESL plan; (2) 24 distribution of the ESL Plan account balances to employees; and (3) 25 amendment of the TRW Plan to incorporate the ESL employees. (Stip. 26 Facts ¶ 8.) 27 28 3 Case 5:17-cv-00235-JGB-SP Document 247 Filed 10/13/22 Page 4 of 25 Page ID #:10382

1 7. Given that the TRW Plan’s benefit formula depended on the “total years of 2 service” variable, TRW had to determine how to calculate ESL employees’ 3 total years of service under the TRW Plan. (Defs’ SOF ¶ 14.) 4 8. Two potential methods were considered to calculate ESL employees’ total 5 years of service. (Id. ¶ 15.) First, TRW could grant service credit to ESL 6 employees for all their years of service at ESL, which would include their 7 years of service before joining the TRW Plan. (Id. ¶ 15(a).) Second, TRW 8 could grant ESL employees credit only for their years of service at ESL after 9 they joined the TRW Plan. (Id. ¶ 15(b).) 10 9. TRW pursued the first option and granted ESL employees service credit for 11 all their years of service at ESL, which included their pre-integration years 12 of service. (Id. ¶ 16.) 13 10. However, ESL employees had already accrued and received benefits under 14 the ESL Plan for their pre-integration years of service. (Id.) To avoid the 15 payment of duplicate benefits, TRW determined that an offset should apply 16 to ESL employees’ benefits. (Id.) Absent the offset, ESL employees would 17 have received duplicative benefits under two different pension plans—the 18 ESL Plan and the TRW Plan—for the same years of service. (Id.) 19 11. The ESL Plan was terminated on December 31, 1984. (Id. ¶ 17.) 20 12. Participants were paid their ESL Plan account balances in the form of lump 21 sum distributions. (Stip. Facts ¶ 17.) 22 13. The TRW Plan was restated and amended, effective as of January 1, 1985 23 (the “1985 Plan”) to incorporate current ESL employees into the TRW 24 Plan. (Id. ¶ 9.) 25 14. The 1985 Plan was executed on December 19, 1985, retroactive to January 1, 26 1985. (Id. ¶ 10.) 27 28 4 Case 5:17-cv-00235-JGB-SP Document 247 Filed 10/13/22 Page 5 of 25 Page ID #:10383

1 15. Employees of ESL who were active participants in the ESL Plan as of 2 December 31, 1984 (“Class Members”) were transferred into the 1985 Plan 3 on January 1, 1985. (Id. ¶ 11.) 4 16. In 1985, employees of TRW Microwave, Inc. (“Microwave”), another 5 TRW subsidiary, were transferred into the 1985 Plan. (Defs’ SOF ¶ 22.) 6 Same as the ESL employees, the 1985 Plan provided that Microwave 7 employees would receive service credit for their pre-1985 years of service at 8 Microwave, and that an offset would apply to their benefits to account for 9 prior distributions paid out from the Microwave retirement account plan. 10 (Id.) 11 12 C. ESL Plan Distributions 13 17. In mid-1985, ESL Plan account balances were paid out to Class Members as 14 lump sum distributions. (Id. ¶ 23.) The “ESL Ledger” or “Cash Out 15 Proof Report” memorialized the distributions to Class Members. (Id. ¶ 24.) 16 18. The distributions reflected two amounts: (1) Class Members’ account 17 balances under the ESL Plan as of December 31, 1984, in addition to (2) any 18 investment gains or losses after December 31, 1984. (Id. ¶ 25.) 19 19. Class Members received their ESL Plan distribution in June 1985. (Id. ¶ 20 27.) 21 20. Post-December 31, 1984 gains were not included in the calculation of the 22 Class Members’ ESL Offset amounts. (Id. ¶ 28.) Instead, Class Members’ 23 ESL Offset amounts were calculated based on Class Members’ ESL Plan 24 account balances as of December 31, 1984, the date the ESL Plan 25 terminated. (Id. ¶ 28.) 26 // 27 // 28 5 Case 5:17-cv-00235-JGB-SP Document 247 Filed 10/13/22 Page 6 of 25 Page ID #:10384

1 D. 1985 TRW Plan: Calculations of Class Member Benefits 2 21. Under the TRW Plan, Class Members were granted service credit for their 3 years at ESL. (See supra ¶ 9.) When a Class Member retired, the final 4 benefit amount calculation depended on all of his or her years of service at 5 ESL, which included his or her years of service before they jointed the TRW 6 Plan. (Id. ¶ 29.) 7 22. Under the Plan’s benefit formula, a participant’s total years of service was 8 one of the primary variables used to determine the benefit amount. (Id. 9 ¶ 29.) Thus, Class Members’ service credit for their pre-1985 years of 10 service increased their gross benefit amounts under the TRW Plan. (Id. 11 ¶ 30.) 12 23. In addition to the service credit under the TRW Plan for pre-1985 years of 13 service, Class Members also received lump sum distributions of their ESL 14 Plan account balances. (See supra.) The account balances represented the 15 benefits that Class Members accrued under the ESL Plan for the same pre- 16 1985 years of service for which the TRW Plan also rewarded as service 17 credit. (Id. ¶ 31.) 18 24. The TRW Plan terms prohibited the payment of duplicative benefits for the 19 same years of service. (Id. ¶ 33.) The 1985 Plan had a “No Duplication of 20 Benefits” Provision, which provided: 21 With respect to any Participant, there shall be no 22 duplication of any pension benefits payable under this 23 Plan or any defined benefit or defined contribution plan 24 (other than [t]he TRW Stock Savings Plan) maintained, 25 or contributed to, by any member of the Controlled 26 Group or any predecessor thereof, the amount of which is 27 based in whole or in part on the same period of his 28 employment with any member of the Controlled Group 6 Case 5:17-cv-00235-JGB-SP Document 247 Filed 10/13/22 Page 7 of 25 Page ID #:10385

