Participant’s bid for higher interest rate on delayed pension payment fails

A pension plan participant was not entitled to a higher interest rate on a pension payment that was delayed due to the plan’s earlier noncompliance with the rule of parity, the U.S. Court of Appeals in New York City (CA-2) has ruled. The rate used by the plan was reasonable under the terms of the plan and did not violate ERISA’s anti-cutback rules.

Plan amendment

A participant filed a putative class action suit alleging the plan violated ERISA by not fully crediting her pre-ERISA, pre-break in service employment in accordance with the rule of parity when calculating her monthly pension. Subsequently the plan adopted an amendment to the plan correcting the problem. The amendment provided for application of the rule of parity, applied a 100% benefit rate to pre-ERISA service, and provided interest on delayed payments.

In light of the plan’s action, the district court dismissed the participant’s claims, in part for mootness, and denied her request for attorney’s fees.

Note: The participant’s suit came in the wake of the Second’s Circuit’s decision in McDonald v. Pension Plan of the NYSA-ILA Pension Trust Fund in which it held that a pension plan fund and its trustees were not permitted to disregard years of service rendered prior to a break in service under the plan’s pre-ERISA break-in-service rules because the plan’s break in service provision was nullified by ERISA.

Interest rate

The appellate court rejected the district court’s conclusion that all the participant’s claims were rendered moot by the plan amendment. It agreed with the participant that her claim was not moot because she requested a higher rate of interest on her delayed payment than the rate provided for under the plan amendment. That being said, the court explained that where a plan administrator has the discretion to set a specific interest rate for a delayed payment, the rate is enforceable and reviewable only for abuse of discretion. There was no indication in the complaint that the rate chosen by the plan was unreasonable in light of interest rates in effect during the relevant time period.

The court also rejected the participant’s contention that the plan amendment’s interest provision violated ERISA’s anti-cutback rule. Even assuming that an implied reasonable interest rate qualifies as an accrued benefit protected by the anti-cutback rule, the interest rate used by the plan in this case was reasonable.

Attorney’s fees

Reversing the district court, the appellate court concluded the participant was eligible to submit a request for attorney’s fees under ERISA Sec. 502(g)(1). Fee awards are not limited to prevailing parties, although a fee claimant must show some degree of success on the merits. The participant’s lawsuit prompted the employer to modify how the plan credited pre-ERISA breaks-in-service, a change which provided the participant with most of the benefits she had sought for herself and for others in the putative class. That this success came as a result of the plan amendment, and not as a result of a judicial order, does not, the court reasoned, alter the conclusion that the participant achieved some success on the merits. Thus it remanded the case to the district court with orders to consider the participant’s request for attorney’s fees.

Source: Carlson v. HSBC-North America (US) Retirement Income Plan (CA-2).

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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