Forfeiture reallocation

[Richard Anderson]

This New Comparability plan has three groups. The document says to reallocate forfeitures comp to comp, but is silent about which group or groups to allocate the forfeitures to. I think that forfeitures from group A should be allocated to group A only, otherwise I don't know any logical method to allocate between groups.

Can I allocate the forfeitures only to the group that originated the forfeitures, or must the document be amended to be more specific.

[Guest mo]

If I were given a plan like this to administer without any history, I would conclude that forfeitures are allocated strictly on the basis of compensation and without regard to group identification. The way you are proposing to do it, I could see where a non-recipient group member would have a basis for challenge, without refinement of the plan language.

[pjkoehler]

This exemplifies the classic "ambiguous plan term" issue. The drafter of the plan presumably didn't provide language that specifies the allocation in sufficient detail to inform the plan administrator how to reallocate forfeitures among the three groups. Although certainly not desirable, it's not uncommon for plan language to leave many technical/computational issues subject to the interpretation of the plan administrator. In Firestone Tire & Rubber Co. v. Bruch, 489 US 101 (1989) the Supreme Court held that federal courts would not second-guess a plan administrator's interpretation of an ambiguous plan term unless the plaintiff can show, not merely that the challenged plan term is susceptible of at least one alternative, equally reasonable interpretration, but that the plan administrator's interpretation had no rational basis. This, of course, is a very low standard of review and makes any challenge of the plan administrator's interpretation that you suggest far less likely to succeed. PLEASE NOTE: to benefit from the lower standard of review, the plan document in question must actually provide that the plan administrator has the authority to interpret the terms of the plan and that it's interpretations shall be final and binding (so-called "Firestone Language"). Also, keep in mind that plan terms can be inferred from the plan administrator's past pattern or practice. An administrator probably wouldn't have the leeway to interpret the plan in a manner that is inconsistent with a clearly established pattern or practice without a formal plan amendment.

[This message has been edited by PJK (edited 04-25-2000).]