Compliance June 10, 2010

Alliant Tagged for Pre-PPA Whipsaw Calculation

Alliant Energy Corp. improperly used a 30-year Treasury rate for whipsaw calculations for lump-sum distributions from its cash balance plan to employees younger than the retirement age, a judge ruled.
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U.S. Judge Barbara B. Crabb of the U.S. District Court for the Western District of Wisconsin asserted that the company ran afoul of the Employee Retirement Income Security Act (ERISA) with the calculations, but said she could not determine the correct rate the company should have used before the Pension Protection Act of 2006 (PPA). The PPA amended ERISA to provide that cash balance plans are no longer required to make whipsaw calculations.

Crabb found that from 1998 to 2006, Alliant’s method of calculating lump-sum distributions violated ERISA because the interest rates used by Alliant did not result in a whipsaw calculation as required by ERISA at that time. The 30-year Treasury bond rate did not fairly represent the interest rates promised in the plan, she said.

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Crabb rebuffed Alliant’s contention that participants would receive a windfall if cash balance plans project future benefits at a rate higher than the rate used to discount those benefits back to “present value.”

Alliant Energy Corp. converted its traditional defined benefit plan to a cash balance plan in 1998. Under the plan, participants accrued a “benefit credit” equal to 5% of their salary, together with the right to an interest credit that is equal to the greater of 4% or 75% of the rate of return generated by the plan for the calendar year.

The case is Ruppert v. Alliant Energy Cash Balance Pension Plan, W.D. Wis., No. 08-cv-127-BBC.

Compliance June 10, 2010

AT&T Cleared in Cash Balance Suit

A federal judge in New Jersey has ruled that AT&T did not violate the Employee Retirement Income Security Act (ERISA) and the Age Discrimination in Employment Act (ADEA) with its cash balance plan.
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The decision by U.S. District Judge Stanley R. Chesler of the U.S. District Court for the District of New Jersey ends a 12-year court fight over allegations the company’s operation of the pension program discriminated against older workers and violated ERISA’s anti-backloading rule. Chesler also cleared the communications company of violating U.S. Treasury Department regulations that require “subsidized early retirement benefits” to be the actuarial equivalent of the subsidized benefit.

Regarding the ADEA claims, Chesler held that AT&T did not violate ADEA Sections 623(a) and 626(b). The suit alleged the plan used a “greater of” transition that “discriminates on the basis of age by providing that older workers who are eligible for early retirement earn no additional benefits under the cash balance plan in the current year, the near-term and the long-term.”

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The court found that AT&T complied with ADEA Section 4(i) that a defined benefit plan will comply with the ADEA as long as the plan does not reduce or cease benefit accruals because of age.

On the charge that the plan violated ERISA Section 204(b)(1)(B)‘s anti-backloading rule, Chesler ruled that the plaintiffs would needed to demonstrate that the annual rate at which a participant can accrue benefits in a particular year is more than 133 1/3% of any prior year’s annual rate. The court said the employees could not make this showing.

A number of the age-discrimination claims in the suit were dismissed in earlier rulings.

The case is Engers v. AT&T Inc., D.N.J., No. 98-3660 (SRC).

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