Cash Balance Plan Conversion recent Court Cases go both ways

[papau]

The recently case that went at least a little in the direction of the older worker (with class-certification granted in s separate ruling as to the three claims left intact)is:
Richards v. FleetBoston Financial Corp., D. Conn., No. 3:04-cv-1638 (JCH), 3/31/06.

The US District Court for the District of Connecticut has ruled that a FleetBoston Financial Corp. employee can continue to pursue her claims against the company’s cash balance plan.
The court refused to dismiss Donna Richards claim that the cash balance plan violated the Employee Retirement Income Security Act (ERISA) section regarding age discrimination and the rate of benefit accrual, BNA reports. In its decision, the court said that Section 204(b)(1)(H) of ERISA requires a participant's rate of benefit accrual to be measured solely in terms of an annuity payable at normal retirement age and not at the rate at which amounts are allocated to an employee's account.

Richards’ claims that FleetBoston failed to notify participants of a significant reduction in the rate of benefit accrual 15 days prior to the effective date the plan was converted and failed to provide an adequate Summary Plan Description were also left standing.

The court did dismiss Richards' claim that the cash balance plan violated ERISA’s Section 203(a) nonforfeitability provision by conditioning Richards' receipt of cash balance benefits on her foregoing the early retirement benefits she earned prior to the adoption of the cash balance plan. The court noted that the cash balance plan did not require a choice between alternative benefits because participants who accrued benefits prior to the plan conversion would receive one benefit that was "always the greater of" their cash balance account benefit and their benefit accrued under the defined benefit plan.

Richards’ claim that the plan violated ERISA Section 204(b)(1)(B)'s anti-backloading rule by causing participants to face years where they accrue zero benefits followed by years where they accrue actual benefits was also dismissed. According to the court, if the cash balance plan was treated as having been in effect for all plan years, employees would never have accrued a benefit under the defined benefit plan and would have started accruing benefits under the cash balance formula from the start of their employment.

In addition, the court dismissed Richards' claim that FleetBoston breached its fiduciary duties by frequently informing retiring plan participants of the value of their cash benefit accruals while failing to inform them of the greater benefits they were owed under the defined benefit plan, saying that she lacked constitutional standing to pursue the claim because she was not personally injured by the alleged breach.

According to the court opinion, the opening balances did not include the value of a defined benefit plan participant's right to subsidized early retirement benefits. The cash balance plan provided that, upon termination of employment, an employee who had participated in both the defined benefit plan and the cash balance plan would receive the greater of his or her cash balance account or his or her benefit under the defined benefit plan, frozen as of January 1, 1997. An SPD distributed to participants did not mention the ‘wear-away’ effect (older workers receive no benefit as their accounts wait for the savings account cash balance to exceed the value of their already earned defined benefit values) or that participants' benefit accruals under the cash balance plan would be reduced as they got older.

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In a case Engers v. AT&T, D.N.J., No. 98-3660 (JLL), unpublished 3/31/06, that went the Corporations way, AT&T was cleared of allegations it violated the Employee Retirement Income Security Act (ERISA) by not providing employees 15 days notice it was converting its defined benefit pension to a cash balance plan, as the judge ruled that the notice of the plan conversion was not required because the change was not causing participants' "amount of future benefits" to be reduced (presumably he meant in total since he viewed the older workers surrendering benefits so as to increase the benefits of younger workers as not affecting the plans "amount of future benefits" -this later term is one that is not defined).