In a cautionary tale about how plan documents can be written too carefully, the 7th Circuit this week, in Williams v. Rohm and Haas Pension Plan, __ F.3d __ (S.D. Indiana) (Aug. 14, 2007), affirmed both the district court’s decision to grant of class certification, and to grant summary judgment, to the participant.
The participant was fully vested in the plan sponsor’s defined benefit plan. The plan document defined a participant’s accrued benefit as:
“that portion of a Participant’s Basic Amount of Normal Retirement Pension, expressed in terms of a monthly single life annuity beginning at or after his Normal Retirement Date, that has accrued as of any determination date in accordance with Article VII.” Article VII provides a formula to calculate the “Normal Retirement Pension” as a function of the participant’s years of service and level of compensation. The accrued benefit, under the terms of the Plan, is thus the result of this formula, expressed in terms of a monthly single life annuity.
Along with the right to receive his distribution in the form of a monthly single life annuity, the plan document also provided the participant with the option to receive distribution of his accrued benefits in the form of a lump sum. If the participant selected a monthly single life annuity, the plan document provided the participant with a “supplemental benefit” of cost-of-living adjustments (COLAs). If the participant selected a lump sum, the plan document stated that the lump sum distribution was to be calculated without including the COLA supplemental benefit.
When the participant’s employment terminated after approximately 28 years, the participant elected to receive his accrued benefit in a lump sum. Following the terms of the plan document, the administrator did not include the COLA when calculating the amount of the lump sum. The participant challenged the amount of his lump sum distribution because it did not include the present value of the COLA he would have received had he chosen to receive his accrued benefit in monthly annuity payments.
Both the participant and the plan sponsor agreed that the plain terms of the plan document excluded the COLA from lump sum distributions. The Court stated that:
ERISA and the Internal Revenue Code prescribe that if a defined benefit pension plan allows for a lump sum distribution, then that distribution must equal the present value of the accrued benefit expressed in the form of a single-life annuity. 29 U.S.C. § 1054(c)(3); 26 U.S.C. § 411(c)(3); 26 C.F.R. § 1.417(e)-1(d).
The plan sponsor asked the court to interpret the term “accrued benefit” as the definition provided in the plan document, because the plan document defined accrued benefit so that it did not include the present value of the COLA in the amount of the lump sum. The plan document included the COLA as a “supplemental benefit”, which was essentially a bonus to any participant who elected to receive their distribution in the normal form benefit provided for in the plan document - the monthly annuity. The plan document was written so that participants who elected the optional form of distribution of a lump sum payment did not receive the “supplemental benefit” of the COLA.
The court stated that:
Accordingly, we stated that “[t]he term ‘accrued benefit’ has a statutory meaning, and the parties cannot change that meaning by simply labeling certain benefits as ‘accrued benefits’ and others, such as the COLA, as ‘supplementary benefits.’ ” Id. at 468. But this is precisely what
the Plan has attempted to do in this case. It seeks to disguise a penalty exacted against lump sum recipients as a bonus afforded to annuitants. In fact, it appears that the Plan attempted to write around ERISA’s limits by explicitly excluding the COLA from lump sum distributions
after learning of a district court case holding that a COLA is, per se, an accrued benefit under ERISA. See Laurenzano v. Blue Cross & Blue Shield of Mass., Inc. Ret. Income Trust, 134 F. Supp. 2d 189 (D. Mass. 2001).
The 7th Circuit concluded that:
If a defined benefit pension plan entitles an annuitant to a COLA, it must also provide the COLA’s actuarial equivalent to a participant who chooses instead to receive his pension in the form of a one-time lump sum distribution.
Of course, the opinion concludes with the court affirming the district court, which had granted summary judgment to the participant. The 7th Circuit also affirmed the district court’s certification of a class action in this case, which is the perfect place to end this cautionary tale. Because the court agreed with the participant that the plan, as written, violated ERISA in the way it calculated lump sum distributions, the plan document failure instantly creates a class action which includes all participants who had their benefits calculated this way.
