Interest on retroactive payments?

[AndyH]

Situation: DB Participant is awarded retroactive monthly payments going back 6 years.

Court found that certain service should have been credited. Sponsor decided to drop appeal proceedings.

Should, or can the sponsor pay back benefits with interest? Document says nothing about such a situation. Court did not address interest on back payments; simply addressed service crediting.

Anybody run across a claim for interest on back payments?

[david rigby]

It happens all the time. My experience is that this ususally falls into the area of "administrative practices." I suggest looking for precedent(s).

Another perspective could be to review the reason that retroactive payments are required. For example, if the delay is due to the ER being slow about processing the paperwork, then the procedure might state that interest will be paid. But if the delay is because the retiring employee simply did not return the paperwork (J&S election, etc.), then the procedure might state that interest will not be paid. Of course, it is possible that both of the above situations apply to some degree. For the specific situation you describe, you may have to include other factors to decide if interest is appropriate.

One suggestion: if you pay interest, it is much hassle to use a variable interest rate. I suggest just picking a rate and sticking with it, such as 7%.

[KJohnson]

In benefits litigation courts often award pre-judgment interest. Sometimes, however, the plan "gives in" during the administrative appeal process or the court does not address the interest isssue. Then the question becomes whether the participant would have a cause of action for interest alone.

The "interest only" claim by a participatnt was one that kicked around the courts for a while. Plans argued that participants had no cause of action under 502(a)(1)(B) because the participant was not seeking "benefits" under a plan. And, if interest was not in the plan, an award of interest would be "extra contractual" damages which are not available under ERISA.

I think Courts have gotten around this defense by using the "other equitable relief" provisions of 502(a)(3). My recollection was that there is a 3rd Circuit decision that came out in 1997 or 1998 that said there was a 502(a)(3) cause of action for interest alone. It involved the Mine Workers Funds and I believe that the Plaintiff was named Fotta. I think at least one other Circuit has also found that participants can bring "interest only" claims under 502(a)(3).

Because this is "equitable" relief, I believe courts would look to the reasons why there was a delay in payment. If the participant is somehow "at fault" for the delay, the Plan would still have defenses.

I guess this is a long way of saying that I think a participant has a very valid claim for interest and that a Plan could recognize such a claim even if interest is not in the Plan document.

[AndyH]

Thank you both for the feedback. Very helpful. I can't comment further until the case is resolved.

[Gary]

I have had several situations occur where a retiree was awarded interest on corrected back payments. I have seen the actuarial equiv. interest rate used. For lump sum distributions I have seen the lump sum rate used and I have seen the use of some chosen short term rate such as a one year treasury. It seems to vary based on what is agreed and that I don't know of any objective and consistent approach. I just see what the Plan decides on and if necessary then make a suggestion. Good luck Curious to hear what you find out.

[AndyH]

Just some feedback. We decided to recommend that any interest paid in excess of the actuarial equivalent rate be paid outside of the plan.

We're uncomfortable with the lack of authority in the document to do anything else.

We left it to the lawyers to argue what, if any, interest should be paid.

To answer a prior question, this case had nothing to do with slow processing or omission. It had to do with interpretation of plan provisions, the details of which I still cannot elaborate upon.

Thanks for the comments.