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Jenner & Block recently achieved a victory for client SPX Corporation when a federal appeals court affirmed a district court’s ruling that rejected a suit by a former employee who alleged that the terms of the SPX Individual Account Retirement Plan violated the Employee Retirement Income Security Act (ERISA).
The three-judge panel of the U.S. Court of Appeals for the First Circuit found that the district court had correctly determined that the plaintiff’s already accumulated early retirement benefit was not improperly reduced because it was figured into the calculation of his SPX accrued benefit, which yielded the greatest benefit for the participant. According to the appeals court, the participant was attempting to have his early retirement subsidy counted twice, which was not allowed under the plan.
In addition, the appeals court rejected the participant’s premise that the plan sponsor violated the notice requirements of ERISA Section 204(h), which mandates that sponsors provide notice of a plan modification if it is “reasonably expected that the amendment will reduce the amount of the future annual benefit commencing at normal retirement age.”
The court concluded that the plaintiff had the burden of showing that the conversion from a defined benefit plan to a cash balance plan reduced his future benefits, yet the participant presented no evidence showing that his benefits were reduced by the plan conversion.
The plaintiff, a former SPX employee, had filed a multi-count complaint against SPX in 2002 alleging that the Plan violated ERISA’s anti-cutback, merger and age discrimination provisions in the way it calculated his retirement benefit. He also claimed that SPX failed to properly calculate his lump sum distribution amount and breached its fiduciary duty by not paying his claim and by not providing him documents he had requested in a timely manner.
The Plan, a cash balance plan and the main retirement plan for SPX’s salaried employees, had been amended to incorporate alternative benefits for employees of General Signal Corporation (GSX), a company SPX had acquired in 1998. Under the amended Plan, the participants were entitled to receive the greatest of three alternative benefits upon retirement: (1) the GSX Accrued Benefit, (2) the SPX Accrued Benefit, or (3) the “Transition Benefit.” The Transition Benefit had been created by SPX to provide a subset of merged participants the value of an early retirement subsidy even though they had not yet earned that subsidy under their former plan.
The former employee, who had signed a termination agreement waving all “known claims” against the company, had already earned an early retirement subsidy under the GSX Plan. Therefore, in 2002 when the Plan calculated his Transition Benefit, it excluded the value of his early retirement subsidy. The former employee however claimed that he was entitled to the Transition Benefit with his already earned early retirement subsidy included into the benefit’s calculation. SPX denied his appeal and refused to pay his claimed benefit amount.
In 2007, the U.S. District Court for the District of Massachusetts ruled that SPX’s use of alternative benefit options in its retirement plan was lawful as long as participants’ accrued benefits are not reduced under any of the alternatives. The court also held that where a participant claims a specific benefits amount that he or she is not entitled to, the company does not have a fiduciary duty under ERISA to pay even the undisputed amount absent a proper application for that benefit. In addition, the court held that an employee can waive claims for penalties under ERISA if he or she knowingly signs a general release that waives all claims against the employer.
Partner Ross B. Bricker led the Firm’s team on this matter which included Partner Paul M. Smith, who argued the case before the court, Partner Andrew A. Jacobson and Associate Andrew W. Vail.