1 or any predecessor thereof. Benefits otherwise payable 2 with respect to him under this Plan shall be appropriately 3 reduced (as determined by TRW Inc.) to prevent any 4 such duplication except to the extent that benefits with 5 respect to him under such other plan are appropriately 6 reduced or are stated or clearly intended to be in addition 7 to benefits under this Plan. 8 (Id.) 9 25. ESL was a member of the “Controlled Group” under the 1085 Plan and 10 thus its employees were subject to the No Duplication of Benefits provision. 11 (Id. ¶ 34.) 12 26. The 1985 Plan stated that Class Members’ benefits under the TRW Plan 13 would be reduced by the value of their ESL Plan account balances. (Id. 14 ¶ 36.) The 1985 Plan’s “ESL Offset Provision” provided that: 15 The monthly normal retirement benefit of an eligible 16 Participant shall be reduced by the amount listed opposite 17 the Participant’s name in Appendix J, said amount 18 representing the age 65 actuarial annuity value of the 19 Participant’s account balance accrued under either the 20 ESL Retirement Fund or the TRW Microwave Inc. 21 Retirement Account Plan, excluding, for offset purposes, 22 in the case of the ESL Retirement Fund, that portion of 23 the account balance consisting of employee contributions 24 or any amount rolled over from another tax-qualified 25 plan. 26 (Id. ¶ 37.) 27 // 28 // 7 Case 5:17-cv-00235-JGB-SP Document 247 Filed 10/13/22 Page 8 of 25 Page ID #:10386

1 E. Appendix J 2 27. The 1985 Plan’s ESL Offset Provision referred to an “Appendix J.” (Id. 3 ¶ 38.) There was no evidence that there was ever a final version of 4 Appendix J. (Id. ¶ 39.) However, the functional purpose of Appendix J was 5 to set forth the offsets that would apply to Class Members’ benefits in order 6 to avoid the payment of duplicative benefits. (Id. ¶ 40.) 7 28. The version of Appendix J relevant here is an incomplete draft which 8 indicates that TRW intended to revise the document to include the offset 9 amounts applicable to Class Members’ benefits. (Id. ¶ 43.) Appendix J is 10 attached to a cover memorandum dated March 12, 1986, from Jacob 11 Schoeppler, TRW’s Director of Retirement Income at the time: 12 I enclose a listing of the Microwave people who received 13 their account balances as a consequence of terminating 14 the Microwave Retirement Account Plan and providing 15 coverage under the TRW Salaried Pension Plan. Our 16 intent was to include this material as an Appendix to the 17 Salaried Plan and I suggest that be done at the next 18 convenient point in time. I plan to provide you a similar 19 list for ESL people as soon as possible. 20 (Id. ¶ 44.) 21 29. In 1985 and 1986, Mr. Schoeppler contacted ESL multiple times to obtain 22 the information he needed to create a final version of Appendix J. (Id. ¶ 45.) 23 There is no evidence that he ever received the information he needed from 24 ESL. (Id.) As a result, Appendix J was never finalized or incorporated into 25 the TRW Plan. (Id.) 26 30. Three years later, on June 28, 1989, Barbara Nahra, TRW’s in-house 27 ERISA counsel, circulated Mr. Schoeppler’s March 12, 1986 cover 28 8 Case 5:17-cv-00235-JGB-SP Document 247 Filed 10/13/22 Page 9 of 25 Page ID #:10387

1 memorandum and a list of Microwave employees to certain TRW 2 personnel. (Id. ¶ 46.) 3 4 F. Implementation of the 1985 Plan 5 31. The 1985 Plan provides TRW’s Board of Administration with “such powers 6 as are necessary for the proper performance of the following:… (b) finding 7 facts and making determinations as to the rights of any Participant or 8 Beneficiary applying for benefits,” and “(f) interpreting the Plan.” (Id. 9 ¶ 51.) 10 32. The Northrop Grumman Space & Mission Systems Corp. Salaried Pension 11 Plan (the “Northrop Plan”), the successor to the TRW Plan, provides 12 Northrop’s Administrative Committee (the “Plan Administrator” under 13 ERISA) with the powers to: (1) “[c]onstrue and interpret the terms of the 14 Plan, including the power to remedy possible ambiguities, inconsistencie[s], 15 or omissions,” and (2) “[d]etermine the amount of benefits and authorize 16 payments from the Trust.” (Id. ¶ 52.) 17 33. The Plan Administrator has consistently interpreted the terms of the 1985 18 Plan to require the application of an ESL Offset to Class Members’ benefits. 19 (Id. ¶ 55.) 20 34. The ESL Offset is called for by both the Plan’s No Duplication of Benefits 21 provision, which provides for benefits to be “appropriately reduced” in 22 order to avoid any duplication of benefits, and by the Plan’s ESL Offset 23 provision, which provides for a reduction in Class Members’ benefits to 24 account for their receipt of prior distributions from the ESL Plan. (Id. ¶ 56.) 25 1. The ESL Offset Provision 26 35. The ESL Offset provision of the 1985 Plan states in pertinent part: “the 27 monthly normal retirement benefit of an eligible Participant shall be . . . 28 reduced by the amount listed opposite the Participant’s name in Appendix J, 9 Case 5:17-cv-00235-JGB-SP Document 247 Filed 10/13/22 Page 10 of 25 Page ID #:10388

