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The Firm recently achieved a significant victory for client SPX Corporation when a federal district court dismissed a suit that alleged the terms of the SPX Individual Account Retirement Plan violated the Employee Retirement Income Security Act (ERISA).
A former SPX employee filed a multi-complaint against SPX 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.
The U.S. District Court for the District of Massachusetts held 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 benefit 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.
“This decision is significant for all companies with retirement plans because the new precedent it sets for ERISA demonstrates the lawfulness of retirement plans with similar terms relating to alternative benefits, the refusal to pay incorrect benefit claims, and cash balance lump sum distribution calculations,” said Partner Ross B. Bricker, who led the Firm’s team on the matter. “It will also cut-off certain claims participants may bring against their employers and plans if the employer has the participant execute a valid waiver releasing all claims against the company.”
In addition to Mr. Bricker, the Firm’s team included Partners Andrew A. Jacobson, William S. Scogland and S. Tony Ling, and Associate Andrew W. Vail.