According to a BNA news report, the complaint alleges the company calculated the retirees’ lump-sum distributions as being equal to the then-current cash balance amount held in the retirees’ accounts, instead of using the two-step whipsaw calculation that was required of cash balance plans prior to the passage of the Pension Protection Act in 2006.
To comply with ERISA, the lump-sum payments must be the actuarial equivalent of the normal accrued pension benefit. The first step is to project forward to normal retirement age a participant’s hypothetical account balance using the rate at which future interest credits would have accrued if the participant had stayed in the plan until that time. Then the calculation discounts that amount back to its present value on the date of the actual lump-sum distribution
The Pension Protection Act (PPA) lifted the whipsaw calculation requirement from the cash balance plan distributions, but the change only applied after August 17, 2006.
The suit mimics a lawsuit, West v. AK Steel Corp. Retirement Accumulation Pension Plan , brought by former non-union employees in which the 6th U.S. Circuit ruled AK Steel had violated ERISA (see AK Steel Cash Balance Distributions Not Covered by PPA ). The U.S. Supreme Court let the decision against AK Steel stand when it turned down a request to review the $46-million award to former steel workers (see U.S. Supreme Court Turns Away AK Steel Review Request ).
“Despite the fact that the courts in West have mandated that the Defendants’ method of calculating lump sum benefits was unlawful, Defendants have refused to recalculate the lump sum payments of the Plaintiff and the putative class,” the new complaint said, according to BNA.
The new suit, filed on July 2, is Schmidt v. AK Steel Corp. Pensions Agreement Plan , S.D. Ohio, No. 1:09-cv-464 MRB.
« Asset Managers Exploring Leveraged Investing