Equitable Cash Balance Plan Wins Discrimination Ruling

July 24, 2006 (PLANSPONSOR.com) - The US District Court for the Southern District of New York ruled that a cash balance plan adopted for employees, managers and agents of The Equitable Life Assurance Society of America did not discriminate against older participants.

Plaintiffs claimed that the plan discriminated against older workers since interest would be compounded and accumulated for younger workers over a greater number of years. The court said the interest compounding provided protection of benefits “from attrition due to inflation” for young and older workers.

The court said Equitable’s plan provides equal rights and features to all groups of participants. The opinion said, “Each participant, regardless of age, is entitled to increases in the participant’s Cash Account according to the same interest rate, without any variation according to age.”

In addition, the district court determined sufficient notice was given to participants in 1998 for plan changes. However, Equitable did not give sufficient notice to participants of an amendment in 1990, which changed rules concerning which participants were grandfathered under an old defined benefit pension plan. Therefore, the rule changes were not effective until two years later.

By limiting the participants grandfathered to a more select group, t he 1990 amendment caused “a significant reduction in the rate of benefit accrual,” thus requiring sufficient notice for participants by the Employee Retirement Income Security Act (ERISA), according to the opinion. The Equitable sent a letter to participants regarding the change and referred them to documents provided in 1998 upon the cash balance conversion or to a phone number to call for details regarding benefit calculations. The court determined this was not sufficient notice.

A 1992 notice, provided in the form of a Summary Plan Description, contained all elements of sufficient notice with a description of benefit formulas, requirements for grandfathering under old plan provisions and examples, according to the opinion. The court decided the 1990 amendment provisions did not become effective until the 1992 notice was given.

Equitable maintained separate defined benefit pension plans for its employees, managers and agents until November 1988 when it decided to merge the plans for employees and managers, changing the benefit accrual formula to a cash balance formula from a Final Monthly Earnings formula.

All participants were grandfathered under the old formula as of December 31, 1988. A 1990 amendment changed the rule for participants who were grandfathered to those age 50 or who completed 20 years of service by December 31, 1990.

A resolution in September 1992 merged the defined benefit plan for agents into the new Cash Balance arrangement.

The case is Hirt v. The Equitable Retirement Plan for Employees, Managers and Agents, et al.