Technorati Tags: Pension Protection Act, ppa, pension, retirement, defined benefit, accrued benefit, lump sum, class action, COLA, cost of living, ERISA
70 responses so far ↓
1 David Rumas // Aug 20, 2007 at 12:41 pm
I believe another issue, not addressed, is whether or not the COLA was ad-hoc or a fixed percentage stipulated in the plan and suspect, in this instance, it was the latter.
2 Michael C. Seidel // Sep 1, 2007 at 10:41 am
How to calculate the COLA payments for us lumpsum-ees?
I suggest annual payments as if we had gone the annuity way.
3 Bob Slowik // Sep 2, 2007 at 3:19 pm
Does this mean that all those who received lump sum benefits are due the value of the COLA payments? If so how are we to go about obtaining this additional benefit that we were denied.
4 Diana Wright // Sep 8, 2007 at 1:50 pm
I agree, this issue was overlooked. I’d join any litigation that results from this decision.
5 Frank J. Del Grosso // Sep 12, 2007 at 7:24 am
Please keep me posted on any pending legislation…Thanks!
6 Lyle C Clark // Sep 12, 2007 at 4:47 pm
Please keep me posted on any pending legislation too…Thanks!
7 Charlie Schorpp // Sep 12, 2007 at 4:50 pm
Very interesting. As a 1997 lump sum retiree, I want to keep abreast of developments and how I might be affected.
8 Joey Matthews // Sep 12, 2007 at 6:23 pm
I took a lump sum January 2001. Please keep me informed about this litigation and what is required of me.
9 W. J. Morell Jr. // Sep 14, 2007 at 11:26 am
As a 1992 lump sum retiree just wondering how this would affect me & all other lump sum retirees. I’d appreciate your efforts in keeping us posted?
10 JAN DELIA // Sep 17, 2007 at 4:54 pm
APPRECIATE ANY NEW DEVELOPMENTS ON THIS,,,,
JAN
11 Don Christensen // Sep 21, 2007 at 8:44 am
I reired in May98 and would like to kept informed
12 John P. Cosgrove // Sep 21, 2007 at 2:20 pm
As a 1995 lump sum retiree, I would like to be kept apprised of any further developments in this class action suit and how it affects me. Thank you.
13 Linda Burns // Sep 22, 2007 at 1:19 pm
The attorney for the suit is Douglas Sprong from Bellville Ill. I’ve talked to him. He was talking about coming her for a retiree meeting perhaps in November….thoughts?
14 Suzanne Wynn // Sep 22, 2007 at 4:24 pm
The retirees were represented by the law firm of Jenner & Block before the 7th Circuit. Jenner & Block has information posted on their website at http://www.jenner.com/news/news_item.asp?id=14244024. They have also posted a phone number and email address for a contact person at their lawfirm.
15 Michael Tomai // Sep 25, 2007 at 8:52 am
Retired in January 1993 and would like to be kept informed of developments.
16 Marvin D. Bell // Sep 28, 2007 at 3:04 pm
Retired December 1990. Would like to be kept informed.
17 James Osborn // Sep 30, 2007 at 3:05 pm
I too would like to be kept informed, thanks.
18 George Pizzullo // Oct 6, 2007 at 9:25 am
Please keep us informed, thank you.
19 Gene Niederriter // Oct 6, 2007 at 9:30 am
Please keep me posted, thank you.
20 Charles Pizagno // Oct 8, 2007 at 3:53 am
Please keep me informed on these developments. Thanks
21 Mike Jayjock // Oct 8, 2007 at 11:30 am
I took the Lump Sum in 2003 and would like to be posted on the next steps in this matter.
22 frederick w kornstedt sr. // Oct 10, 2007 at 7:08 am
retired 14 yrs ago could use this pay out for insurance purposes.i am in.
23 john j christian // Oct 12, 2007 at 8:35 am
As a 2000 lump sum recipient, I would like to know what
we have to do to to pursue this matter.
24 Eugene Cawley // Oct 12, 2007 at 7:14 pm
Please keep me in the loop!
