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Compliance January 30, 2020
$10M Settlement Agreement Filed in Berkshire Hathaway Pension Lawsuit
Much of the settlement value is tied into a new pension funding formula Berkshire Hathaway will use for certain employees who formerly worked for Acme.
Reported by John Manganaro
The parties in Hunter v. Berkshire Hathaway have filed a proposed settlement agreement reached after an extensive litigation and mediation process.
According to case documents, the approximate value of the settlement is $10 million, and the proceeds will go to both pension plan and 401(k) plan participants.
The case has a complicated procedural history, starting with the initial filing of the litigation way back in September 2014 in the U.S. District Court for the Northern District of Texas. The lawsuit challenged Berkshire’s post-acquisition decision to freeze accruals to Acme’s defined benefit (DB) plan and reduce the company matching contribution rate in its 401(k) plan. The plaintiffs contended that the acquisition agreement by which Berkshire Hathaway acquired Acme approximately 14 years previously required Acme to permit participants to accrue additional defined benefits indefinitely, at the same rate that benefits were being accrued at the time of the acquisition, and to make additional 401(k) matches forever, at the same rate as the matches at the time of the acquisition.
The District Court initially ruled for Berkshire, but then, in mid-2016, the 5th U.S. Circuit Court of Appeals partly overturned the decision, sending most of the ERISA [Employee Retirement Income Security Act]-based complaint back to the District Court for reconsideration. Technically, the appellate ruling first affirmed the District Court’s dismissal of certain claims against the Berkshire subsidiary Acme, which had originally independently owned and operated the relevant pension plan prior to the Berkshire acquisition; second, it affirmed the dismissal of a derivative breach of fiduciary duties claim against Berkshire; and finally, it reversed the District Court’s dismissal of all other claims against Berkshire.
Years later and following an extensive private negotiation process, the parties have now agreed to settle the long-running lawsuit. The text of their proposed settlement agreement calls for the certification of two settlement classes. First is a 401(k) settlement class, “consisting of all participants and former participants in the Acme Brick Company 401(k) Retirement and Savings Plan who contributed to an account with the 401(k) plan at any time between January 1, 2010, and December 31, 2013, together with their respective beneficiaries.” Excluded from the 401(k) settlement class are participants and former participants for whom the employer’s matching contribution during this timeframe was established by a collective bargaining agreement.
The second class is a pension plan settlement class, consisting of “all participants and former participants in the Acme Brick Company Pension Plan who were employed by Acme on October 4, 2014, together with their respective beneficiaries.”
Under the settlement terms, Berkshire “will cause Acme to adopt an amendment to the pension plan providing for the recalculation of accrued benefits for pension plan settlement class members.” Each pension plan settlement class member’s accrued benefit “will be adjusted so as to equal the benefit to which such member would have been entitled had the effective date of the freeze of the pension plan benefit been July 15, 2017.” No pension plan class member’s accrued benefit will be reduced on account of this adjustment.
The settlement agreement further stipulates the defense “will cause Acme to distribute $750,000, allocated among the members of the 401(k) settlement class proportionately based on the employer match amounts made to the 401(k) plan accounts of such persons during 2010-2013.”
The full text of the settlement agreement is available here.
