Court Throws Out Cash Balance Conversion Suit

The 10^th U.S. Circuit Court of Appeals ruled the lower court judge was right to throw out nearly all plaintiffs’ Employee Retirement Income Security Act (ERISA) claims, according to the decision written by Circuit Judge Harris L. Hartz for the court.

In disposing of one key appellate issue, Hartz contended that Solvay’s use of tables to show how the conversion would impact pension benefits generally met ERISA’s requirements that participants be informed of how such a program change affect them.

Hartz said ERISA Section 204(h)‘s participant notice regulations did not require Solvay to describe to its employees that the 2005 plan conversion would result in a reduction in their future accrual rates in either percentage or dollar terms. Using tables built on hypothetical benefit numbers met the notice requirements because employees could estimate their benefit reductions based on the data presented.

“In our view, Tables A and B in Solvay’s § 204(h) notice satisfy these (notice) requirements,” wrote Hartz for the three-judge appellate panel. “They provide illustrative examples comparing the expected monthly benefit under the new plan with the expected monthly benefit that would have been earned if the old plan had continued; the examples concern employees of different ages, compensation, service years, and time of retirement. By finding the example most like himself, an employee can estimate his benefit reduction in dollar terms. Nothing in these tables hides the fact that the new plan significantly reduces employees’ monthly benefits. On the contrary, these comparisons show that employees are almost always worse off after the conversion.”

The court also found that Solvay’s cash balance plan did not violate the Age Discrimination in Employment Act (ADEA) and met a number of other ERISA requirements.

The only issue to survive on appeal was a narrow question of whether participants could properly understand from the information available how the company figured an early retirement “subsidy” and what impact the dropping of that subsidy after the conversion would have on their benefit levels. Hartz dismissed Solvay arguments that a line in its participant conversion notice that “The current plan formula includes an early retirement subsidy” was sufficient for ERISA purposes.

“We fail to see how an employee could calculate early-retirement benefits with just this information. The notice does not comply with the regulation,” Hartz wrote. “We therefore conclude that Solvay’s notice failed to comply with the requirements for disclosure of early-retirement calculations.”

In sending the case back for additional hearings on that issue, Hartz cautioned that the key question will be whether the company’s actions constituted an “egregious failure.”

The case is Jensen v. Solvay Chemicals Inc., 10th Cir., No. 09-8082.