Administrator’s denial of participant’s request to roll over benefits to IRA was based on reasonable plan interpretation

A pension plan administrator’s denial of a request by a participant, who had taken early retirement, to roll over his plan accrued benefits’ balance into an individual retirement account (IRA) was based on a reasonable interpretation of the plan, according to the U.S. Court of Appeals in Cincinnati (CA-6).

Denial of rollover request

After taking a voluntary early retirement, a participant requested that his entire plan balance be rolled over into an IRA. The plan administrator denied the request, explaining that the plan did not permit the transfer because it amounted to a lump-sum distribution that was not allowed by the plan. The participant appealed the decision to the plan administrative committee.

After the administrative committee denied his appeal, the participant filed suit in district court, alleging that the plan administrator and administrative committee acted arbitrarily and capriciously in denying his request. The parties filed cross-motions for judgment on the administrative record. The district court granted the plan administrator’s and administrative committee’s motion and denied the participant’s motion after determining that the plan administrator’s and administrative committee’s denials were not arbitrary and capricious. The participant appealed the district court’s decision.

Interpretation of the plan

The court noted that determining whether the plan permitted the participant to roll over the balance of his accrued benefits into an IRA depended upon the interpretation of the plan’s provisions. The participant argued that a section of the plan concerning eligible rollover distributions permitted him to roll over the entire balance of his accrued benefits into an IRA and that an amendment to another section of the plan that eliminated all lump-sum payouts did not affect his right to a rollover because of the words in the first section, “[n]otwithstanding any provision of the Plan to the contrary.” The plan administrator and the administrative committee interpreted the plan as authorizing only distributions in the form of annuity payments, which were expressly excluded from the definition of an “eligible rollover distribution.” The administrative committee explained that, before the direct rollover option was triggered, the plan must elsewhere provide for the right to receive a distribution in a form that may be rolled over. Since the amendment mentioned above eliminated the lump-sum form of payment, the plan no longer permitted a form of distribution that could be rolled over. The plan administrator and the administrative committee further argued that the direct rollover was not a benefit that the participant was entitled to, but instead an option that the participant could elect if the plan allowed a lump-sum payment.

The appellate court held that the plan administrator’s and the administrative committee’s interpretations of the plan were reasonable. The participant’s argument that he was entitled to roll over his entire balance of his accrued benefits was not supported by the plan language, according to the court. Code Sec. 401(a) and the plan section concerning eligible rollover distributions mandated a direct rollover option only for eligible rollover distributions. The participant’s monthly annuity payments did not qualify as eligible rollover distributions. The court explained that the rollover option did not apply to a participant’s accrued benefits, but only to certain distributions. Neither ERISA nor the Code requires a pension plan to make payments to participants in the form of a lump sum. Rather, a plan dictates the payment form that will be distributed. The participant’s plan only authorized annuity payments, which were not eligible for the rollover option. The court concluded that the plan administrator’s denial of the participant’s rollover request on the basis that his annuity payments did not qualify as eligible rollover distributions was a reasonable interpretation of the plan. The appellate court affirmed the district court’s judgment.

Source: Scheib v. Retirement Program Plan for Employees of Certain Employers at the U.S. Department of Energy Facilities at Oak Ridge, Tennessee (CA-6).

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer’s Benefits Reports.

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