August 12, 2011 (PLANSPONSOR.com) – A federal appellate court has upheld a ruling that the cash balance plan offered by El Paso Corporation does not violate the Employee Retirement Income Security Act (ERISA) or the Age Discrimination in Employment Act (ADEA).
A group of participants contended that the wear-away periods that occurred during the transition from a defined benefit pension plan to the cash balance plan violated the ADEA’s prohibition on age discrimination and the anti-backloading and notice provisions of ERISA, but the 10th U.S. Circuit Court of Appeals found El Paso’s transition favored, rather than discriminated against, older employees; and the plan was frontloaded, rather than backloaded. The court also held that ERISA does not require notification of wear-away periods so long as employees are informed and forewarned of plan changes, and El Paso provided sufficient notice and warning.
The appellate court agreed with a lower court that the participants did not show that the plan cut off or reduced the rate of an employee's benefit accrual because of age (see Court Dismisses Cash Balance ADEA Charges).
The participants sued the company and alleged the ADEA violation because El Paso set the initial cash balance accounts for older employees who had been with the company longer at lower levels than the value of their accumulated annuities under the old plan. A district court granted El Paso’s motion to dismiss the suit.
Although the lower court determined that participants’ claims should not go forward, the judge said “I cannot conclude that Plaintiffs' assertions were so lacking in merit that they should bear the implicit sanction of an attorneys' fee award for the Defendants.” (see Court Won’t Hit Participants for ERISA Lawyers’ Fees) The 10th Circuit opinion is here.