Administrative Remedies Need not be Exhausted in Cash
Balance Case
October 23, 2009 (PLANSPONSOR.com) - The U.S.
District Court for the Eastern District of Kentucky has
declined to dismiss a case against BP Corporation North
America over calculations used in its cash balance plan,
saying the plaintiff was not required to exhaust his
administrative remedies under the plan.
The court found that Robert French's complaint
challenges the overall legality of BP's plan
methodology, so administrative exhaustion would be futile
and is not required. The court said a 6
th
U.S. Circuit Court of Appeals opinion makes clear that when
a plaintiff's "suit [i]s directed to the legality
of [a plan], not mere interpretation of it[,] exhaustion of
the plan's administrative remedies would be
futile."
In his opinion, U.S. District Judge David L. Bunning
said exclusive reference to plan language is insufficient
to evaluate whether the overall methodology of the
plan's conversion divests participants of already
earned benefits; however, consideration of plan terms is an
inevitability for purposes of determining whether the
Employee Retirement Income Security Act's (ERISA)
mandate to preserve already earned benefits has been
violated. "That said, cursory consideration of plan
language does not require the Court to treat the case as
one solely involving plan interpretation such that
administrative exhaustion is required," Bunning
wrote.
In January of 1989, BP converted its traditional defined
benefit plan to a cash balance plan. French alleges that
during and after the cash balance conversion, the BP Plan
unlawfully reduced previously accrued participant
benefits.
First, he claims that in establishing the opening
accounts the BP Plan used an interest rate of 8% to
determine the present value of the benefits that accrued
under the BP Plan and any predecessor plan, but the maximum
rate the BP Plan could have used under ERISA and the IRC
was less than 8%. In addition, French claims that he and
other participants of the traditional DB plan were
transferred into the BP Master Hourly Plan for Represented
Employees and accrued benefits in that plan, but when BP
established their opening accounts balances for the cash
balance plan, it used their accrued benefit from the
traditional DB plan as of January 1, 1989, causing them to
forfeit their accruals earned under the hourly plan.
The case is
French v. BP Corp. North America Inc.,
E.D. Ky., No. 08-216-DLB, 10/15/09.
Rebecca Moore
editors@plansponsor.com