Court Slashes Lawyers' Fees in Cash Balance Challenge

November 25, 2008 (PLANSPONSOR.com) - A federal judge in Texas has ruled that lawyers for a participant challenging his employer's cash balance plan deserve fees, but cut the attorneys' requested $3.6 million to $825,888.

U.S District JudgeMelinda Harmon of the U.S. District Court for the Southern District of Texas issued the decision in the cash balance plan challenge filed against United Way of the Texas Gulf Coast.

In reducing the lawyers’ fee request, Harmon found that the fees charged by three experienced partners, associates, and paralegals—$700, $350, and $200, respectively—were excessive compared to the prevailing rates in the same community for similarly-experienced attorneys and paralegals.

Harmon also ruled that billing judgment was not exercised, under which a certain amount of hours are written off as being unproductive, excessive, or redundant. The partners billed nearly 3,000 hours in the case, which the court said was excessive.

The Case

According to the opinion, United Way maintained the plan as a defined benefit plan until 1996 when it made the switch to a cash balance program; both plans gave qualified participants the option of electing an early retirement pension (ERP). The participant lawsuit alleged the plan sponsor miscalculated early retirement benefits when it made the plan design change.

The original version of the cash balance plan calculated the ERP as the sum of what participants would have been entitled to under the defined benefit plan plus what they were entitled to under the cash balance plan. The cash balance plan was amended in 1997 to call for the ERP to be calculated using the “greater of” the benefit under the two plans.

Harmon pointed out in the ruling that, despite this amendment, another section of the plan document still stated that qualified participants would be entitled to an ERP equal to the benefit from the defined benefit plan plus the pension earned under the cash balance plan. This “plus” language remained in effect until 2002, when United Way amended the plan again. The court said that United Way failed to provide beneficiaries with notice of the amendments.

United Way initially said that the “plus” methodology was the correct way to calculate participant Frederick Blackmer’s benefits, but Blackmer disputed United Way’s calculation. After Blackmer had exhausted his administrative remedies as to his ERP calculation, United Way argued that the “greater of” methodology was the correct way to calculate the ERP. The class action suit was filed by Blackmer’s beneficiary, Ann W. Humphrey, after Blackmer passed away.

The case is Humphrey v. United Way of the Texas Gulf Coast, S.D. Tex., No. H-05-758, 11/20/08.

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