Appellate Judges Affirm Years-of-Service Definition
for Retirement
July 10, 2009 (PLANSPONSOR.com) - An employer with a
legacy cash balance plan could define normal retirement age
as the completion of five years of service without running
afoul of federal benefits law, an appellate court has
ruled.
The
7th U.S. Circuit Court of Appeals
decision came in a challenge to Exelon Corp.'s cash
balance plan by Thomas Fry who questioned the plan's
normal retirement age definition after getting a lump sum
distribution when he left Exelon in 2003.
Fry contended in his lawsuit that the retirement age
definition was a way to get around performing a
whipsaw calculation when determining an employee's plan
balance for distribution, which Fry asserted violated
theEmployee Retirement Income Security Act
(ERISA).
Chief Circuit Judge Frank Easterbrook, writing for
the court, said employers had a good deal of leeway in
determining the definition of normal retirement age to be
used for their plan. The appellate panel upheld a trial
court's ruling in the case (see
New Retirement Age Rule Does not Change Ruling on Plan's
Definition
).
The lower court reviewed its decision when the IRS
in May 2007 issued regulations that a participant's
normal retirement age cannot be earlier than what is
typical for an industry.
But the decision may have a limited impact since the
Pension Protection Act (PPA) indicates that employers no
longer have to use
the
whipsaw approach for distributions starting August
17, 2006. After that point, the PPA indicates, terminating
employees' accrued account balances can be used as the
lump-sum benefit.
The 7th Circuit ruling is available
here
.
Fred Schneyer
editors@plansponsor.com