Compliance September 18, 2015

Participant Could Get Relief for Difference in Document and SPD

A court found a pension plan’s SPD materially conflicted with the plan document, so a participant who expected to receive certain benefits can seek relief.
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The 6th U.S. Circuit Court of Appeals has determined that a pension plan’s summary plan description (SPD) failed to provide all the information required by the Employee Retirement Income Security Act (ERISA) about eligibility for supplemental benefits, so a participant who relied on the SPD and expected those benefits may be due relief.

In its opinion, the court noted that under ERISA, the SPD must be “written in a manner calculated to be understood by the average plan participant, and shall be sufficiently accurate and comprehensive to reasonably apprise such participants and beneficiaries of their rights and obligations under the plan.” In addition, the SPD must include, “the plan’s requirements respecting eligibility for participation and benefits; a description of the provisions providing for nonforfeitable pension benefits; and circumstances which may result in disqualification, ineligibility, or denial or loss of benefits.” 

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Citing the Supreme Court decision in CIGNA Corp. v. Amara, the 6th Circuit said that under ERISA Section 502(a)(3), a material conflict between the SPD and plan document can give rise to a claim for equitable relief. The Supreme Court ruled that under ERISA 502(a)(1)(B) conflicts between the terms of the SPD and plan document must be resolved in favor of the plan document, but it suggested that conflicts could be addressed under ERISA 502(a)(3) which allows a plan “participant, beneficiary, or fiduciary ‘to obtain appropriate equitable relief’ to redress violations of ERISA.”

NEXT: Case specifics

The Chrysler Group LLC Pension Plan provided for supplemental benefits to be paid to early retirees who had 30 years of service and commenced payments within five years of retirement. However, while the plan document stated that vested, terminated participants “who met the eligibility for early retirement at the date his employment terminated, shall not be eligible to receive and early retirement supplement,” the SPD said “You do not need to be actively employed at retirement to be eligible for a supplement.”

Participant Randy D. Pearce was offered an early retirement incentive in 2008, which he denied. Afterwards, Chrysler terminated him for misuse of a company vehicle. Pearce applied for benefits thinking, after reading the SPD, that he would get his accrued pension benefits as well as the supplemental payments. However, he did not get the supplemental payments and after filing several appeals, he filed a lawsuit. A district court granted summary judgment to Chrysler for some claims and dismissed Pearce’s 502(a)(3) claim as futile.

However, the 6th Circuit reasoned that since the SPD offered no indication to Pearce that his eligibility for supplemental benefits was further contingent on his employment status at the time of retirement, “a conflict between the SPD and pension plan exists because the SPD misleads or fails to state addition requirements contained in the plan.” The court noted that, in the plan document, retirement seems to be defined as the time a participant requests benefits.

The court goes on to point out a specific problem with the SPD language: While the one sentence says the participant need not be actively employed, the SPD does not explain if it is distinguishing “active” employees from “inactive” employees or if it is simply stating that a participant’s employment status is irrelevant. “Given the appropriate lens through which we review SPD terms, it is easy to understand how Pearce, a non-attorney, would have understood the latter meaning,” the court wrote.

The 6th Circuit remanded the case back to the district court for further review.
Data & Research September 18, 2015

Gauging American Over-Confidence in Retirement

What is fueling the higher level of confidence Americans express about retirement?
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Measuring and comparing retirement confidence around the world yields some interesting results. State Street Global Advisors (SSGA) certainly found this in their third annual Global Retirement Survey, which delved into retirement contribution and participation levels in the U.S., U.K., Ireland and Australia.

While the U.K. showed the greatest rise in percentage points from the previous survey, from 24% to 43%, in confidence levels, the U.S. had the highest level (51%). But that level of confidence does not necessarily reflect whether Americans are on track for a successful retirement, researchers warn. 

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SSGA found that despite having smaller average savings balances than their Australian counterparts, Americans were more confident. And Australians, with higher balances and greater participation rates, were less confident, at 32%, about meeting retirement goals. While Australian respondents earned 38% less than U.S. respondents, they saved 41% more on average. U.S. participants who aren’t confident cite having not saved enough (80%) and having other financial priorities (44%) as contributing factors.

Initially, SSgA was struck by the lack of confidence among Australians, calling the effect the “Australian paradox.” Nigel Aston, head of European defined contribution at SSGA, says the firm scouted a number of potential explanations—cultural, legislative or economic, among others—to explain the gap between preparedness and confidence, and came to see the situation rather as an American paradox. “Why are Americans over-confident about retirement, when contribution and retirement savings levels are so much lower?” he asks.

One possibility is that public policy has boosted the American confidence level, says Melissa Kahn, retirement policy strategist, defined contribution at SSGA. The Pension Protection Act led companies to automatically enroll more employees under the safe harbor contribution level of 3%, she notes, and employees who go in at that contribution level often stay there. Plan sponsors are viewed as trusted providers of a benefit that American workers value highly, Kahn believes. “That 3% level imparts confidence that they are saving at the right level, when really they are not,” she says, adding that a change in policy would be needed to increase the safe harbor to more effective savings levels.

NEXT: Calibrating confidence is the next step.

After confidence is measured, Fredrik Axsater, global head of defined contribution, says SSGA aims to see how that level can be changed, and then how to calibrate confidence so it accurately reflects savings and participation levels. “We don’t want people to be over- or under-confident,” he explains. “We want to provide the right measure for people to know what kind of retirement they can have.”

But confidence levels can also help SSGA understand its own impact on retirement plan participants. “Confidence is one of the ways we have to measure how successful we are in helping people retire,” Axsater says. “One way to gauge if we’re making progress overall with participants is to ask if are we increasing their confidence levels.”

Internally, too, confidence levels can be useful and motivating for sponsoring firms. “We’re all aligned around a very clear goal of making retirement work,” Axsater tells PLANADVISER. Since striving to achieve retirement readiness for plan participants can drive different team members, he believes, “It makes so much sense from a business standpoint to have that type of broader goal.” As retirement can be a mission that a plan sponsor feels strongly about, “It’s the greater good,” he says, “and it also helps build a stronger team.”

The Australian paradox debunks the widely held belief that confidence is driven by the balance in a retirement portfolio savings account, Axsater explains. “Both plan sponsors and participants need to consider other factors when assessing confidence, such as culture, the state of the economy, pending legislation, plan design and individual circumstances. It is important that we move away from a singular view of confidence to a broader view of the financial life of people.”

SSGA surveyed 3,652 retirement savers, age 22 to 81, who were working at least part-time and participating in a retirement savings plan, with or without the guidance of a financial adviser. The survey was conducted online by TRC Market Research and Rice Warner in May.

The Global Retirement Survey 2015 can be accessed from SSGA’s website.

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