DB Participants Not Entitled to Surplus Plan Assets

August 23, 2007 (PLANSPONSOR.com) - The 6th U.S. Circuit Court of Appeals ruled that Moore Wallace North Inc. never went through with its plan to terminate its defined benefit plan, so plan participants are not entitled to $200 million in surplus assets.

According to the opinion, the company decided in 2000 to switch to a defined contribution program and end the DB plan it started in 1947. However, Moore Wallace never distributed the DB plan assets, failing to take the final step to terminate the plan, wrote Circuit Judge Jeffrey Sutton.

Sutton said further that Moore Wallace never had finally terminated the plan under any conventional meaning of the term “terminate” because 30% of the plan’s participants were still receiving benefits. “Because Moore Wallace failed to complete all of the steps that ERISA requires for plan termination, that eliminates as a matter of law any possible claim plaintiffs might have stemming from a termination,” he wrote.

The 1947 defined benefit plan said that in case of plan termination, surplus assets would be distributed to participants on a pro rata basis. However, in 1972 the plan was amended and said that all surplus would go to Moore Wallace if the plan was terminated, according to the court.

This meant that when the plan was converted to a cash balance arrangement in 1997, some employees were grandfathered under the 1947 plan. These participants could continue accruing benefits under the 1947 plan’s DB framework, or they could freeze the benefits they already accrued under that framework and accrue future benefits under the amended plan’s cash balance scheme, according to the opinion.

In December 2000, Moore Wallace said it would terminate the cash balance plan. After it said it planned to terminate the plan, the company asked the Internal Revenue Service for a tax determination as to whether the plan was an Employee Retirement Income Security Act-qualified plan. It got no response from the tax agency, so the company decided in 2004 not to terminate.

On December 22, 2004, the former and current plan participants filed a lawsuit in the U.S. District Court for the Northern District of Ohio against Moore Wallace, R.R. Donnelley & Sons Company and the Retirement Income Plan of Moore North America, Inc., seeking a declaration that Moore Wallace’s actions terminated the pension plan, entitling them to the surplus assets of roughly $200 million..

They also requested a declaration that they, not the company, were “entitled to all residual assets remaining in the Plan fund following the termination.” The plaintiffs also sought to enjoin Moore Wallace from “taking any actions” that would rescind the plan’s termination or would liquidate the pension plan trust, insisting that the company had “created a wasting trust,” thus rendering “termination or discontinuance of the Plan … irrevocable.”

The full decision in Jensen v. Moore Wallace North America Inc., 6th Cir., No. 06-4388, unpublished 8/21/07 is here .