Dose ERISA cover this?

[Guest Francis4]

Hi,

This may be a little complicated, I'll try my best to describe the situation. I work for a hospital who provided a defined benefit retirement plan to us (call it hospital A) In 1993 this hospital merged with another local hospital (call that hospital B) in a "merger of equals" with a new name for both hospitals. Both hospitals had defined benefit retirement plans. Then on 1-1-1994 they did the following....in the case of the employees from my hospital (hosp A) they said our retirement benefits were frozen forever as of the 1-1-1994 value but we could participate in the combined hospital's retirement plan as of 1-1-1994. The plan they chose as the retirement plan for the combined hospital was Hospital B's plan. Employees of Hospital B had no frozen values as of 1-1-94 but continued normally.

So how this works out is employees of Hospital A get a retirement benefit of their frozen benefit as of 1-1-94 plus the new benefit from 1-1-94 on.

The employees of Hosp B receive totally the new plan.

The problem is the benefits for employees of equal years of service works out vastly different for the two groups of employees. The benefit formula highly depends of years of service and in hospital A everyone was given a 1-1-94 date as beginning their service even if their actual hire date was way before that. Hosp B employees years of service is based on their hire date, not 1-1-94.

The difference is significant. I did some calculations and for a 20 year employee with similar salaries the following are approximate yearly pension amounts"

Hosp A $18,500

Hosp B $25,000

This is for 2 identical employees, identical years of service and similar salaries. The only difference is one employee worked for hosp a and one worked for hosp B. All the workers now work for hospital C (the combined hospitals). Is there any ERISA violations here?

Thanks,

Francis

[J Simmons]

Francis, from your sketch of the facts, it would not necessarily be a violation of ERISA for this differential treatment.

While the hospitals merged and had a new name after that, it may have been structured that Hosp B's legal entity was continued, albeit with a new name. Employment with Hosp A may have ended for its workers, and Hosp B then extended offers of new employment with it to old Hosp A workers, rather than their employment being 'transferred' from Hosp A to Hosp B.

Hosp B's plan recognizes only service as an employee of Hosp B, and so if you only became an employee of Hosp B on 1/1/94, you'd only have service under Hosp B's plan from that date. And you've indicated that you yet have benefits under Hosp A's old, frozen plan (which Hosp B may have assumed the roles and responsibilities of sponsoring employer and plan administrator).

I think you'd have a difficult time getting such a scenario recast, legally, as your employment having continued. Even then, you'd have to demonstrate to a court's satisfaction that there was a disproportion of non-highly compensated employees on the Hosp A side of the ledger when compared to those on Hosp B's side, just before 1/1/94, and that the disproportion is great enough to be considered a violation.

[Guest Francis4]

Francis, from your sketch of the facts, it would not necessarily be a violation of ERISA for this differential treatment.

While the hospitals merged and had a new name after that, it may have been structured that Hosp B's legal entity was continued, albeit with a new name. Employment with Hosp A may have ended for its workers, and Hosp B then extended offers of new employment with it to old Hosp A workers, rather than their employment being 'transferred' from Hosp A to Hosp B.

Hosp B's plan recognizes only service as an employee of Hosp B, and so if you only became an employee of Hosp B on 1/1/94, you'd only have service under Hosp B's plan from that date. And you've indicated that you yet have benefits under Hosp A's old, frozen plan (which Hosp B may have assumed the roles and responsibilities of sponsoring employer and plan administrator).

I think you'd have a difficult time getting such a scenario recast, legally, as your employment having continued. Even then, you'd have to demonstrate to a court's satisfaction that there was a disproportion of non-highly compensated employees on the Hosp A side of the ledger when compared to those on Hosp B's side, just before 1/1/94, and that the disproportion is great enough to be considered a violation.

Hi J Simmons,

Thanks for your quick reply. A clarification (don't know if it matters)...but the combined new hospital recognizes our total years of service (at hosp a and B) for every other benefit the company offers. Our total years of service count for job bidding, salary grade, vacation time, employer contribution to our 403B and any other hosp benefit except our defined benefit pension plan.

