ERISA
Conectiv Cash Balance Plan

There are currently two cases pending in the United States District Court for the District of Delaware on behalf of current and former employees of Conectiv and its affiliates who had their pension rights determined under the Cash Balance Sub-Plan of the Conectiv Retirement Plan, and their beneficiaries. The defendants are Pepco Holdings, Inc., Conectiv, and the Pepco Holdings Retirement Plan, which is the successor to the Conectiv Retirement Plan.

Both complaints challenge the legality of the Cash Balance Sub-Plan. Specifically, the complaint alleges that the Cash Balance Sub-Plan, which went into effect January 1, 1999, violates the substantive accrual standards of ERISA, which governs pension plans. ERISA regulates the manner in which employees earn pension benefits by reference to the value of the annuity that they earn at age 65; under the Conectiv plan, when pension benefits are analyzed in this fashion (rather than by reference to the "account balance"), participants have actually had the value of their annuity decrease with additional years of work, rather than increase. The complaints also assert that Conectiv failed to comply with a notice requirement imposed under ERISA directing that it inform the participants in the pension plan that the switch to a cash balance design would result in a decrease in the rate at which they earned pension benefits. Based upon these allegations, plaintiffs seek a determination that the Cash Balance Sub-Plan violates ERISA; they also seek to have the Pepco Holdings Retirement Plan reformed to eliminate the Cash Balance Sub-Plan, and an injunction directing that the benefits of participants be recalculated under the predecessor plans which were maintained by Atlantic City Electric Company and Delmarva Power and Light Company.

The complaint in the first case was brought on behalf of a class consisting of all persons who have had their accrued benefit determined pursuant to the terms of the Cash Balance Sub-Plan of the Conectiv Retirement Plan and do not qualify for a grandfathered benefit, and their beneficiaries. On January 5, 2006, we filed a second case, and the complaint in that case has a slightly broader class definition, which includes in the class definition those who qualified for grandfathered benefits but will not reach normal retirement age (65) before December 31, 2008. We intend to pursue the broader class outlined in the second complaint.

The fact that the cases were brought as class actions means that the rights of everyone who fits within the class definition could potentially be decided, if the Court authorizes class treatment. In deciding whether to grant class treatment, the Court will have various options: it could direct that the case proceed on behalf of the class proffered by the plaintiffs; it could deny class treatment; or it could order that the case proceed as a class action on behalf of a class that is defined in a different way.

In June 2006, the court denied the defendants' motion to dismiss. Defendants sought reconsideration; the district court denied that request, but stayed Count III, which alleged that the plan violated an age discrimination provision of ERISA, pending disposition in an appeal pending in another cash balance plan case that addressed the legal validity of the same claim. In January 2007, the Third Circuit decided Register v. PNC Fin. Svcs. Group, Inc., 477 F.3d 56 (3d Cir. 2007), which invalidates the theory on which Count III of the complaints was based. It is expected that the Court will ultimately dismiss Count III. In plaintiffs' view, the remaining three counts of the complaints remain viable.

The parties have been conducting discovery through most of 2007. All of the plaintiffs have been deposed, and plaintiffs have conducted several depositions. Plaintiffs' motion for class certification has been filed, and defendants have filed their brief in opposition. Disposition of the class certification motion has been deferred pending the service of summary judgment motions.

On May 1, 2007, the defendants filed a motion for summary judgment. On June 19, 2007, we filed a response to the defendants' motion, and cross-moved for the entry of judgment against the defendants. Plaintiffs also moved to strike certain of the evidence submitted by defendants in support of their summary judgment motion. Copies of these briefs are available in the links above.

After the parties conclude their briefing on summary judgment motions, they will await disposition of the motions by the court. During that period, they are scheduled for a mediation session with a United States Magistrate Judge to determine whether these cases can be amicably resolved. It is impossible to predict whether mediation will lead to a successful resolution of the litigation. If the parties do reach a potential settlement, it will be submitted to the district judge for approval.

Absent a settlement, the district court will address the summary judgment motions. If plaintiffs are successful, the parties will then address the remaining class certification issues. If defendants are successful, the case will be terminated in their favor, and the plaintiffs would then be left to appeal. The decision whether to appeal can only be made after evaluating the district court's decision.

All litigation is inherently uncertain, but we are optimistic about the prospects in this case and will endeavor to bring it to a successful conclusion.

If you have questions about this matter, please feel free to contact us.

James R. Malone, Jr.
Joseph G. Sauder

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   Monday, May 12th, 2008