interim valuation used to measure distribution amount

[mariemonroe]

I have a client who requested a distribution due to severance from employment. She received paperwork earlier this year stating she is entitled to $X as a distribution. She turned her paperwork in in early March. The Plan administrator is now telling her they are going to do an interim valuation on 3/31 to value her account and she will get whatever she is entitled to after that date.

The Plan includes the following language:

It is contemplated that the Trust Fund will be valued by the Trustee and
allocations made only on a Valuation Date. At any time that the Plan's valuations are not performed on a
daily basis, should it be necessary to make distributions under the provisions hereof and the Plan
Administrator in good faith determines that, because of (a) an extraordinary change in general economic
conditions, (b) the occurrence of some casualty materially affecting the value of the Trust Fund or a
substantial part thereof, or (c) a significant fluctuation in the value of the Trust Fund has occurred since the
immediately preceding Valuation Date, the Plan Administrator may, in his sole discretion, exercised in a
nondiscriminatory manner, prevent the payee from receiving a substantially greater or lesser amount than
what he would be entitled to, based on current values, and cause a re-valuation of the Trust Fund to be
made and a reallocation of the interests therein as of the date the payee's right of distribution becomes
fixed. The Plan Administrator's determination to make such special valuation and the valuation of the Trust
Fund as determined by the Trustee shall be conclusive and binding on all persons ever interested
hereunder. Such interim valuation shall not discriminate in favor of Highly Compensated Employees.

Is anyone aware of any case law or statute/regulation that interprets the language in bold? I am trying to determine when my client's right to a distribution became fixed. 

[Larry Starr]

3 hours ago, mariemonroe said:

I have a client who requested a distribution due to severance from employment. She received paperwork earlier this year stating she is entitled to $X as a distribution. She turned her paperwork in in early March. The Plan administrator is now telling her they are going to do an interim valuation on 3/31 to value her account and she will get whatever she is entitled to after that date.

The Plan includes the following language:

It is contemplated that the Trust Fund will be valued by the Trustee and
allocations made only on a Valuation Date. At any time that the Plan's valuations are not performed on a
daily basis, should it be necessary to make distributions under the provisions hereof and the Plan
Administrator in good faith determines that, because of (a) an extraordinary change in general economic
conditions, (b) the occurrence of some casualty materially affecting the value of the Trust Fund or a
substantial part thereof, or (c) a significant fluctuation in the value of the Trust Fund has occurred since the
immediately preceding Valuation Date, the Plan Administrator may, in his sole discretion, exercised in a
nondiscriminatory manner, prevent the payee from receiving a substantially greater or lesser amount than
what he would be entitled to, based on current values, and cause a re-valuation of the Trust Fund to be
made and a reallocation of the interests therein as of the date the payee's right of distribution becomes
fixed. The Plan Administrator's determination to make such special valuation and the valuation of the Trust
Fund as determined by the Trustee shall be conclusive and binding on all persons ever interested
hereunder. Such interim valuation shall not discriminate in favor of Highly Compensated Employees.

Is anyone aware of any case law or statute/regulation that interprets the language in bold? I am trying to determine when my client's right to a distribution became fixed. 

It will become fixed when the PA says it is fixed, which will be the date of the interim valuation.  No other reading makes sense.  You cannot win this fight, and it will cost the client a fortune to fight it in court and then lose.

[baneja]

No comprendo.  Why is ... 'as of the date the payee's right of distribution becomes
fixed' ...  not a part of the equation?  I am not questioning Larry.  Just trying to understand.

[Bob the Swimmer]

It would be helpful also if the writer included the definition of Valuation Date from the plan document or AA.

[Larry Starr]

On 3/27/2020 at 5:36 PM, baneja said:

No comprendo.  Why is ... 'as of the date the payee's right of distribution becomes
fixed' ...  not a part of the equation?  I am not questioning Larry.  Just trying to understand.

I would suggest the language is somewhat confusing, but reading it in context with everything that goes before it about not overpaying or underpaying lead to no other conclusion.  My plan language is basically the same, but without that stupid clause which will only raise issues.  Again, remember, this would have to go to court and the courts give all the leeway in the world to the plan administrator's interpretation and is loathe to step in and apply its own interpretation unless the PA interpretation is so far out of reality that they can safely do so. Lots of ERISA cases to this effect. And I would simply say (again) that the payee's right of distribution is only a RIGHT when the  PA determines that the value is correct via an interim val, if so determined.

[Larry Starr]

On 3/27/2020 at 6:42 PM, Bob the Swimmer said:

It would be helpful also if the writer included the definition of Valuation Date from the plan document or AA.

Valuation Date, as a defined term, is almost definitely the last day of the plan year. But it doesn't matter because the language included above clearly provides for additional valuations that would supercede the defined Val Date.

[Luke Bailey]

I'm pretty confident you will find no statute or regulation on point, but I have a clear recollection that after the 1987 crash there was a handful of cases, say in the 1989-92 period, maybe some in 9th Circuit, that upheld retroactive valuations in non-daily valed, balance forward plans (which were probably in the majority then). I seem to recall that even amending a plan to add language like that which you are quoting, mariemonroe, after the crash, was upheld. As Larry indicated, courts found the plan's case is sympathetic. I don't recall similar cases after 2008, but that may be because most plans were daily valed by then and also the prior precedent on balance forward was settled.