Thanks,

Francis

[Effen]

You probably should look at what hospital A employees were told in 1994. There probably isn't anything legally wrong with what they did, although you do point out a potential HR problem. Chances are the merged hospital was well aware of the issue and still chose to do what they did. They way you perceived what happen in 1994 ("merger of equals") may have been the way it was presented to the employees, but behind closed doors it may have been B purchasing A and therefore B didn't want to pay for A's past service in B's plan.

It sounds like you have properly identified a "problem". I'm not saying they did anything wrong, assuming everyone was given the proper notices. What they did was / is very common. It can be easily "fixed" with $$ if the hospital wants to fix it.

[Mike Preston]

The devil is very much in the details. And there is no way that you can present enough of those details here for people to give you a definitive answer, one way or the other. Almost certainly, if everything was done properly, they could have structured things as you indicate they are administering the plan. However, the fact that you were left with the impression that it was intended as a merger of equals and the fact that for every other benefit they recognize all service with both hospitals leads me to believe that there is a significant potential that what has come to be is inconsistent with what they promised at the time of the merger.

Unfortunately, even if they did promise recognition of all service when computing benefits under the new plan, they could *still* potentially wiggle out if the "form" of promise wasn't legally binding under ERISA. Different courts in this country, over the years, have applied different standards to what constitutes a legally binding promise. Hence, without a complete review of the facts it would be impossible for somebody to say that there was an ERISA violation.

So, what to do?

I suppose it depends on whether there are any time considerations.

Are you planning on retirement soon and therefore wish to push the issue quickly? If so, you would want to submit an application for benefits and once they communicate to you what they think your benefit is, you would then file a claim for additional benefits pursuant to your belief that all service should be taken into account. What happens from there depends on their response. You may be pleasantly surprised that merely following this course of action results in enough firepower being brought to bear on the issue that it is resolved in your favor. Of course, the opposite is also possible. Once your claim is denied, you then have the ability to march into court and have the court opine on whether the hospitals are adminstering the plan properly, in light of all that has been promised.

Obviously, for a court action, you would need to hire an attorney.

I would even suggest that you consider hiring an attorney to prepare your claim for additional benefits, to ensure that you dot all the i's and cross all the t's at that stage.

If you aren't retiring immediately, you may want to find somebody who is and then have them follow the path, above.

You can even get a group together to fund the attorney's expenses on behalf of one individual challenging the benefit determination, as the hospital will be bound to improve benefits for all if they are forced into improving benefits for one.

With all that said, you have a potentially very complicated set of facts to unravel and it may be in your best interest to involve an attorney earlier in this process, rather than later.

Good luck and let us know the final result when you find out.

As I have indicated to others, if you are intending potential litigation, please be aware that these boards are public and therefore do not post anything which could potentially be used against you should it come to light during the litigation.

[J Simmons]

Francis,

In answer to your follow-up question, each and every fact and circumstance would need to be taken into account. Those you mentioned are not determinative, but might have a bearing. With different plans, the ER may choose different eligibility and service parameters, within the legal guidelines that apply to each specific kind of plan.

What Effen mentioned, i.e. what Hosp A EEs were told in 1994, would be important--particularly what was presented to them in writing. For example, if Hosp A EEs were provided, and perhaps even signed, statements that they understood that their Hosp A employment was coming to an end, and that new employment with the resultant hospital was being offered to them would be some key evidence of the true nature of things, both as to how the 'merger' was truly structured and what was disclosed to employees.

As Effen noted, what is sometimes called a 'merger' is commonly structured as a purchase of one business entity of the assets and/or business concern from another entity. There might be a problem lurking under the fact scenario you've sketched out. It might be worth your while to contact an ERISA litigator to do some investigation into what took place.

