Health System Settles Cash Balance Plan Suit

September 17, 2014 ( – A Madison, Wisconsin-based hospital has agreed to settle a lawsuit brought by cash balance plan participants rather than face a large class action suit.

Under the settlement agreement, Meriter Health Services will pay $82 million to settle all claims in the lawsuit. Meriter had tried to have the class certification of the plaintiffs reversed, arguing that because so many subclasses make claims, the class action does not satisfy the requirement of Rule 23(b)(2) that the defendant have “acted … on grounds that apply generally to the class.” There are more than 4,000 participants in 10 subclasses in the lawsuit.

For example, some participants argue that they did not receive all benefits owed to them because Meriter did not use a “whipsaw” calculation when determining their early retirement benefits—projecting their benefit if they had retired at age 65, then discounting that benefit to its present value. Other participants argue with the crediting rate applied to accounts. The cash balance plan had set a 4% crediting rate, but it was the company’s practice to use the higher of 4% or three-fourths of the plan assets’ rate of return for the previous year. This resulted in a higher crediting rate in certain years, which certain participants argued was an “amendment” to the plan that entitled early retirees who chose to receive a lump sum benefit to have the benefit of a higher crediting rate when applicable.

In rejecting Meriter’s argument, the 7th U.S. Circuit Court of Appeals noted Rule 23(b)(2) applies to the subclasses, and the subclasses seek only a reformation of the Meriter pension plan—a declaration of the rights that the plan confers and an injunction ordering Meriter to conform the text of the plan to the declaration. An award of monetary relief will just be “incidental” to the declaratory and injunctive relief and, generally, the court said, it is at that time subclasses may be dismissed or further divided.

The settlement agreement in Johnson v. Meriter Health Services is here.