Flight from Equities in Cash Balance Plan no ERISA
Miscue
October 7, 2009 (PLANSPONSOR.com) - An employer's
move to reduce its equity holdings and increase fixed income
investments in its cash balance pension plan did not
represent an illegal benefits reduction, a federal judge has
ruled.
U.S. District
Judge J.P. Stadtmeuller of the U.S. District Court
for the Eastern District of Wisconsin asserted that the
decision by S.C. Johnson & Sons did not violate the
anti-cutback rule in the Employee Retirement Income
Security Act (ERISA). Stadtmeuller said the
employer's pension plan changes did not result in a
"reduction of accrued benefits" that would
trigger the ERISA provision prohibiting sponsors from
changing their plan in a way that generates lesser
benefits for participants.
The court pointed out that the law could not tie
sponsors to a specific investment strategy to avoid an
anti-cutback rule violation because that would keep them
from being able to respond to changes in the economy and
the markets.
"These managers would be unable to exercise
their fiduciary duties and respond to changing market
conditions; conditions which may, at times, call for a
more conservative approach to the allocation of assets in
order to preserve the financial integrity of the
plan," the court contended.
The court said the plans' investment strategy
change was to reduce their investment in equities and
invest more in fixed income funds. "A particular
percentage of assets invested in equities versus fixed
income is not a protected benefit and a change to these
investment percentages does not support a §204(g)
[anti-cutback rule] claim," Stadtmeuller
wrote.
In addition, the court pointed out that Treasury
Regulation Section 1.411(d)-4 specifically states that
the right to a particular form of investment is not
subject to the protections of the anti-cutback
rule.
The participants' suit alleged the more
conservative investment approach resulted in lower rates
of return, which, in turn, lowered "interest
credits" deposited in their notional accounts. The
court said the claim was related to the performance of
the plans' trust investments, given that the plans
stated that participants' accounts would be credited
at a rate of either 4% or 75% "of the rate of
return" generated by the plans' trust.
The case is Thompson v. Retirement Plan for
Employees of S.C. Johnson & Sons Inc.,
E.D. Wis., No. 07-CV-1047.
Fred Schneyer
editors@plansponsor.com