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5500 Preparer's Manual for 2012 Plan Years
The premier resource in the field of Form 5500 preparation, 5500 Preparer's Manual will help you handle the required annual Form 5500 filings for both pension benefits and welfare benefit plans.
When fashioning a remedy for cash balance plan participants injured by the plan's pre-PPA impermissible use of a "whipsaw" calculation that denied participants the addition of future interest credits to their early lump-sum distributions, a district court was not required to defer to the plan's proposed method for recalculating lump-sum distributions, the U.S. Court of Appeals in Chicago (CA-7) has ruled. The court also determined that the six-year statute of limitations applicable to the case began to accrue when the participants received their lump-sum distributions.
Unlawful calculations
Early in the course of a suit filed in November 2007 by recipients of lump-sum distributions from the plan, the plan conceded the unlawfulness of its "whipsaw" method for calculating the lump-sum distributions. However, it continued to argue that (1) the participants' suit was time-barred and (2) in the event the plan lost the limitations argument, the district court should defer to the plan's proposed method for recalculating the lump-sum amounts.
Regarding the limitations issue, the district court held that for each participant, the cause of action accrued when the lump-sum distribution was received. Thus, applying the Wisconsin six-year limitation period for contract disputes, the district court determined that participants who received distributions after November 2001 were timely with their suit; participants with earlier distributions were not.
Regarding the new calculation method, the court adopted a modified version of one of the calculation methods proposed by the plan. In so doing, the district court stated that it was compelled to defer to the plan's recalculation method under the Supreme Court's 2010 ruling in Conkright v. Frommer. Both sides appealed.
Statute of limitations
The appellate court agreed with the district court's finding that the cause of action accrued when the distributions were received. It rejected the plan's assertion that statements in SPDs and other communication materials distributed in 1998 and 1999 gave the participants enough notice of the problem with the plan to start the limitations period. These statements were only a "collection of hints" and did not provide the repudiation of benefit rights necessary.
Recalculation method
The appellate rejected the lower court's conclusion that Conkright required it to defer to the plan's proposed recalculation method. In Conkright, the Supreme Court held that a plan interpretation by an administrator with discretionary authority to interpret the plan should be accorded deference, even though the administrator's prior related interpretation was determined to be invalid. In this case, however, the issue is not plan interpretation, because the original, unlawful calculation was essentially codified in the plan. Plan administrators exercised no interpretive discretion over the original interest rate calculation. As such, the court explained, the Conkright holding doesn't apply.
On remand, the court ordered the lower court to select a recalculation method without deferring to the plan's suggestions.
Source: Thompson v. Retirement Plan for Employees of S.C. Johnson & Son, Inc. (CA-7).
For more information, visit http://www.wolterskluwerlb.com/rbcs.
For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.
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