A plan sponsor’s decision to eliminate an option to transfer DC account balances to a DB floor-offset plan didn't violate ERISA’s anti-cutback rules, according to a federal appeals court.
In Randal Andersen et al. v. DHL Retirement Pension Plan et al., case number 12-36051, the U.S. Court of Appeals for the 9th Circuit affirmed a decision by the U.S. District Court for the Western District of Washington, finding that shipping firm DHL didn't violate Section 204(g) of ERISA by amending its pension plans to halt the ability of participants to move funds from their DC plan accounts to the company's DB plan.
Affirming a lower court's dismissal of the suit, the appeals court held that Section 204(g), the so-called “anti-cutback rule,” wasn't violated because the plan amendment didn't reduce participants' accrued benefits in either the DC or the DB plan.
Post-merger Amendment
After DHL acquired Airborne, it started merging the companies' retirement plans and disallowed DB pension plans from accepting transfers of DC plan account balances after Dec. 31, 2004. Prior to the amendment, plaintiffs could transfer DC plan funds to their DB plan's general pool before the participants' benefits were calculated, boosting the funds in their DB plans. Additionally, they were allowed to reduce their DC plan balances to zero through the transfer, eliminating any offset when the benefits payable from their DB plans were calculated.
The plaintiffs in the case — ex-employees of Airborne Express Inc., which was acquired by DHL in 2003 — said their accrued benefits were reduced unlawfully, claiming that because DB and DC plans are treated as one plan for accrued benefit purposes under federal law, they should be entitled to full earned benefits before a transfer occurs.
However, the federal government countered in an amicus brief that participants' entitlement to their full earned benefits doesn't arise until after such a transfer happens (a position to which the court deferred). Even if the amendment removed an "optional form," the court said that form wasn't protected by IRS regulations which allow the elimination of DC-to-DB transfers.
Second ‘Cite’
The 9th Circuit is the second federal appeals court to consider — and rule in support of — DHL’s elimination of employees' right to transfer their benefits from one plan to another following DHL’s acquisition of Airborne Express Inc. In 2010, the U.S. Court of Appeals for the 1st Circuit found that the elimination of this transfer right didn't violate ERISA's anti-cutback rule, holding that Regulation A-2 allows the elimination of a transfer right, even if such a transfer can reduce or eliminate protected benefits.
