Hilton Hotels Accused of Improperly Calculating Pension Plan Vesting

Former participants and a beneficiary of a former participant in the Hilton Hotels Retirement Plan have asked for class certification in a lawsuit alleging that Hilton Hotels and plan fiduciaries have breached and are breaching their fiduciary duties under the Employee Retirement Income Security Act (ERISA) by failing to make vesting determinations in compliance with ERISA, the regulations and a prior District Court decision.

The lawsuit was filed on behalf of more than 220 individuals who followed the claim procedures ordered by the U.S. District Court for the District of Columbia, and affirmed by an appellate court, in Kifafi, et al., v. Hilton Hotels Retirement Plan, et al.

According to the amended complaint filed in 2018, on May 15, 2009, the District Court ruled in Kifafi that Hilton had systematically not properly counted periods of employment with Hilton in determining whether employees had enough years of service for a vested right to a pension benefit as modified by ERISA. 616 F.Supp.2d 7, 29-32. The District Court found that while Hilton “initially asserted that it complied fully with the plan’s vesting provisions that allowed employees to earn a year of vesting credit by completing 1,000 hours of service, the record is replete with uncontested evidence that Hilton failed to properly implement the 1,000 hours standard for calculating employees’ vesting credit, often because it lacked the necessary records to do so.”

To remedy the vesting violations, the District Court on September 7, 2010, ordered the “870/750 ‘hours worked’ equivalency to be applied in lieu of the 1000 hours of service standard where an employee’s records are sufficient to indicate the hours worked.” Under the “hours worked” equivalency, an employee is credited with a year of service if he has 870 hours worked during a 12-month period (or 750 for a salaried employee). The court said if the records of hours worked are unavailable (or where a record indicates 500 hours of service as a placeholder), a “190 hours of service per month equivalency” is to be used.

In their complaint, the plaintiffs say Hilton has denied the appeals of at least 57 individuals on the ground that: “a portion of your employment history with Hilton was prior to January 1, 1976. Prior to 1976, vesting credit is calculated using an elapsed time method. The elapsed time method calculates service by measuring the time, in years and fractional years, between the date you began employment and December 31, [1975]. The amount of service credited does not depend on the hours worked during a time period, but rather depends on the years and fractions of years during which you were employed by Hilton prior to January 1, 1976.”

According to the complaint, the District Court in Kifafi specifically rejected Hilton’s elapsed time approach because it leaves “some participants with fractional years of vesting service.” As an example, the complaint notes that Hilton credited named plaintiff Valerie White with 3.52957 years for her service at the Washington Hilton from June 21, 1972, to December 31, 1975, and then with six years for service from January 1, 1976, to March 26, 1982, giving her a total of 9.52957 years of vesting service. The plaintiffs say Hilton’s application of elapsed time before January 1, 1976, does not take into account the District Court’s decision on fractional years or the Department of Labor (DOL) and Treasury regulations on transitioning from an elapsed time method to an hours of service method for service. “Without the transition between elapsed time and hours of service required by the District Court and the regulations, a fractional 0.52957 year for Ms. White will be frozen forever in place, and the only way she can attain the additional 0.47043 year of vesting service would be to earn another full year of vesting service. This would mean that participants actually would need more than 10 calendar years of employment for [their] pension to vest,” the complaint states.

The plaintiffs also pointed out that the District Court in Kifafi ruled in August 2000 that the plan’s definition of “Related Companies” encompasses any “Hilton Property,” which is defined in the plan document as any property in which Hilton “has an interest or with which it has a contractual relationship for hotel management.” Thus, the District Court ruled that the plan’s definition of “Related Company” encompasses all related or affiliated Hilton properties–whether or not they participate in the plan. The District Court’s May 5, 2009, decision also held that “employers are required to count all of an employee’s years of service for calculating his or her years toward vesting.”

Despite the District Court’s rulings, the plaintiffs allege, Hilton is not counting service at “non-participating” properties and has stated that it is only counting service “at either a participating employer or related company for vesting credit.” The plaintiffs argue that this not only contradicts the District Court’s ruling, but that Hilton has not provided any documents in response to their requests to identify any non-participating properties that are not “Related Companies.” For example, the complaint says, Hilton’s records show that named plaintiff Eva Juneau worked for the Reno Hilton from April 22, 1991, until May 16, 1996, and then at the Flamingo Hilton from May 17, 1996, until February 21, 1997. Hilton is crediting Ms. Juneau with four years of service between August 1, 1992, and February 21, 1997, but is not counting her service before the date the Reno Hilton began participating in the plan.

In their third count, the plaintiffs allege Hilton has denied appeals submitted by the beneficiaries of at least 28 deceased participants through the vesting claim process ordered by the District Court without regard to whether the participant had sufficient years of service to be vested, but solely on the grounds that the claimant is “not the surviving spouse.” For example, named plaintiff Peter Betancourt, the son of deceased participant Pedro Betancourt, who worked at the New York Hilton from October 3, 1947, to January 13, 1979, and who died in 1985 at the age of 71, appealed his vesting denial in July 2015. Pedro Betancourt’s spouse died in 1998 at the age of 78. Peter Betancourt is their only child.

According to the complaint, documents provided by Hilton show that Hilton is crediting Pedro Betancourt with 19 years of vesting service. But Hilton has denied his son Peter’s vesting appeal not on the grounds that his father did not have more than enough years of vesting service, but solely “because you [Peter Betancourt] are not the surviving spouse of P. Betancourt.” Hilton’s November 18, 2015, denial letter states that “the plan document does not provide for a death benefit to anyone other than a spouse.”

The plaintiffs note that in Kifafi, the District Court ruled on August 31, 2011, that “back payments for deceased participants shall be made in a manner that is consistent with Section 4.13(e)(6) of the 2007 plan, which provides that any additional benefits payable to the participant shall be payable to the surviving beneficiary or beneficiaries, if any, under the optional form of benefit, if any, elected by the participant, or, if there is no such surviving beneficiary, to the participant’s surviving spouse or, if there is no surviving beneficiary or surviving spouse, to the participant’s estate.”

Peter Betancourt claims he is due the back benefits due his mother before her death as well as the six years of back benefits due his father before his death.