1 said amount representing the age 65 actuarial annuity value of the 2 Participant’s account balance accrued under either the ESL Retirement 3 Fund or the TRW Microwave Inc. Retirement Account Plan.” (Id. ¶ 57.) 4 36. Although the provision refers to the an Appendix J that was never finalized, 5 the Plan Administrator found that the intent of the provision was clear 6 because it expressly states what the amounts in the intended Appendix J 7 should have represented. (Id. ¶ 58.) The 1985 Plan states that Appendix J 8 was intended to list offset amounts “representing the age 65 actuarial 9 annuity value of [a] Participant’s account balance accrued under . . . the 10 ESL Retirement Fund.” (Id. ¶ 58.) 11 37. The language expresses a clear intention to reduce Class Members’ benefits 12 under the TRW Plan by an amount equal to the age 65 actuarial annuity 13 value of the distribution that each Class Member received under the ESL 14 Plan. (Id. ¶ 59.) 15 38. The Plan Administrator interpreted the 1985 Plan in line with this intention. 16 (Id. ¶ 60.) Defendants reduced—or “offset”—Class Members’ benefits by 17 “the age 65 actuarial annuity value[s]” of their ESL Plan “account 18 balance[s].” (Id. ¶ 60.) 19 39. TRW calculated the ESL Offset under the 1985 Plan using the above 20 methodology: Defendants projected a Class Member’s ESL Plan Account 21 balance to age 65 and then converted it to an annuity using a set of actuarial 22 assumptions. (Id. ¶ 62.) 23 40. Defendants’ methodology accords with standard actuarial practice. (Id. 24 ¶ 63.) After the ESL Plan terminated, Class Members received their ESL 25 Plan account balances in the form of lump sum distributions. (Id.) Under 26 the TRW Plan, however, Class Members were entitled to receive their 27 benefits as annuities payable at retirement. (Id.) When applying a pension 28 offset, one cannot subtract a one-time lump sum distribution amount from a 10 Case 5:17-cv-00235-JGB-SP Document 247 Filed 10/13/22 Page 11 of 25 Page ID #:10389

1 monthly annuity amount because they are not equivalent forms. (Id.) One 2 can only subtract a monthly annuity amount from another monthly annuity 3 amount. (Id.) Thus, before an offset can be applied to a benefit, both the 4 offset and the benefit must be expressed in the same form. (Id.) In addition, 5 the offset must account for the different times at which payment is made. 6 (Id.) Given the time value of money, a lump sum paid in 1985 would have a 7 different and greater value years later upon a participant’s retirement. (Id.) 8 The process of converting one form of benefit (a lump sum paid in 1985) 9 into another form of benefit paid later in time (an annuity payable at 10 retirement) is called an “actuarial equivalent” calculation. (Id.) 11 41. The ESL Offset is an actuarial equivalent calculation. (Id. ¶ 64.) It involves 12 the conversion of a Class Member’s lump sum distribution from the ESL 13 Plan in 1985 into an actuarially equivalent monthly annuity amount 14 calculated as of the Class Member’s normal requirement age. (Id.) This 15 monthly annuity amount can then be subtracted from a Class Member’s 16 gross monthly annuity benefit to arrive at the Class Member’s final benefit 17 amount. (Id.) This is how Defendants calculated the ESL Offset under the 18 1985 Plan. (Id.) 19 2. No Duplication of Benefits Provision 20 42. Defendants’ application of the ESL Offset to Class Members’ benefits 21 under the 1985 Plan was also consistent with the Plan’s No Duplication of 22 Benefits provision. (Id. ¶ 65.) 23 43. The No Duplication of Benefits provision mandates that “there shall be no 24 duplication of any pension benefits payable under this Plan or any . . . 25 defined contribution plan . . . the amount of which is based in whole or in 26 part on the same period of his employment.” (Id. ¶ 66.) To avoid such 27 duplication, the provision requires that “[b]enefits otherwise payable . . . 28 11 Case 5:17-cv-00235-JGB-SP Document 247 Filed 10/13/22 Page 12 of 25 Page ID #:10390