25 Mark Lenhart // Oct 15, 2007 at 8:33 am
Retired in 1999 with lump sum. Please keep me advised. Thanks.
26 Craig Guthrie // Oct 15, 2007 at 2:32 pm
I retired in 2000 taking the lump sum. Please keep me informed. Thanks
27 john Hoffman // Oct 16, 2007 at 8:35 am
please keep me informed
28 Lou Spadaccino // Oct 16, 2007 at 7:26 pm
Please keep us informed. Thanks.
29 Ed Bartkus // Oct 18, 2007 at 5:31 pm
I retired in 1997 and would also like to be kept up to date. Thanks.
30 K D Wieliczko // Oct 22, 2007 at 9:53 am
I retired in 1999 and would like to be kept informed. Thanks.
31 Joe Reilly // Dec 22, 2007 at 12:59 am
I retired in 1997 from R&H and have soared ever after. The COLA issue is but one of the shortcommings that R&H has to address. One wonders what Otto Haas would think about how his company was being run today?
32 Stan Chmiel // Dec 22, 2007 at 1:38 pm
As a 2004 retiree who took the lump sum, I would like to be kept informed.
Thanks
33 John Tucker // Jan 2, 2008 at 5:47 pm
I retired in June of 1998. Please keep me informed. Thank you.
34 Ken Rozkuszka // Feb 12, 2008 at 1:09 pm
Retired from R&H in 1999 taking a lump-sum pension payout, and wish to kept informed on “what’s next” regards this matter.
Thanks!
35 Fred Kaiser // Mar 21, 2008 at 7:23 am
Retired from R&H in 2001 and took a lump-sum payout. What happens now?
36 Juan J. Hernandez // Mar 30, 2008 at 12:02 pm
I want to thank Gary Williams for originating this claim for all lump sum R&H retirees. I also took the lump sum in 2002. Keep us inform regarding this matter. Thanks again Gary.
37 Tom Shannon // Mar 30, 2008 at 1:59 pm
Anxious to join ‘whatever/whomever’ to receive earned benefits. We helped make the company strong and deserve not be excluded from COLA.
38 Ronnie Moore // Mar 31, 2008 at 11:16 pm
I am very interested in the outcome of this and where I might stand. I retired in 1999 and took the lump sum. I agree with Juan, thanks Gary.
39 Tim Kern // Apr 1, 2008 at 8:09 am
I am a 2001 lump sum retiree .
Keep us informed on any updates regarding this matter.
Thanks Gary.
40 Steve Burton // Apr 1, 2008 at 9:57 am
Thanks to Gary. As one of his past supervisors I can say that he was always a straight shooter with me. I too have retired from Rohm and Haas and am glad to see someone stand up for the retirees who helped make Rohm and Haas great. What about the Widows dn widowers of Rohm and Haas retirees. Keep me posted
41 Mike Witkowski // Apr 2, 2008 at 7:37 pm
I retired w/lump sum in 2001.
Please keep me in the loop.
Note to Tom Shannon, Jim Osborn, Mike Tomai, John Hoffman, Stan Chmiel, et al
–It’s good to know you’re all alive and kicking! Carol & I are busy counting grandkids.
42 Linda Byrd // Apr 3, 2008 at 2:28 pm
I retired in August 2003 and I took the lump sum. Please keep me informed of any developments on this matter.
43 Arnold Mueller // Apr 4, 2008 at 11:25 am
I retired in March 1997 w/lump sum. Please keep me in the loop.
Thanks to Gary and all involved.
44 Joseph R. Van Vactor // Apr 4, 2008 at 5:34 pm
Retired at the end of 2001, would like to be kept informed
45 Bob Lucas // Apr 5, 2008 at 10:44 pm
Please keep all the Louisville Plant retirees (lump sum group)in the loop. retired 11/99. after Arnie, but before “ole JoeVV”. Thanks…
46 Bill Ireland // Apr 15, 2008 at 4:08 pm
I retired in 1998 I also took the lump sum I worked with Gary also thanks to his awareness of this situation Please keeped me informed
47 Don Hamp // Apr 23, 2008 at 10:26 pm
I retired in 2006 with lump sum. I also would like to be kept informed. Thanks for posting this information
48 Michael Bonaroti // Apr 24, 2008 at 3:51 pm
I retired in 1995 with a lump sum, and would like to be informed of how to apply for this supplement.