[Guest Francis4]

Hi. Thanks to everyone for the great responses. I am 47 yrs old and don't plan to retire soon. I started working at hosp A in 1984. The idea of benefits based on the total years of service had merit. But one thing, it may be hard to spring this on them at the time of retirement.....because each year they provide up with a statement of our pension plan benefits. And in my case, it lists the frozen amount (from hosp A) and the amount from Hosp B from 1-1-94 to the present. You add the 2 up for my benefit. So you know your benefit each year.

Thanks,

Francis

[david rigby]

It is possible I missed it reading above, but have we established that ERISA is relevant? Could we be talking about governmental plans?

[Guest Francis4]

It is possible I missed it reading above, but have we established that ERISA is relevant? Could we be talking about governmental plans?

Hi,

Pax, I don't know what you mean about goverment plans....but if you mean are the hospitals run or associated with a state or Federal government, they are not. To answer J Simmons, what employees of hosp A were told in 1992 was this was a merger of two local hospitals......first to buy supplies and equipment together to save money they to integerate the two hospitals together into a new healthcare systen. In fact, both hospitals are still open with acute care services in the larger one and non-acute and mental health located in the other. But this was all done under the new name for the hospital system.

I distinctly remember the CEO telling us this was a merger of equals in an employee meeting...but I understand that may not be the legal structure of the "merger". (Note---he not longer works for the system). We were never told our jobs at hosp A have ended and we are beginning new at the combined entity. We never signed anything.

I called HR about this yesterday and the woman told me that the reason in 1994 for freezing our pension was that hospital A (where I came from) had a better pension plan than hosp B. Because of this an employee with say 10 years of service at hosp a had a larger pension that an amployee with 10 years of service at hosp B. I told her that may have been the case then but now the reverse is true...and asked why didn't they just freeze ours till both were equal then let them both grow at the same rates? She didn't have an answer other than that is what they decided to do. I then told her if it was true that an employee with equal total service (with one having service at hosp a) have significantly differene pensions..she said she never did the calculation. Well, I said I did and the differnence is significant. So, she probably will passit on to the VP of HR and we'll see what happens.

Thanks,

Francis

[J Simmons]

Hi, Francis,

What pax means by governmental plan depends on the ownership of the hospital. Many hospitals are owned by governmental entities, like counties or cities, though others are 'privately' owned.

ERISA generally does not apply to plans if the employer is governmental. Governmental bodies, for this purpose, usually have the authority over those living and/or property located in a geographic area to impose and collect taxes, and are managed by a person or board that is elected by those living in the geographical area. In some states, there are hospital districts with this type of taxing authority and electing of officials. But a state, county or city owned hospital would also be governmental.

The public policy behind exempting them from ERISA is a notion of respect by one governmental body for another, here it would be the federal government deferring to the state and local governments to set their own policies for retirement and other employee benefits. Legally, this concept is known as comity and in ERISA is manifested in the exemption for governmental employers.

If the hospital you work for is owned by a local government body, and ERISA does not apply, then your state's laws would kick into play. Depending on your state, this might actually make your quest for parity of benefits with what those that were once Hosp B benefits easier. In other states, harder--for example in some states, there may be no statutory, regulatory or case law that addresses the issue. If ERISA does not apply, it would be important to hire an attorney that is familiar with the laws of the state where the hospital is located.

[SoCalActuary]

It may seem unfair, but it appears from your description that all employees are earning the same rate of benefits on new service since the merger, so there is a clear defense against discrimination claims.

Further, no one lost any benefits they had already earned.

So I doubt you have a case, and I definitely don't see your argument for violation of ERISA.

[masteff]

Francis, for what it's worth , your scenario is typical from my experience w/ mergers/acquisitions (freeze in A and start from acquisition date in B). And yes, they can elect to recognize service for other things but not for benefit accrual in the retirement plan.

I'll selectively quote what Effen said above as it summarizes my own thoughts:

Chances are the merged hospital was well aware of the issue and still chose to do what they did. The way you perceived what happen in 1994 ("merger of equals") may have been the way it was presented to the employees, but behind closed doors it may have been B purchasing A and therefore B didn't want to pay for A's past service in B's plan.

