District Court Issues Order on Cash Balance Suit Damages

December 31, 2010 (PLANSPONSOR.com) – A federal judge has issued an order involving damages in a cash balance lawsuit – and it could be bigger than anticipated.


In a press release, Alliant Energy Corporation noted that on December 29, 2010, Judge Barbara Crabb of the United States District Court for the Western District of Wisconsin issued an order concerning damages in a class action lawsuit against the Alliant Energy Cash Balance Pension Plan.  Earlier this year, Judge Crabb found liability in favor of the plaintiffs (see Alliant Tagged for Pre PPA Whipsaw Calculation).

Alliant said that it was “…studying the order and its impact on a parallel IRS proceeding,” going on to note that “the Plan preliminarily believes that the order may lead to total pre-tax damages in the $20 million to $23 million range, which does not include any award for plaintiff’s attorney’s fees or costs”.  The announcement acknowledges that the firm previously reserved $9 million in aggregate related to both the class action lawsuit and the IRS proceeding, and that Alliant “anticipates recording in the fourth quarter of 2010, the difference between the estimated damages (and appropriate plaintiff’s attorney’s fees or costs) and the amount previously reserved”. 

Alliant Energy Corp. converted its traditional defined benefit plan to a cash balance plan in 1998. Under the plan, participants accrued a “benefit credit” equal to 5% of their salary, together with the right to an interest credit that is equal to the greater of 4% or 75% of the rate of return generated by the plan for the calendar year.  Crabb found that from 1998 to 2006, Alliant’s method of calculating lump-sum distributions violated ERISA because the interest rates used by Alliant did not result in a whipsaw calculation as required by ERISA at that time. The 30-year Treasury bond rate did not fairly represent the interest rates promised in the plan, the judge said. 

In the new announcement, Madison, Wisconsin-based Alliant noted that the December 29, 2010 order is not yet final and “the Plan believes there will be future proceedings that may impact this range”.  It also notes that the plan is evaluating potential next steps with respect to the order, including whether to pursue any appropriate appeals”.