In the case of Thomas Fry v. Exelon Corporation Cash Balance Pension Fund, Judge William T. Hart said the May 22, 2007 regulation was effective on that date and proactively, and did not apply to the calculation of the benefit that was paid to Fry years earlier. The regulation dictates that “normal retirement age under a plan must be an age that is not earlier than the earliest age that is reasonably representative of the typical retirement age for the industry in which the covered workforce is employed.” (See IRS Releases Final Rules on In-service Distributions Past Retirement Age).
Fry had argued that the cash balance plan’s definition of normal retirement age as five years of vesting service violated ERISA because ERISA required that an age be specified in the definition. Hart disagreed, saying in his earlier ruling that while the language of the ERISA definition is open to interpretation, “a better reading is that a plan may set a time â€¦ that will qualify as normal retirement age, either by setting a specific age, a period of service or participation, or a combination of age and service/participation.” (See Court OKs Service-Based Retirement Definition for Cash Balance Plan )
The plan provided that a participant who retired prior to normal retirement age would have his or her benefit calculated using a whipsaw calculation where the value of a participant’s account is projected to normal retirement age using the plan’s interest crediting rate, then discounted back to its present value using a variable rate prescribed under the Internal Revenue Code.
If a plan’s interest rate is higher than the statutory discount rate in effect at the time of distribution, the participant’s benefit payment would be higher than his or her account balance
In the new motion for reconsideration, Fry argued that his accrued frozen benefits that were converted from a prior defined benefit plan were still entitled to a whipsaw calculation because the cash balance plan’s definition of normal retirement age did not apply to those benefits. Fry asked the court to change its earlier ruling from “dismissed with prejudice” to “dismissed without prejudice” so he could pursue administrative remedies under the plan for this argument. The court granted this request.
The opinion in Fry v. Exelon Corp. Cash Balance Pension Fund, N.D. Ill., No. 06 C 3723, 12/21/07 is here .
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