Court Reiterates Years of Service Is Not Valid NRA

August 12, 2013 ( – A district court has again decided “five years of service” is not a valid normal retirement age (NRA) to use for a cash balance plan.

In 2006, the U.S. District Court for the Southern District of New York found under rules of the Employee Retirement Income Security Act (ERISA), a plan’s definition of NRA must be an actual age (see “ERISA Requires Specific Retirement Age for Cash Balance Plans”).  However, case law and new guidance from regulators caused the issue to be brought up before the court again (see “New Retirement Age Rule Does Not Change Ruling on Plan’s Definition”).

The court cited Fry v. Exelon in which the U.S. District Court for the Northern District of Illinois determined 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. Fry involved a pension plan in which employees reached normal retirement age upon their fifth anniversary of commencing participation. When an employee joined that plan, she could know with certainty the date and age at which she would reach normal retirement age under the plan. Chief Judge Easterbrook concluded that this plan accorded with ERISA because “the Plan’s formula—the participant’s age when beginning work, plus five years—is an ‘age.’” Though it is employee specific, he admitted, “‘age + 5’ remains an age.” In support of this reasoning, he relied on the anniversary rule in the statutory default as proof that “ERISA does not require the ‘normal retirement age’ to be the same for every employee.”

In determining whether PricewaterhouseCoopers’ Retirement Benefit Accumulation Plan (RBAP) normal retirement age (NRA) defines an “age” as ERISA requires, however, the district court in New York found, unlike Fry, the RBAP NRA, which defines normal retirement age by reference to five “years of service.” ERISA defines a “year of service” as 1,000 hours of service. The court noted that “year of service” is not the same thing as an “anniversary.”

According to the court opinion, even accepting Fry’s holding that “‘age + 5’ remains an age” for purposes of ERISA, it does not follow that “age + five years of service” is an “age” of the sort that plans are given discretion to define under ERISA. While five years of service will presumably cluster around employees’ fifth anniversaries, that clustering will likely take the form of a wide probability, the court said, concluding that as a matter of plain text and ordinary language, the RBAP NRA is not an “age.”

In light of its conclusion, the court determined that by accepting lump-sum cash-outs when the RBAP illegally defined normal retirement age as five years of service, the plaintiffs unwittingly forfeited a portion of their accrued benefits—namely, the portion of those benefits attributable to future interest credits through an otherwise-valid normal retirement age.

The opinion in Laurent v. PricewaterhouseCoopers is here.