Cash Balance Conversion Correction

[Guest DORIGHT]

Last Friday Judge Kravitz ruled in the ten year long cash balance conversion case that Cigna had violated ERISA by not supplying a proper 204H Notice of benefit reductions when it’s traditional qualified benefit plan was converted (1/1/1998) to Cash balance. The ruling concluded there was no age discrimination in the plan after the change but a reduction in benefits had occurred due to the wear away in the ‘Greater of A or B’ benefit conversion. A is the before conversion benefit and B is the new cash balance benefit based on starting with an account balance equivalent to the present value of the A benefit. Complicating this issue is the fact that Cigna’s calculation of the present value did not include the prospect of mortality and early retirement. The 122 page ruling is very interesting reading.

Left to further proceedings is what to do for the plan members now. In an earlier action, some older Cigna employees were grandfathered under the old plan formula. The court has requested briefs from both sides for their proposed remedies. Here are several choices:

1: The Plan should be forced to go back to the old traditional final average salary type benefit. (They can start the conversion process over with proper notification.)

2: The proper notification and information of the conversion effect may have been complete enough by the end of 1999, the plan must use the old formula through December 31, 1999

3. The wear away effect caused by the ‘Greater of A or B” must be eliminated by substituting the ‘A Plus B’ conversion benefit calculation. Proper calculation of present value of A is required by addressing mortality and early retirement subsidy.

4. Those employees harmed beyond a de minis amount, must be grandfathered under the old plan formula. (this would require calculations for all employees under both formulas.)

5. Those employees most harmed are older employees with longer periods of service. Employees over the age of 40 on January 1, 1998 with 5 years of service must be grandfathered under the old formula.

Do any of these seem appropriate? Any other suggestions?

Perhaps another member knows how to set this up as a poll. I thought it would be interesting to hear opinions from the knowledgeable people at this site.