Employer Cleared for 90-Day Distribution Notice

September 3, 2008 (PLANSPONSOR.com) - A federal appellate court, agreeing with a lower court ruling, asserted that an employer was within its legal bounds when it gave pension plan participants 90 days to decide whether to accept a lump-sum distribution or defer taking benefits until retirement.

The 7 th  U.S. Circuit Court of Appeals ruled thatAmerican Family Insurance Group did not violate the Employee Retirement Income Security Act (ERISA) byimposing a “significant detriment” on a participant who declines the opportunity for a cash distribution.The appellate panel found that the regulation does not make it unlawful for plans to impose restrictions on participants’ ability to take lump-sum distributions.

The 90-day limit for making lump-sum distribution elections did not place a “significant detriment” on plan participants, the appellate panel asserted. “Having a limited time to choose cash does not diminish the value of a pension,” Chief Judge Frank H. Easterbrook said in writing for the court.

According to the opinion,   Jean McCarter and numerous other participants elected to receive lump-sum distributions, but later claimed that they regretted these decisions and wished they had put off receiving their benefits until normal retirement age. The participants claimed that the 90-day limitation for choosing lump-sum payouts gave them too little time to make a decision about whether to take such distributions.

A federal judge in Wisconsin dismissed the participants’ lawsuit in November 2007 after finding they lacked standing because they failed to show they suffered any sort of injury by electing to receive their benefits in lump-sum distributions.

The case is McCarter v. Retirement Plan for District Managers of the American Family Insurance Group,   7th Cir., No. 07-4023, 9/2/08.