January 2, 2014
- Second Circuit Court Rules Against Pension Plan Sponsor in Case Addressing Offset Provisions
- PBGC Establishes October 15 as New Flat-Rate Premium Payment Deadline
Second Circuit Court Rules Against Pension Plan Sponsor in Case Addressing Offset Provisions
The U.S. Court of Appeals for the Second Circuit handed down a ruling on December 23 in the latest iteration of Conkright v. Frommert, finding against Xerox Corporation’s pension plan and the plan administrator’s interpretation of the plan’s terms. The Council, along with the Business Roundtable, the U.S. Chamber of Commerce and the ERISA Industry Committee, had filed an amicus (“friend of the court”) brief with the Second Circuit in July 2012, supporting the arguments of the plan sponsor, particularly with regard to deference to a plan administrator’s reasonable interpretation of plan provisions and the U.S. Department of Labor’s argument that the “plan participants’ reasonable expectations” should be considered when evaluating a plan administrator’s construction of plan provisions.
The case specifically involves interpretation of the retirement plan’s offset provisions, which take into account prior distributions from the pension plan (for rehired participants). The plan originally calculated the offset by reference to what the participant’s lump-sum distribution would have grown to had it remained in the plan. The Second Circuit Court originally struck down this method in 2008 on the grounds it was inadequately disclosed to participants in the summary plan description (SPD). The plan administrator then interpreted remaining plan terms to require an offset by the actuarial equivalent (taking into account the time value of money) of the participant’s lump-sum distribution.
The district court rejected the Second Circuit’s initial interpretation and held that the plan may offset only the nominal amount of the original distribution. The Second Circuit affirmed the district court decision but this decision was then vacated by the U.S. Supreme Court decision in 2010. (The decision favorably referred to the Council’s earlier amicus brief with the U.S. Supreme Court filed in September 2009, with the ERISA Industry Committee, which supported the plan administrator’s interpretation.) The case was returned to the lower court, who ruled against the plaintiffs, who then appealed again to the Second Circuit.
In its December 23 decision, the Second Circuit rejected many of the arguments made by the plan and the Council, finding that:
- The plan’s annuity formula was unreasonable;
- Even if the annuity offset calculation had been reasonable, the plan had not given adequate notice to participants;
- The plan was covered by the “blanket rule” that an SPD must describe the method of calculating an actuarial reduction or provide clarifying examples; and
- Requiring detailed calculations or examples would not make SPDs “so lengthy as to be unusable,” as was argued by the plan (and the Council’s amicus brief).
The case will now be remanded back to the U.S. District Court for the Western District of New York, which has consistently found in favor of the plan. For more information on this issue or the Council’s amicus brief program, contact Jan Jacobson, senior counsel, retirement policy, or Lynn Dudley, senior vice president, retirement and international benefits policy. Both can be reached at (202) 289-6700.
PBGC Establishes October 15 as New Flat-Rate Premium Payment Deadline
The Pension Benefit Guaranty Corporation (PBGC) has issued final regulations setting October 15 as the annual due date for all payers of defined benefit plan flat-rate premiums. This is the same date as the variable-rate premium due date for such plans. Previously, premium due dates depended on the size of the plan and the type of premium.
The rule was initially proposed in July 2013 as part of a regulatory package aimed at making premium payments less burdensome. The other elements of the proposed regulations – including changes to the variable-rate premium rules, coordinating the due date for terminating plans with the termination process, reducing the maximum penalty for delinquent filers that self-correct, clarifying the definition of “newly covered plan” and other simplification measures – will be addressed in a separate and future issuance. These changes are motivated in part by the White House’s Executive Order 13563, in which President Obama directed his administrative agencies to improve the regulatory review process.
As a reminder, the Council will host a Benefits Briefing webinar on Friday, January 10, at 2 p.m. Eastern Time, to discuss the recent legislative increase in premiums paid to PBGC, as well as policy issues surrounding pension plan “de-risking” activity. Click here to register.