In one decision, U.S. District Judge J. Phil
Gilbert of the U.S. District Court for the Southern
District of Illinois ruled that Monsanto had not violated
the Employee Retirement Income Security Act (ERISA) by
directing that cash balance plan "interest
credits" stop at age 55. The company did not violate
ERISA anti-discrimination provisions because the credits
were actually a reversal of a discount taken when the
plan was originally converted from a traditional defined
benefit plan to a cash balance plan, Gilbert
asserted.
Not only that, Gilbert claimed, the interest
credits were not "benefit accruals" because
even though Monsanto imputed them to participants'
"prior plan accounts," the interest credits did
not increase the value of participants' age-65
retirement benefit that accrued prior to the plan
conversion.
An Interest-Rate Dispute
Later the same day, Gilbert put out a second
ruling, turning aside the employer's request to
dismiss claims that it violated the plan terms by
refusing to use the plan's 8.5% interest rate on
delayed lump-sum distributions. Gilbert turned down
Monsanto's argument that the interest rate was
intended to apply only to situations where participants
voluntarily put off their distributions, rather than to
situations in which the delayed distribution was caused
by administrative processing issues.
The court said the plan clearly mandated that the
interest rate for payments delayed by administrative
processing must be the same as the rate used for
voluntary deferrals of benefits.
Cash Balance Determinations
According to the rulings, Monsanto converted its
traditional defined benefit plan into a cash balance
program as of January 1, 1997.
In calculating the prior plan accounts, Monsanto at
the time of the plan conversion determined the value of
the monthly annuity to which the employee would have been
entitled under the traditional defined benefit plan at
age 65. It based that on an employee's then-current
salary and/or years of service by multiplying that number
by 125 to get a lump-sum value for the employee's
accrued benefit at the time of the conversion, the court
explained.
Monsanto then reduced the lump-sum by 8.5% per year
to its value at the age of the employee at the time of
the conversion to arrive at the employee's opening
prior plan account balance.
Gilbert said Monsanto treated all participants as
if they would be entitled to a fully subsidized early
retirement benefit at age 55 and a discounted early
retirement benefit before age 55. The court explained
that the result of this treatment was that each
participant's lump-sum accrued benefit under the
traditional plan was reduced 8.5% per year for each year
the employee was less than 55 years old.
The court further explained that the prior plan
account balance would grow by 8.5% annually through
"interest credits" so that by the time the participant
reached age 55, the account balance would be equal to the
nondiscounted lump-sum value of the employee's
accrued benefit under the prior plan at the time of the
conversion.
The case is
Walker v. Monsanto Co. Pension
Plan,
S.D. Ill., No. 3:04-cv-436-JPG-PMF, 6/11/09.