1 under th[e] Plan shall be appropriately reduced (as determined by TRW 2 Inc.) to prevent any such duplication.” (Id.) 3 44. In order to “appropriately reduce[]” the annuity payable under the TRW 4 Plan to account for the lump sum distributions that Class Members received 5 under the ESL Plan, it was necessary to perform the same type of actuarial 6 equivalent calculation called for in the Plan’s ESL Offset provision— 7 deriving the actuarial annuity value at retirement of the lump sum 8 distributions that Class Members received from the ESL Plan in 1985. (Id. 9 ¶ 67.) 10 45. The Plan Administrator interpreted the 1985 Plan’s No Duplication of 11 Benefits provision as requiring the application of the ESL Offset. (Id. ¶ 68.) 12 3. Contemporaneous Evidence of Intent to Apply Offset 13 46. In a July 10, 1984 letter, TRW’s George Solomon relayed to TRW’s Board 14 of Administration that ESL “wishes to begin participation in the TRW 15 Salaried Pension Plan effective January 1, 1985.” (Id. ¶ 70.) In his letter to 16 the Board, Mr. Solomon stated that ESL intended to accomplish this 17 transition in plans by “terminat[ing] their existing ESL Retirement Fund, 18 pay[ing] out the individual accounts to the participants, and us[ing] those 19 balances as offsets to the benefits in the TRW Salaried Pension Plan.” (Id.) 20 47. In 1984, TRW distributed a summary plan description (“SPD”) to “[a]ll 21 ESL employees,” which provided information about the transition from the 22 ESL Plan to the TRW Plan. (Id. ¶ 70(b).) The so-called “1985 SPD” 23 informed Class Members that “the monthly pension benefit which could be 24 provided to you at age 65 by the terminated plan’s account balance will 25 offset (serve to reduce) the amount produced by the plan’s normal 26 retirement benefit formula.” (Id.) 27 48. Around the same time, TRW distributed an “ESL Pamphlet” to Class 28 Members. (Id. ¶ 70(c).) The Pamphlet similarly informed Class Members 12 Case 5:17-cv-00235-JGB-SP Document 247 Filed 10/13/22 Page 13 of 25 Page ID #:10391

1 that “the monthly pension benefit which could be provided to you at age 65 2 by the terminated plan’s account balance will offset (serve to reduce) the 3 amount produced by the plan’s normal retirement benefit formula.” (Id.) 4 49. In April 1985, ESL’s James Sandstrom distributed a memorandum to Class 5 members regarding their “ESL Retirement Fund Distribution[s].” (Id. 6 ¶ 70(d).) The memorandum explains that the “age 65 annuity value” of a 7 Class Member’s distribution would be used as an “offset against the normal 8 retirement benefit that you will earn under the TRW Salaried Pension 9 Plan.” (Id.) The memorandum further provided Class Members with the 10 data necessary to calculate their ESL Offset amounts based on their 11 estimated ESL Plan account balances. (Id.) 12 50. The TRW Plan has been interpreted and applied consistently since 1985 to 13 require the application of an offset to Class Members’ benefits. (Id. ¶ 71.) 14 51. There is no evidence in the history of the TRW Plan that Defendants failed 15 to apply an offset to reduce the benefits of Class members who received 16 lump sum distributions from the ESL Plan. (Id. ¶ 72.) 17 18 G. The Actuarial Assumptions Used to Calculate the ESL Offset 19 1. Interest Rate and Mortality Assumption 20 52. The calculation of the ESL Offset requires the use of actuarial assumptions: 21 those relevant here are the interest rate and mortality assumptions. (Id. 22 ¶ 73.) 23 53. The Plan Administrator interprets the 1985 Plan to require the use of the 24 interest rate and mortality assumptions supplied in the Plan’s definitions of 25 “Actuarial Equivalent” and “Interest.” (Id. ¶ 74.) 26 54. The Plan’s definition of Actuarial Equivalent states that: 27 “Actuarial Equivalent” means a benefit having an equal 28 value when computed on the basis of an eight and one- 13 Case 5:17-cv-00235-JGB-SP Document 247 Filed 10/13/22 Page 14 of 25 Page ID #:10392

1 half percent (8-1/2%) interest assumption and on the 1971 2 Group Annuity Mortality Table adjusted to a unisex basis 3 for a Participant population deemed to be two-third (2/3) 4 male and one-third (1/3) female. 5 (Id. ¶ 75.) 6 55. The ESL Offset provision does not expressly reference this defined term. 7 However, the parties’ actuarial experts agree that it was reasonable for 8 Defendants to have relied on the term to provide the interest rate and 9 mortality assumptions necessary to calculate the ESL Offset, in the absence 10 of any other provision specifying the necessary assumptions. (Id. ¶ 76.) 11 The ESL Offset is an actuarial equivalent calculation, thus it was reasonable 12 to use the Plan’s definition of Actuarial Equivalent for the purpose of 13 calculating the offset. (Id.) 14 56. In addition to the definition of Actuarial Equivalent, the 1985 Plan also 15 contains a definition of “Interest,” which species that “for periods after 16 January 1, 1981 and until determined otherwise,” the Plan’s defined interest 17 rate is “eight and one-half percent (8-1/2%).” (Id. ¶ 77.) 18 57. In practice, the ESL Offset was calculated under the 1985 Plan using an 8.5% 19 interest rate assumption. (Id. ¶ 78.) This was consistent with the 1985 20 Plan’s definitions of Actuarial Equivalent and Interest. (Id.) 21 58. The ESL Offset was calculated under the 1985 Plan using the 1971 Group 22 Annuity Mortality Table adjusted to a unisex basis for a Participant 23 population deemed to be two-third (2/3) male and one-third (1/3) female. 24 (Id. ¶ 79.) This was consistent with the 1985 Plan’s definition of Actuarial 25 Equivalent. (Id.) 26 59. The 1985 Plan terms did not compel the application of a different interest 27 rate or mortality assumption for purposes of calculating the ESL Offset. (Id. 28 ¶ 80.) 14 Case 5:17-cv-00235-JGB-SP Document 247 Filed 10/13/22 Page 15 of 25 Page ID #:10393

