Unvested Participants Can't Collect From PBGC

September 26, 2002 (PLANSPONSOR.com) - The federal pension insurer doesn't have to pay benefits to unvested participants in a partially terminated cash balance pension plan, a judge ruled.

US District Judge Charles Weiner of the Eastern District of Pennsylvania turned away arguments from the participants that since their employer made insurance payments to the Pension Benefit Guaranty Corporation (PBGC), there was an “implied agreement” that the PBGC would keep making payments to participants.

According to Washington-based legal publisher BNA, Weiner also disagreed with the plaintiffs who argued that the plan’s sponsor violated ERISA by misleading them into believing that they would still get benefits even without vesting.

 

According to the ruling, the Allegheny Health Education and Research Foundation operated hospitals, physician practices, and a medical school in Pennsylvania until it filed for bankruptcy in July 1998. After it filed for bankruptcy, the company’s cash balance pension plan was partially terminated and the PBGC took over the plan.

A group of employees who had worked for the company and participated in the plan for less than five years sued the company, its directors, and PBGC.

Left Overs?

The workers alleged that, because the plan had partially terminated, they were entitled to benefits, even though the plan stated that benefits were not vested until an employee worked for the company for at least five years.

Weiner found that the participants were not entitled to benefits because they had not acquired a vested right to them.

“[T]he very fact that the plan was not sufficiently funded to pay plaintiffs’ benefits upon partial termination dictates a conclusion that the plaintiffs clearly did not acquire a vested right to plan benefits,” Weiner wrote.

The court rejected the participants’ assertion that because the summary plan description and plan documents conflicted, the SPD’s terms controlled, making them eligible for benefits.

As to the claims against PBGC, the court rejected the participants’ claim that the PBGC had a contractual obligation to pay them benefits. In addition, the court noted that the employer paid its PBGC insurance premiums because it was legally required to do so.

 

Finally, the court dismissed the participants’ fiduciary breach claims against the plan’s trustees. In dismissing the claims, the court noted that the participants did not identify any particular verbal misrepresentations made by the trustees.

The case is Burstein v. Retirement Account Plan for Employees of Allegheny Health Education and Research Foundation, E.D. Pa., No. 98-6768, 5/30/02.

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