Is this Early Retirement Benefit 'accrued at termination'

[Guest erisajd]

Things seem to getting more complex as companies evolve away from DB plans - instead of easier - opinions below?

FACT: Participant A

DB plan - traditional years of service and final average pay. The early retirement benefit actuarially reduced at time of retirement, unless you satisfy Rule of 85. [Age 55 with at least 30 years of service] - if you satisfy rule of 85 you get your full retirement benefit at 55 or thereafter with age 55 and 30 years of service.

Participant A left the company at age 52 with 34 years of credited service.

Participant is now Age 54.

Plan X terminated further accruals Jan. 1, 2010. She did not get notice of the cessation of further accruals. It supposedly will be terminated - though no one has received a notice of termination either. This is a big company - I cannot imagine they messed it up, and my client may of course have a bad address on file - don't have any of those facts yet with copies of the documents from the plan sponsor and administrator. Lets assume that Plan X is fully funded with a standard termination on Feb 1, 2011. My client turns 55 on June 1 2012. Fortune 500 company - regulated utility - internal staff, outside contract administrator,m internal administrative committee for investments and administration/ appeals.

The SPD and plan document do not specifically require that a participant be actively employed on the date they 'retire.' The definition of 'retirement' is satisfying the provisions to receive a retirement benefit. The plan document contains a separate 'vested terminated' benefit section - but thats only there to preserve term vested benefits. Do not have their pattern and practice yet.

Issue #1: Can she age into early retirement benefit? And is it thusly 'accrued' for payment at plan termination [a lump option will be provided supposedly but obviously the difference between $2400 a month starting at age 55 and $860 a month is substantial]

Issue #2: The VP of benefits for the company has decided that a participant needs to be employed at the time of application to receive a subsidized early retirement benefit. The Plan document states that benefits applications must comply with plan rules - but no plan rules are published or available to an employee even if they request them. Can this provision be enforced - the SPD is silent on required employment at the time of benefit application for either the normal, early or disability retirement benefits.

Issue #3: This is an additional fact: Plan X plan sponsor spun off a new company. Participant A had the choice of remaining with Plan X sponsor or going to the new company. She ASKED the HR Generalist for Pensions a specific question "with the plan projected to be terminated in the future, and if I leave at age 52, can I age into the benefit later." She was affirmatively in writing told YES. LAter - when the plan terminated - she was told that VP of HR had decided that in order to qualify for an early retirement benefit she needed to be employed at Plan X sponsor at the time she applied. Furthermore, assume that Plan X employees who could simply age into the ER subsidy ARE being paid as part of the plan termination. Does she have a claim against the employer for negligence - she received a mea culpa email apologizing for being wrong in her advice about her employment decisions - this is where the ERISA sole source of claims rule destroys an employee who makes a career decision based on incorrect advice about a benefit plan

Issue 4: Can she simply go back to work for Plan X sponsor and age into the benefit and then make the claim? How does the plan termination effect that?

Thanks- this is very complex and there are lots of moving parts of the analysis - and I'd appreciate anyone's thoughts on the matter - this client clearly got screwed by her former employer-0 and they are apparently including provisions that are not in the plan or SPD to limit the payment of an aged-in early retirement subsidy - Rev Rulings and other sources are all 25 years and probably a dozen changes in the law later - thus my reach out to current practitioners . . .

[david rigby]

Bummer. I'll try.

1. "Age into early retirement eligibilty" is included in ERISA, so that's no problem. However, the ERF provided to VTs need not be as generous as provided to active EEs. IMHO, it's inconceivable that the sponsor wanted to give the Rule of 85 subsidy to a VT. Why give a reward to those who left?

2. The poor documentation might be a problem, but that's why the sponsor will hire an experienced ERISA attorney.

3. If the question was, "can I age into ER?", then the Yes response was correct. If the question was, "can I age into the Rule of 85 subsidy?", then the Yes response is probably incorrect. But, very important to know the exact question, and exact response. See (2).

4. That might work as a method to capture an ER subsidy. Plan freeze is not likely to alter the ER subsidy, but a plan termination might be another matter. See (2).

Very possible that this will never have a clear resolution, and the parties may need to search for compromise. See (2).

Just some thoughts.

[Guest erisajd]

Bummer. I'll try.

1. "Age into early retirement eligibilty" is included in ERISA, so that's no problem. However, the ERF provided to VTs need not be as generous as provided to active EEs. IMHO, it's inconceivable that the sponsor wanted to give the Rule of 85 subsidy to a VT. Why give a reward to those who left?

2. The poor documentation might be a problem, but that's why the sponsor will hire an experienced ERISA attorney.

3. If the question was, "can I age into ER?", then the Yes response was correct. If the question was, "can I age into the Rule of 85 subsidy?", then the Yes response is probably incorrect. But, very important to know the exact question, and exact response. See (2).

4. That might work as a method to capture an ER subsidy. Plan freeze is not likely to alter the ER subsidy, but a plan termination might be another matter. See (2).

Very possible that this will never have a clear resolution, and the parties may need to search for compromise. See (2).

Just some thoughts.

I'd love to reach a compromise but I"m not sure what it would be - short of the employer paying the participant outside the benefit plan for hte bad advice - but that's not anywhere close to the same thing since a lump-sum can be tax-deferred to age 70 whilst a payout would be immediately taxable . . . but that would be a reasonable compromise -

I think the whole - this is what the plan says - intent is singularly irrelevant unless they have seen this situation before and treated it the same way - but thats not what the story is - but a story and what happened are usually 2 different things -

[david rigby]

Another thought: I suggest caution in how you use the word "terminated".

- In original post, you say "terminated further accruals". A more useful word for this is "freeze".

- Then you say "supposedly will be terminated". This implies a (future) plan termination, which is significantly different than a freeze.

As long as the plan continues to exist, even if frozen, its ongoing administration continues, including putting people into retirement status as they reach that eligibilty. This may be important to the EE in question because it illustrates why "aging into" early retirement eligibility is just part of the day-to-day plan administration.

In your #3, whatever is "in writing" should be considered in context of the actual plan document provisions. If the document is silent, there may be outside administrative practice (preferably as written procedures) or precedent to act as guidance.

Just my opinion, while there may be a legitimate complaint about incorrect comments from HR, this does not necessarily alter what the plan provides. (Recent case from the Supremes.)