1 2. COLA Assumption 2 60. In addition to the interest rate and mortality assumption, a third actuarial 3 assumption was necessary to calculate the ESL Offset under the 1985 Plan: 4 an assumed cost-of-living adjustment (“COLA”). (Id. ¶ 81.) 5 61. A COLA assumption was necessary to calculate the ESL Offset under the 6 1985 Plan because benefits payable under the Plan were subject to a COLA. 7 (Id. ¶ 82.) 8 62. Under the 1985 Plan, the annual COLA applicable to a participant’s benefit 9 was a number between 0% and 4%, depending on the annual change in the 10 Consumer Price Index. (Id. ¶ 83.) 11 63. The COLA assumption used to calculate the ESL Offset fell within this 12 range. Specifically, the COLA assumption used to calculate the ESL Offset 13 was 3%. (Id. ¶ 84.) 14 64. The 3% COLA assumption was not specified in the 1985 Plan document but 15 was supplied by TRW’s Board of Administration. (Id. ¶ 85.) 16 65. The 1985 Plan vested the Board of Administration with the authority to 17 supply the COLA assumption necessary to calculate the ESL Offset because 18 the Plan gave the Board “such powers as are necessary for the proper 19 performance of:…. (b) finding facts and making determinations as to the 20 rights of any Participant or Beneficiary applying for benefits,” and “(f) 21 interpreting the Plan.” (Id. ¶ 86.) 22 66. All three actuarial assumptions—interest rate, mortality, and COLA—were 23 used by TRW from the outset of the 1985 Plan. (Id. ¶ 88.) 24 25 H. The Microwave Offset 26 67. In addition to the ESL Offset, the 1985 Plan provided for an offset for the 27 benefits of the Microwave employees, who were enrolled in the TRW Plan 28 at the same time as Class Members. (Id. ¶ 89.) 15 Case 5:17-cv-00235-JGB-SP Document 247 Filed 10/13/22 Page 16 of 25 Page ID #:10394

1 68. The 1985 Plan’s governed the calculation of benefits for both Class 2 Members and Microwave employees. (Id. ¶ 90.) Specifically, the 1985 Plan 3 provided that the benefits of each group would be: 4 Reduced by the amount listed opposite the Participant’s 5 name in Appendix J, said amount representing the age 65 6 actuarial annuity value of the Participant’s account 7 balance accrued under either the ESL Retirement Fund 8 or the TRW Microwave Inc. Retirement Account Plan, 9 excluding, for offset purposes, in the case of the ESL 10 Retirement Fund, that portion of the account balance 11 consisting of employee contributions or any amount 12 rolled over from another tax-qualified plan. 13 (Id.) 14 69. The Microwave Offset amounts in the draft Appendix J were calculated 15 using: (a) an 8.5% interest rate; (b) the 1971 Group Annuity Mortality Table 16 adjusted to a unisex basis for a Participant population deemed to be two- 17 third (2/3) male and one-third (1/3) female; and (c) a 3% COLA assumption. 18 (Id. ¶ 91.) These are the same actuarial assumptions used to calculate the 19 ESL Offset under the 1985 Plan. (Id.) 20 21 I. The ESL Offset Calculation Methodology is Consistent with Prevailing 22 Industry Practice 23 1. Service Credit 24 70. When an acquired workforce is enrolled in a company’s existing pension 25 plan, it is common to provide the acquired workforce with service credit 26 under the plan for employees’ years of service at the acquired company. 27 (Id. ¶ 93.) 28 16 Case 5:17-cv-00235-JGB-SP Document 247 Filed 10/13/22 Page 17 of 25 Page ID #:10395

