BoA Suit Attacks Retirement Date Issue First

August 15, 2005 ( - A motion filed in the lawsuit concerning Bank of America's (BoA) Cash Balance Plan asks the judge to rule on the legality of the retirement age used in the plan, saying it is the "single-most important question" in the case.

The Charlotte Observer reports that the suit charges that the retirement date used in calculating benefits for the bank’s cash balance plan violates federal law and allows the bank to boost its profits by paying participants less in benefits. The plan uses a retirement date of five years of service at the bank instead of the usual retirement date of the date the employee attains age 65.

The bank believes the plaintiffs are trying to use this issue first to determine their course of action with other claims of the lawsuit, according to news reports.

The suit challenges the method of crediting of investment earnings to participant’s accounts in the plans (See Bank of America Slapped with Cash Balance Lawsuit ). Participants are given choices of hypothetical investment options in the plan and investment earnings credited to those investment options mirror the actual returns in the market for those funds.

According to the Charlotte Observer, the plaintiffs allege that BoA profits from this feature since they are better at investing than the typical employee and can pocket the difference between what they actually earn and what they credit to a participant’s account. They also say fees being charged on the hypothetical funds are improper.

Also at issue in the suit are voluntary transfers encouraged by the bank of $1.4 billion in 1998 and $1.3 billion in 2000 by employees from the 401(k) plan into the cash balance plan. The IRS is currently auditing company tax returns for these years (See IRS Auditing BoA on Cash Balance Plan Switch ) and has “tentatively concluded” the bank violated tax rules with the transfers, the Observer reports.