Calculation Method for Early Retirement Benefits not Required in SPD

March 30, 2007 ( - The 2nd U.S. Circuit Court of Appeals has ruled that the Employee Retirement Income Security Act (ERISA) does not require a Summary Plan Description (SPD) to include details of the method of actuarial reduction of benefits for participants who retire early.

In the appellate opinion written by Judge Timothy Stanceau of the U.S. Court of International Trade, an SPD need not “illustrate every method by which a plan benefit may be limited under an early payment option or similar such limitation.”

The appellate court ruling affirmed a district court’s decision to throw out the claim on the grounds that the Employee Retirement Income Security Act (ERISA) did not require SPD’s to include a detailed explanation of how early retirement benefit reductions would be calculated.

The panel also affirmed the lower court decision that the Dun & Bradstreet Corp. plan was not in violation of ERISA by using a 6.75% discount rate for calculating former employees’ early retirement benefits. According to the appeals court, benefit plans are allowed a certain degree of discretion in the discount rates they use, which is why ERISA does not specify a rate or range of discount rates that qualify as “reasonable actuarial reductions” for payment of early retirement benefits.

“A plan’s experience in the market, i.e., the actual rate of return on the plan’s investments, is relevant to determining whether an actuarial rate is reasonable,” the court said, rejecting the former employees’ claim that discount rates should be set by looking at employer contributions rather than investment returns.

When Dun & Bradstreet Corp. sold its receivable management services division in 2001, the employees of that division were no longer considered Dun & Bradstreet employees, and thus, their early retirement benefits were calculated using a different formula than that used for employees who retired early. Specifically, the Dun & Bradstreet plan said retired employees whose benefits had vested could begin to receive benefits as early as age 55, and would receive their normal benefit amount reduced by 3% per year – a reduction stated in the plan’s SPD. For those who were no longer considered Dun & Bradstreet employees, benefits would be reduced by 6.75% rather than 3% each year before age 65 – a difference not stated in the SPD.

A group of former employees who had left the receivable management services division prior to age 55 sued Dun & Bradstreet, claiming its plan violated ERISA because the 6.75% rate was unreasonable and not specifically spelled out in the SPD. The plaintiffs alleged the SPD was inadequate because it did not include a method of calculation for the former employees’ early retirement benefits, but only stated the benefits would be “actuarially reduced.”

The case is McCarthy v. Dun & Bradstreet Corp., 2d Cir., No. 05-3828-cv, 3/29/07.