1 71. Granting employees of an acquired workforce with service credit for their 2 prior years of service can result in the transitioned employees’ receipt of 3 greater benefits under the new plan as compared to a so-called “new-hire” 4 approach. (Id. ¶ 94.) 5 72. When a company elects to provide an acquired workforce with past service 6 credit, it is also common to provide for an offset to those employees’ 7 benefits to account for the value of any benefits they earned for the same 8 period of service under a prior pension plan. (Id. ¶ 95.) 9 73. Absent application of an offset, acquired employees would earn duplicative 10 benefits under multiple pension plans for the same period of service. (Id. 11 ¶ 96.) 12 2. Interest Rates 13 74. Defendants’ use of an 8.5% interest rate to calculate the ESL Offset was 14 reasonable in light of prevailing market rates in and around 1985. (Id. ¶ 97.) 15 75. In pension offset design, an interest rate assumption is generally based on 16 the long-term market interest rates that prevail at the time of the offset’s 17 introduction. (Id. ¶ 98.) 18 76. Long-term Treasury and corporate bond rates typically serve as benchmarks 19 for choosing an interest rate assumption. (Id. ¶ 99.) Actuaries consider 20 long-term rates to be more appropriate in the selection of an interest rate 21 assumption because pension offsets are intended to serve as a proxy for 22 long-term investments. (Id.) 23 77. It is also common industry practice to “lock in” an interest rate assumption 24 based on market conditions that prevail at the time of the offset’s 25 introduction. (Id. ¶ 100.) When an offset is introduced, a plan sponsor does 26 not know whether prevailing market rates will increase or decrease over 27 time. Locking in a fixed interest rate assumption provides certainty for both 28 the plan sponsor and participants. (Id.) 17 Case 5:17-cv-00235-JGB-SP Document 247 Filed 10/13/22 Page 18 of 25 Page ID #:10396

1 78. The fixed interest rate used to calculate the ESL Offset was 8.5%, which was 2 significantly lower than prevailing Treasury and corporate bond rates at the 3 time of the Offset’s introduction. (Id. ¶ 101.) In 1984, the average 10-year 4 and 30-year Treasury rates were in excess of 10% for the year, which was not 5 an anomaly for the early 1980s. (Id.) 6 79. The decision to adopt an interest rate assumption that was lower than 7 prevailing market rates resulted in lower offset amounts for Class Members 8 as compared to what their offsets would have been if the interest rate was 9 tied to prevailing rates in 1985. (Id. ¶ 103.) 10 80. However, interest rates after 1985 could not have informed the interest rate 11 applied to the ESL Offset because future rates were not known. (Id. ¶ 104.) 12 13 J. The 1989 TRW Plan 14 81. On December 20, 1989, the TRW Plan was amended and restated, effective 15 as of January 1, 1989. (Id. ¶ 108.) 16 82. The 1989 Plan adopted a revised benefit formula that was intended to 17 provide participants with generous pension benefits. (Id. ¶ 109.) 18 83. In implementing the revised benefit formula, the 1989 Plan eliminated the 19 COLA applicable to participants’ benefits. (Id. ¶ 110.) As a result, a COLA 20 assumption was no longer used to calculate the ESL Offset after January 1, 21 1989. (Id.) 22 84. In addition to eliminating the COLA, the 1989 Plan revised the language 23 used to describe the ESL Offset to eliminate the reference to the incomplete 24 Appendix J but did not alter the remainder of the provision. (Id. ¶ 111.) 25 85. The 1989 Plan stated that the Class Members’ benefits under the Plan: 26 Shall be reduced by the amount which represents the age 27 65 actuarial annuity value of the Participant’s account 28 balance under the ESL Retirement Fund excluding, for 18 Case 5:17-cv-00235-JGB-SP Document 247 Filed 10/13/22 Page 19 of 25 Page ID #:10397

1 offset purposes, that portion of the account balance 2 consisting of employee contributions or any amount 3 rolled over from another tax-qualified pension plan. 4 (Id. ¶ 112.) 5 86. The interest rate and mortality assumptions used to calculate the ESL 6 Offset under the 1989 Plan were the same as those used to calculate the ESL 7 Offset under the 1985 Plan. 8 9 K. Commencement of Benefits 10 87. At least 781 Class Members commenced benefits before February 8, 2013. 11 (Id. ¶ 144.) 12 13 L. Plaintiff John Baleja 14 88. Plaintiff John Baleja began working for ESL in 1982. (Stip. Facts ¶ 27.) He 15 was a participant in the ESL Plan. (Id. ¶ 28.) 16 89. After the ESL Plan terminated, Mr. Baleja received a $4,078.14 cash payout 17 in 1985. (Id. ¶ 29.) 18 90. Mr. Baleja became a participant in the TRW Plan as of January 1, 1985. (Id. 19 ¶ 30.) 20 91. Mr. Baleja’s ESL Offset was calculated using an 8.5% interest rate. (Id. 21 ¶ 31.) 22 92. Mr. Baleja received the 1985 SPD. (Def’s SOF ¶ 155.) 23 93. Mr. Baleja received the ESL Pamphlet. (Id. ¶ 156.) 24 94. Mr. Baleja received the 1985 Plan document. (Stip. Facts ¶ 37.) 25 95. Mr. Baleja did not receive a copy of Appendix J. (Def’s SOF ¶ 158.) 26 96. In 1994, Mr. Baleja’s employment with TRW was terminated. (Stip. Facts 27 ¶ 41.) 28 19 Case 5:17-cv-00235-JGB-SP Document 247 Filed 10/13/22 Page 20 of 25 Page ID #:10398