49 Norm Bruce // Apr 26, 2008 at 10:05 am
I took lump sum in 1992 (Clock # 16518). Pls. inform me how to apply!
50 Gary Vermeulen // May 31, 2008 at 8:13 am
I retired from Rohm and Haas in September, 2006. I selected the lump sum distribution. I would like to be kept informed on all aspects of of this matter. Thank you. Special thanks to Gary Williams.
51 Frank D Reed // May 31, 2008 at 1:51 pm
Keep me informed
52 Paul J Snyder // Jun 4, 2008 at 2:30 pm
I retired in November 2006 and took the lump sum. Please keep me informed of the next steps. Thank you.
53 William T. White // Jun 4, 2008 at 7:41 pm
Keep me informed Please..Snyder, you owe me a hunting trip..
I took the lump sum in Dec. 2001
54 Tom Lynch // Jun 5, 2008 at 8:24 pm
Please keep me informed also.. Snyder and White, you both owe me . I’ll figure out why.
55 Fred Kaiser // Jun 9, 2008 at 4:15 pm
Please keep me informed Retired in 2001 with lump sum.
56 Bob Larkin // Jun 10, 2008 at 9:35 am
I retired at the end of 2003 and took the lump sum. Please keep me informed of the next steps to be taken. Thanks.
57 Carmen Valenti // Jun 21, 2008 at 11:58 pm
Need to be kept in the loop with any updates. Retired in 1994 , lump sum
58 Don Wintersteen // Jul 18, 2008 at 2:58 pm
Please keep me posted on what to do next. Retired 1995, lump sum. Thanks
59 Cherylann Klatt // Jul 22, 2008 at 4:00 pm
I took the lump sum in 2000. Please keep me informed.
60 William Jonessee, Jr. // Jul 22, 2008 at 4:36 pm
I retired in 1992. I would also like to be kept informed
61 Jeremy Ronan // Jul 22, 2008 at 4:39 pm
Add me to this esteemed list of retirees in the “need to know”. Every little bit helps.
62 Mike Moretti // Jul 22, 2008 at 6:34 pm
I retired from R&H in 2004. It would be great to know what is going to happen with the COLA.
63 Dave Dunkelberger // Jul 22, 2008 at 6:48 pm
On May 16th I called the law office in Chicago regarding the lawsuit concerning a cost of living adjustment for R&H retirees that took the lump sum payout. I spoke with Lee Ann at 314 241 4844 X4065. She told me that we will be notified by mail once the final details of the suit are worked out.
64 John Coleman // Jul 22, 2008 at 7:46 pm
I retired after 41 years of service. The COLA should be for everone.
65 Jim Boyle // Jul 23, 2008 at 10:48 am
Retired in 2001, please keep me updated.
66 William L. Wills // Jul 23, 2008 at 12:18 pm
Please keep me infomed.
67 Steve Masters // Jul 23, 2008 at 1:50 pm
Retired in 2003 - took lump sum - and would appreciate any and all updates
68 Lonnie Paschal // Jul 23, 2008 at 11:03 pm
I retired from R&H Deer Park Tx. plant in Dec. 31, 1996 and I took the lump sum payment. I would like to be kept informed in all matters of this issue. Thanks. A SPECIAL THANKS TO GARY WILLIAMS.
69 Charles Henderson // Jul 23, 2008 at 11:28 pm
I retired after 43 years in 2002. I took the lump sum because I was afraid that current management of R&H would put the company in barkruptcy. I would like to see where this law suit goes. I would appreciate all updates.
70 Robert W. Jans, Jr. // Jul 24, 2008 at 12:17 am
Retired 4/30/96 taking the lump sum option.
Would appreciate all updates regarding the status of the settlement.
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