Compliance

Plan Definition of NRA Did Not Lead to Backloading

By Rebecca Moore editors@plansponsor.com | August 27, 2012
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August 27, 2012 (PLANSPONSOR.com) - Bank of America did not employ a normal retirement age (NRA) for its cash balance plan, creating a violation of the Employee Retirement Income Security Act’s (ERISA's) anti-backloading provision.

According to the opinion by the 4th U.S. Circuit Court of Appeals, the plan calculated NRA as “the first day of the calendar month following the earlier of (i) the date the participant attains age sixty-five (65) or (ii) the date the participant completes sixty (60) months of vesting service.” The appellate court agreed with a North Carolina district court’s decision that a cash balance plan that defined normal retirement age by years of vesting service was allowed to do so and thus did not owe participants who had reached this retirement “age” a distribution using a “whipsaw” calculation (see “Court Moves Forward Claim BoA Cut Back Separate Account Benefits”).  

The lower court also rejected arguments that the plan erroneously calculated distributions by failing to include a participant’s right to interest credits that could have been earned until age 65, and “the value of [a participant’s] right to leave his account balance in the plan even after attaining normal retirement age and continue to receive investment credits indefinitely.” The court found a participant’s lump sum distribution need only include pre-normal retirement age interest credits and a participant’s option to keep his money in a cash balance account beyond retirement is not a “benefit” that must be actuarially accounted for when calculating a lump sum benefit.   

In their appeal, the plaintiffs conceded that Bank of America used a lawful definition of NRA, but still argued that the NRA violated ERISA’s anti-backloading provisions. The appellate court said the chief failing of the plaintiffs’ claim is that ERISA’s backloading rules do not apply once a plan participant reaches NRA.