1 97. In 1995, Mr. Baleja received a DVR notice. (Def’s SOF ¶ 160.) The DVR 2 notice stated, “Your age 65 benefit will be subject to reduction for the ESL 3 prior plan benefit.” (Id. ¶ 161.) Mr. Baleja did not contest the application 4 of the ESL Offset to his benefit in 1995. (Id. ¶ 162.) 5 6 II. CONCLUSIONS OF LAW 7 8 A. Defendants Did Not Deny Benefits Due Under the Plan. 9 1. 29 U.S.C. § 1132(a)(1)(B) provides that a civil action may be brought by a 10 participant or beneficiary “to recover benefits due to him under the terms of 11 his plan, to enforce his rights under the terms of the plan, or to clarify his 12 rights to future benefits under the terms of the plan.” 29 U.S.C. § 13 1132(a)(1)(B). Denials of benefits under this provision are “to be reviewed 14 under a de novo standard unless the benefit plan gives the administrator or 15 fiduciary discretionary authority to determine eligibility for benefits or to 16 construe the terms of the plan.” Moyle v. Liberty Mut. Retirement Ben. 17 Plan, 823 F.3d 948, 956 (9th Cir. 2016) (quoting Firestone v. Bruch, 489 18 U.S. 101, 115 (1989)). 19 2. To evaluate the reasonableness of a plan administrator’s interpretation, the 20 Court “do[es] not search for the best interpretation of a plan or even for one 21 [that it] might independently adopt.” Eckelberry v. Reliastar Life Ins. Co., 22 469 F.3d 340, 343 (4th Cir. 2006). Instead, the plan administrator’s 23 interpretation controls “unless it is (1) illogical, (2) implausible, or (3) 24 without support in inferences that may be drawn from the facts in the 25 record.” Stephan v. Unum Life Ins. Co. of Am., 697 F.3d 917, 929 (9th Cir. 26 2012) (internal quotations and citation omitted). 27 3. The 1985 Plan granted TRW’s Board of Administration the authority to 28 interpret the Plan and determine the benefits among participants or 20 Case 5:17-cv-00235-JGB-SP Document 247 Filed 10/13/22 Page 21 of 25 Page ID #:10399

1 beneficiaries. The Northrop Plan similarly granted Northrop’s 2 Administrative Committee the authority to determine its Plan and 3 determine the benefit amount payable. 4 4. This Court determined that the deferential standard of review applied to 5 this case at summary judgment. Baleja v. Northrop Grumman Space & 6 Mission Sys. Corp. Salaried Pension Plan, 2021 WL 2497931, *10 (C.D. Cal. 7 Mar. 26, 2021) (citing Day, 698 F.3d at 1096). 8 5. Plaintiff argues that the 1985 Plan “does not grant Defendants authority to 9 resolve ambiguities in the Plan.” (Pl’s Supp. Br. ¶ 56.) On the contrary, the 10 Court found that the 1985 Plan provides TRW’s Board of Administration 11 with “such powers as are necessary for the proper performance of the 12 following: . . . (b) finding facts and making determinations as to the rights of 13 any Participant or Beneficiary applying for benefits,” and “(f) interpreting 14 the Plan.” (See supra ¶ 31.) Thus, the 1985 Plan granted Defendants the 15 authority to resolve ambiguities in the Plan. 16 6. The ESL Offset Application was a reasonable interpretation of the 1985 17 Plan, which explicitly provided for no duplication of benefits. Defendants 18 effectuated that intent through their interpretation of the ESL Offset 19 provision, which provided that the Class Members’ benefit would be 20 reduced by the amount listed opposite the Participant’s name in Appendix J, 21 said amount representing the age 65 actuarial annuity value of the 22 Participant’s account balance accrued under the ESL Retirement Fund. 23 7. The “No Duplication of Benefits” provision mandated that “there shall be 24 no duplication of any pension benefits payable under this Plan or any . . . 25 defined contribution plan . . . the amount of which is based in whole or in 26 part on the same period of his employment.” The application of an offset 27 was necessary to avoid duplicative benefits for the same years of service, 28 which would violate the Plan. 21 Case 5:17-cv-00235-JGB-SP Document 247 Filed 10/13/22 Page 22 of 25 Page ID #:10400

1 8. Although a final Appendix J was never issued, Defendants interpreted the 2 1985 Plan in accordance with the second clause of the provision, which 3 defined the offset amount applicable to each Class Member’s benefit as 4 “the age 65 actuarial annuity value of the Participant’s account balance 5 accrued under . . . the ESL Retirement Fund.” See supra. 6 9. This interpretation was reasonable, and both parties’ experts agreed that the 7 Offset-defining clause directed an actuary to project a Class Member’s 8 account balance to age 65, then convert it to an annuity through actuarial 9 assumptions. 10 10. The absence of a final Appendix J did not weigh in favor of concluding that 11 no Offset applied given the “No Duplication of Benefits” provision. 12 11. The use of an 8.5% interest rate to calculate the ESL Offset was a reasonable 13 interpretation of the 1985 Plan. The Parties’ experts agreed that the 14 calculation of the ESL Offset is an “actuarial equivalent” calculation. It was 15 reasonable for Defendants to look to the Plan’s definition of “Actuarial 16 Equivalent” to determine the actuarial assumptions necessary to calculate 17 the offset. The definition specified that actuarial equivalent calculations, 18 like the ESL Offset, are to be performed using an 8.5% interest rate. 19 12. Section 4.1 of the plan did not guarantee a Class Member a benefit of 20 “$20.00 for each Year of Benefit Service.” Rather, it guaranteed a Class 21 Member a benefit of “$20.00 for each Year of Benefit Service” that would 22 be “reduced . . . to reflect the value of the Participant’s distribution from 23 the ESL Fund . . .” Plaintiff did not introduce evidence that any Class 24 Member received less than this amount, thus this theory of liability fails as 25 well.1 26

