Jump to content

Benefits claim if plan has been terminated and annuities purchased


Recommended Posts

Say a plan terminates and purchases annuities from an insurance company and later on a plan participant has begun to receive his annuity. A couple of years later on it is discovered that the participant should have received a larger pension, is there any recourse when the plan no longer exists? Anyone have any knowledge on this situation or a similar one?

Link to comment
Share on other sites

I would think they can still sue the trustees of the plan. The trustees should still be covered by their insurance. Alternatively, if the employer is still around I would just try to settle it.

Link to comment
Share on other sites

I'm no lawyer, but if the Plan was covered by the PBGC, then the Plan Administrator should have provided a Notice of Plan Benefits, which should have contained every piece of information used to calculate the benefit. This, along with the SPD or Plan Doc, if requested, is provided so that the participant can check their benefit calculation. It seems to me, that IF the Plan Administrator did everything they were suppose to, and the participant didn't do any checking at the time, they should be SOL.

But in this crazy attorney filled world, the courts would probably have to get involved. You may want to call an attorney friend and ask them to check for any legel precedent.

Link to comment
Share on other sites

PBGC covers insolvent or underfunded plans and would not be applicable.

An employee is not expected to be able to do the calculations. That is why Actuaries etc are required by law to perform these.

Neither a Notice of Plan Benefits, an SPD nor Plan Documents have the needed info and would not help.

The Plan Admin. in doing everthing that they should, should have as a fiduciary responsibility, applied "prudent man" principles and calculated all likely scenarios and given the participants a choice (individually or by majority). If not, the employee should bring in the DOL then possibly sue. As for precedent, there are volumes of them. An easy one to start with would be any of the Executive Life cases, theycite many of the others.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

Link to comment
Share on other sites

You missed the point. The PBGC covers ALL plans (other than small professional corporations). If the Plan is covered by the PBGC & it wants to terminate, it must submit a request to the PBGC for approval. The PBGC Regulations require that the participant be given every piece of information which was used to calculate their benefit so that they can check the calculation.

If the Notice of Plan Benefits and SPDs that you have seen don't provide the sufficient information for the participant to determine their benefit, I would say you have seen some pretty serious compliance problems. I'm not saying that every participant can do it themself, but they should be provided with sufficient information to take it to an impartial 3rd party and have the calcuation verified.

These regulations exist for just this purpose.

Also, just what are the "likely scenarios" that the participants should be "given the choice (individually or by majority)"? The Plan has terminated, the document dictates the benefits, I don't know of any scenarios which the participants are given any choices.

Link to comment
Share on other sites

I suggest that you review the First Union case and the Georgia Pacific case. There you will see the references to previous rulings by courts, DOL and IRS on these issues, including the issue of the info in SPDs etc vs what is required to do the calculation. There is also extensive coverage of fiduciary responsibility in the selection of investment vehicles etc etc.

The same issue of what is needed is also addressed in the IRs and Congressional investigation into Cash Balance Plans. The IRS has issued TAMs etc on the problem of calculation etc. Another case to look up is the IBM case.

The point is that many many courts, the IRS, DOL and Congress all say that the SPD and PD dont have the needed info. I would not try to second guess them.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

Link to comment
Share on other sites

  • 3 weeks later...

According to a PBGC opinion from several years back, a plan must satisfy the full benefit due upon termination. Basically, the opinion said that if there is a shortfall in the benefit paid and the plan sponsor is still around then the sponsor must make up the shortfall. If the sponsor is no longer around and the plan was covered by the PBGC, the shortfall would be made up by the PBGC up to the applicable maximum guaranteed amount.

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
×
×
  • Create New...