Lump Sum Availability

[Guest Scorpionpenn]

My employer, during our Merger Agreement, eliminated the Lump Sum (LS) feature of our retirement plan for all employees being hired after January 1, 2001. All pre January 1,2001 members were "frozen" on December 31, 2000 in their ability to accrue additional annuity value which could be converted to a LS. To wit : all future benefits after 01/01/01 under the plan would only be paid in the form of a monthly Annuity check.

The question is thus: Can an employer once "locking in" and /or negotiating to allow, as in our case, employees to receive a portion of their benefit at Normal Retirement Commencement in the form of a Lump Sum (the annuity amount frozen thru 12/31/00) could they later, upon converting to a cash balance plan, take away the Lump Sum feature entirely?

This is a Utility Company and I am a Union Represented employee. Thx.

[Mike Preston]

Typically, no.

The right to the lump sum can't be taken away except in very unusual circumstances. The plan would have to apply to the Secretary of Labor for approval, and unless the company was seriously in jeopardy of not being able to continue in the absence of being allowed to compromise your entitlement to a lump sum with respect to benefits accrued through December 31, 2000, I don't think there is a snowball's chance in Hades that the Secretary of Labor would approve it.

[Guest asire2002]

Legally (i.e., under IRS and ERISA rules), an employer can eliminate the right to a lump sum distribution with respect to benefits that have not yet accrued. Based on your description, it sounds to me like the employer did just that: the lump sum was not taken away for benefits already accrued as of the freeze date, but was taken away with respect to benefits earned after the change. I can't speak to whether this was a violation of the bargaining agreement.