PBGC to Pay Interest on Unreasonably Delayed DB Payments

August 2, 2011 (PLANSPONSOR.com) - The U.S. Court of Appeals for the District of Columbia Circuit held that a 45-day delay between participants’ stated “annuity starting date” in the plan document and when the lump sum distributions were actually made, was not reasonable.

Law firm Seyfarth Shaw LLP reports that two retired U.S. Airways pilots sued the airline arguing that the 45-day delay rendered their lump sum benefits worth less than the annuities they could have received, and therefore, the plan violated the requirement set forth in Section 204(c)(3) of the Employee Retirement Income Security Act (ERISA) that lump sums paid in lieu of an annuity “shall be the actuarial equivalent” of the annuity payment.  The court rejected arguments by the Pension Benefit Guaranty Corporation (PBGC), now the trustee of the plan due to U.S. Airways bankruptcy, that the delay was reasonable because (i) historically, U.S. Airways took a period of 21 business days to calculate the lump sum, and (ii) in practice, most pension plans deemed a delay of 30 days, not 45, to be reasonable.    

According to the law firm’s client memo, although one judge dissented from the opinion because he believed that the 45 day delay was not unreasonable (particularly because the administrator needed final average pay to perform the benefit calculation), the concurring judge argued that the retired pilots should receive interest from day one for the full 45-day delay.   

The case is Stephens v. U.S. Airways Group, Inc., D.C. Cir., No. 10-7100.