S.C. Johnson Cleared for Cash Balance Backloading

March 30, 2010 (PLANSPONSOR.com) – S.C. Johnson & Sons Inc. was cleared of wrongdoing in connection with allegations it backloaded its cash balance pension plan.

U.S. District Judge J.P. Stadtmueller of the U.S. District Court for the Eastern District of Wisconsin issued that ruling in a participant lawsuit charging violations of the Employee Retirement Income Security Act (ERISA) by the consumer products manufacturer.

Stadtmueller pointed out that the employees asserted in their legal papers that the plan’s “annual earnings credit” was frontloaded. The court also said the plan did not violate the ERISA anti-backloading rule because it employed a constant benefit accrual rate that did not fluctuate as employees aged.

However, Stadtmueller ruled the plan violated ERISA by not conducting a whipsaw calculation for lump-sum distributions paid to employees before their normal retirement age. The company admitted the problem, according to the ruling.

Stadtmueller said S.C. Johnson would be required to adjust the employees’ benefits to account for its whipsaw calculation failure, but only for those employees who received the distributions less than six years before the lawsuit was filed in 2007. A whipsaw calculation occurs when the interest rate used to project a current account balance to normal retirement date or convert it to an annuity is higher than the interest rate used to discount the annuity back to present day value.

The age discrimination lawsuit was brought by participants in cash balance plans sponsored by S.C. Johnson and JohnsonDiversey Inc (see Judge Calls S.C. Johnson Cash Balance Participants’ Claim “Speculative”).