27 1 Plaintiff raises this theory of liability for the first time in his Proposed 28 Findings. 22 Case 5:17-cv-00235-JGB-SP Document 247 Filed 10/13/22 Page 23 of 25 Page ID #:10401

1 B. Defendants Did Not Violate ERISA’s Anti-Cutback Provision.2 2 13. 29 U.S.C. section 1054(g)(1) provides that a plan may not be decreased by 3 an amendment if the amendment (1) eliminates or reduces an early 4 retirement benefit or a retirement-type subsidy (as defined in regulations), 5 or (b) eliminating an optional form of benefit, with respect to benefits 6 attributable to service before the amendment shall be treated as reducing 7 accrued benefits. See 29 U.S.C. § 1054(g)(1). 8 14. To determine whether a plan amendment cuts back a participant’s accrued 9 benefit, one must compare (i) the benefit that the participant is currently 10 receiving, with (ii) the benefit that he or she had accrued under the previous 11 plan formula as of the date of the plan amendment. If the participant is 12 currently receiving a benefit that is greater than the benefit that he or she 13 had accrued as of the date of the plan amendment, there is no cutback 14 violation. See, e.g., Cent v. Laborers’ Pension Fund v. Heinz, 541 U.S. 739, 15 747 (2004). 16 15. Plaintiff argues that the 1985 Plan did not provide for an ESL Offset, the 17 TRW Plan was amended after 1985 to then introduce the ESL Offset, and 18 the post-1985 amendment decreased his, and other Class Members’, 19 “accrued benefit.” 20 16. As stated above, the Court finds that the 1985 Plan provided for an ESL 21 Offset; there is no evidence to establish that the Plan was later amended to 22 then introduce an ESL Offset. 23 17. The anti-cutback rule protects benefits that have accrued as of the date of a 24 plan amendment but does not prevent a plan sponsor from amending a 25 plan which may reduce future benefits not yet accrued. See Heinz, 541 26 2 In light of the Court’s decision that Plaintiff fails on both of his causes of 27 action, the Court declines to decide whether the statute of limitations barred the 28 action or whether certain Class Members have released their claims. 23 Case 5:17-cv-00235-JGB-SP Document 247 Filed 10/13/22 Page 24 of 25 Page ID #:10402

1 U.S. at 747 (“employers are perfectly free to modify the deal they are 2 offering employees, as long as the change goes to the terms of compensation 3 for continued, future employment” under the anti-cutback rule). 4 18. Plaintiff did not offer any evidence which compares any Class Member’s 5 benefit to his or her accrued benefit as of the date of the ESL. As a result, 6 Plaintiff cannot prove a violation of the anti-cutback rule. 7 19. The elimination of the post-retirement COLA in the 1989 Plan was through 8 the adoption of a new benefit formula intended to provide participants with 9 more generous benefits. Benefits under the 1989 Plan were generally greater 10 than they were under the 1985 Plan. The 1989 Plan also included language 11 to ensure that no participant’s accrued benefit was cut back as a result of the 12 post-retirement COLA elimination. 13 20. After the 1989 Plan Amendment, TRW implemented a system that 14 compared a Class Member’s net benefit under the 1985 Plan to the net 15 benefit the participant became entitled to after the 1989 Plan. Plaintiff’s 16 expert conceded that the analysis performed showed that the 1989 Plan 17 formula did not cut back his accrued benefit. Critically, Plaintiff again did 18 not compare any Class Member’s benefit to his or her accrued benefit 19 immediately before the 1989 Plan. 20 21. Further, under ERISA, only formal amendments to a pension plan give rise 21 to cutback violations. 29 U.S.C. § 1054(g)(1) (“The accrued benefit of a 22 participant under a plan may not be reduced by an amendment of the plan . 23 . . ”) (emphasis added); see also Oster v. Barco of Calif. Emps’ Ret. Plan, 24 869 F.2d 1215, 1221 (9th Cir. 1988) (“Congress did not state that any 25 change would trigger [anti-cutback] provisions; it stated that any change by 26 amendment would do so.”) (citation omitted) (emphasis in original))). The 27 administrative alterations at issue did not arise under any Plan amendment 28 and are thus not actionable. Further, rounding convention changes are also 24 Casp 5:17-cv-00235-JGB-SP Document 247 Filed 10/13/22 Page 25o0f25 PageID #:10403

1 not actionable. See 26 C.F.R. § 1.411(d)-4, Q&A 4 (explaining that changes 2 with respect to the ministerial or mechanical administration of the plan do 3 not implicate protected benefits and thus do not give rise to anti-cutback 4 violations). : “yl 7 | Dated: October 13, 2022 ~

THE HONORABLE JESUS G. BERNAL

United States District Judge 10 1] 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 25