Question: Do both plans use final average pay in their benefit calculation? If so, then to give you a different line of thought about how the hospital could fix this... they could amend the plan to use final average pay from Plan B in calculating Plan A benefits. This would give you full credit for your years (Plan A years plus Plan B years).

The real problem in the overall equation is that your Plan A pay was frozen on 1/1/94 rather than continuing to grow (actually, you should confirm if that's correct w/ your benefits/HR dept, because if they're using your Plan B pay for Plan A, then you're as well off as you're likely to be). But just to be frank, I don't see them making this change willingly 13 years after the fact.

[Guest Guest_named_Francis_*]

Francis, for what it's worth , your scenario is typical from my experience w/ mergers/acquisitions (freeze in A and start from acquisition date in B). And yes, they can elect to recognize service for other things but not for benefit accrual in the retirement plan.I'll selectively quote what Effen said above as it summarizes my own thoughts:

Chances are the merged hospital was well aware of the issue and still chose to do what they did. The way you perceived what happen in 1994 ("merger of equals") may have been the way it was presented to the employees, but behind closed doors it may have been B purchasing A and therefore B didn't want to pay for A's past service in B's plan.

Question: Do both plans use final average pay in their benefit calculation? If so, then to give you a different line of thought about how the hospital could fix this... they could amend the plan to use final average pay from Plan B in calculating Plan A benefits. This would give you full credit for your years (Plan A years plus Plan B years).

The real problem in the overall equation is that your Plan A pay was frozen on 1/1/94 rather than continuing to grow (actually, you should confirm if that's correct w/ your benefits/HR dept, because if they're using your Plan B pay for Plan A, then you're as well off as you're likely to be). But just to be frank, I don't see them making this change willingly 13 years after the fact.

Hi,

I received a few more answers to this problem. First to answer the above question...the plan at hop A does use the average of final pay ending 0n 1/1/94. My pay at the merged hospitals is irrelavent to the pension calculation at hosp A. I agree with you that they could throw some money at this and make it equal but after 13 years I wouldn't expect anything.

My department director came back from a leave of abscence and I didcussed this with him. He had an interesting angle on it based on some of his friends that have left or retired. I'll try not to be too confusing.

He said it is true that the *monthly* pension for service at hosp A is frozen as of 1-1-94. Now here is the new info....he said the pension plan at hosp A, upon retirement, offers either the frozen monthly payments or a lump sum option. He said the monthly benefits are frozen but the lump sum increases over time to provide the guaranteed monthly payments as you get older. The plan at hosp B does *not* offer a lump sum option. He said recent friends who retired all took the lump sum from hosp A.....because they ended up with a sum of cash to put in their IRA or whatever plus the monthly payments from 1994 forward.

I don't know if this makes sense to anyone, that the lump sum can grow over time even though the monthly payments will stay the same. Note:you can only take the lump sum if you retire or quit. BY the way the formula the combined hosp uses is take your best 5 consecutive salary years in the last 10 years. Take the average of those 5 years. Subtract $12,000 from that total for whatever reason. Multiply that number by 1.25%. Multiply that number by years of service. Add that number to $100 times number of years of service to get final amount per year. I'll give you some numbers and comparisons (as of today) and see what you think:

Employee 1

worked at hosp a for 10 years till 1-1-94

then worked at the merged hospital for 13 years

pension from hosp a would be about $470/month frozen or lump sum option for this portion only.

pension for service after 1-1-94 would be about $1370/month

Employee 2

worked at hosp B for 23 years. They honor all of their years of service.

pension would be about $2419/month with no lump sum option.

They sort of keep us in the dark because they won't tell us the lump sum value or our hosp a pension unless we seperate employemnt. So, does anyone know how to calculate the future lump sum value instead of taking the monthly frozen payments. I realize this involved how far our in the future you go....but I am 47 years old now....so does that help calculate what the approx lump sum will be worth when I retire?

Thank You,

Francis