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February 18, 2008
New Cash Balance Plan Decision from District of Connecticut
Suzanne Wynn of the Pension Protection Act Blog brings to our attention the newest cash balance plan decision, this one from the District of Connecticut.
Suzanne calls this decision in Amara v. CIGNA compelling:
A partial decision is in from the U.S. District Court of Connecticut on Amara v. CIGNA Corp., No. 3:01CV2361 (D. Ct. Feb. 15, 2008), the class action case arising out of CIGNA’s conversion of their traditional defined benefit plan into a cash balance plan in 1998. In a 122-page opus on cash balance conversions, Judge Mark R. Kravitz weaves precedent and prose into a very well-written opinion which is both a fascinating and compelling discussion of these three issues:
1. whether CIGNA’s cash balance plan is age discriminatory or otherwise violates certain non-forfeiture and anti-backloading rules under ERISA;
2. whether CIGNA gave notices and other disclosures required by ERISA; and
3. whether the information CIGNA provided its employees about the conversion and the cash balance plan in summary plan descriptions and other materials satisfied ERISA requirements.
On these three questions, the Court concluded that CIGNA’s plan is not age discriminatory and does not violate the non-forfeiture and anti-backloading rules under ERISA, n effectuating the conversion to the cash balance plan, CIGNA did not give a key notice to employees that is required by ERISA (CIGNA failed to provide notice of a significant reduction in the rate of future benefit accrual under ERISA section 204(h)), and CIGNA’s summary plan descriptions and other materials were inadequate under ERISA and in some instances, downright misleading (for instance, CIGNA failed to adequately disclose material modifications to its pension plan and features that may result in reductions, losses, or forfeitures of benefits that a participant might otherwise reasonably expect to receive, in violation of ERISA section 102).
So this partial summary judgment seems to suggest that more and more courts are buying into the Easterbrook line of argument that cash balance plan conversions are generally not age discrimination. But the focus of the debate of such conversions may be moving toward notice and disclosure requirements and amendment of plan issues.
PS
February 18, 2008 in Pension and Benefits | Permalink
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Comments
Finally a court is getting 'it' correc! The Cigna Plan changes did not contain age discrimination. The technical changes were allowed by ERISA if they were done in the proper order with complete notification to all the plan members and covering the effects felt by all except in de minis amounts. What is quite clear in the judges’ wonderful ruling, CIGNA did not meet the all requirements of ERISA in implementing the changes. The incorrect and misleading statements were uncovered over the TEN years since the conversion. CERTAINLY, IF ALL THE EMPLOYERS ACTIONS ARE CONSIDERED, AGE DISCRIMNATION WAS PRESENT, not in the plan changes, but in the actions of those individuals misleading and outright lying as to the effect of the changes on the older workers.
Reading the decision was hard for someone like me because for 9 years I have gone through the same experience at another corporation. As Judge Kravitz implied, it is a sad time when the job Congress and other Government organizations have done is woefully in adequate to protect employees and regulate employers and direct proper plan administration. Equally sad is the fact that of the 1500 cash balance conversions over 10 years, only a handful have made it to court for a proper review. I can only hope that the remedies in this case will set a far reaching precedent for the 1000+ plans and thousands of participants that will never have their day in court or have Congress, IRS, DOL, and PBGC address the harm done to their retirement plans.
Remedies must eliminate the wear away caused by the 'GREATER OF' A and B plan amounts and replace this with 'A plus B' conversion method. I would not be surprised to see a complete return to the prior plan formula for all employees at least for the Plan year 1999 if not until Cigna implements the conversion properly now. Cigna said they couldn't calculate the effects of the conversion to know how many people would be effected adversely. I think they will be doing that sometime soon.
Posted by: Ken | Feb 19, 2008 9:56:00 AM
