Court Limits Remedy for Cash Balance Notice Violation

July 5, 2013 (PLANSPONSOR.com) – Participants in Solvay Chemicals’ pension plan were unable to prove its violation of notice requirements was an egregious act.

Therefore, the 10th U.S. Circuit Court of Appeals agreed with a district court ruling that the participants could not receive their lost early retirement benefits in whole as a remedy for the Employee Retirement Income Security Act (ERISA) Section 204(h) notice violation. The company’s change from a traditional defined benefit pension plan to a cash balance pension plan eliminated early retirement subsidies.

The 10th Circuit previously found Solvay did violate Section 204(h) and sent the case back to district court for findings about to what remedy the participants were entitled (see “Court Preserves Early Retirement Subsidy Notice Issue”). The appellate court noted that the district court’s discretion to award so much relief for a Section 204(h) notice violation is extremely limited: a district court may award “the benefits to which [the employees] would have been entitled” but only on a showing that the company’s notice failure was “egregious.”

A company’s failure may be said to be “egregious” if the failure was “within [its] control” and was “intentional.” And, a company’s failure may be deemed “egregious” if the failure was “within [its] control” and the company failed “to promptly provide the required notice or information after [it] discover[ed] an unintentional failure to meet the requirements of” Section 204(h), the court opinion said.

The appellate court agreed with the district court finding that the company wanted to make all the disclosures the law required, that the company's omission was accidental, no more than an oversight in the process of drafting a complex statutorily mandated notice. "The district court's choice wasn't just rational and affirmable: if anything, it was consistent with the greater weight of the evidence presented," the opinion said.

The participants argue they can show the company engaged in "egregious" misconduct because it knew of the defect in its Section 204(h) notice long ago and failed to correct it promptly, but the district court found Solvay didn't discover its failure until after this litigation began. "And nothing suggests that finding was clearly erroneous," the opinion said. "To the contrary, considerable evidence in the record suggests that no earlier employee complaint or inquiry alerted the company to the Section 204(h) notice's deficiency."

Finally, the court concluded the participants cannot obtain an estoppel remedy, because the district court found Solvay's deficiency did not influence the participants' conduct because they already knew they were losing benefits under the new plan, and the employees do not challenge that finding on appeal.

The 10th Circuit's opinion is here.

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