ComplianceJanuary 29, 2010

Participants Not Due Additional Benefits Based on Defective SPD

A federal court has ruled that cash balance plan participants are not due additional benefits because a summary plan description (SPD) failed to inform them of an offset to their benefits calculation.

Reported by Rebecca Moore

The U.S. District Court for the Central District of California said the two former participants in the Northrop Grumman cash balance plan did not prove that they relied on the defective SPD for their expectation of benefits. The district court pointed out that, even though the 9th U.S. Circuit Court of Appeals agreed that the SPD the plaintiffs received did not inform them of the offset, the appellate court did not rule for the plaintiffs but instead sent the case back to the district court with instructions to examine plaintiffs’ “expectations.”

The plaintiffs’ argument that they remained employed at Northrop longer than they otherwise would have is insufficient to demonstrate reasonable reliance, according to the court’s opinion. Both men were informed via letters and a meeting with a staff member of the Northrop Benefits Center.

The plaintiffs were employed at Litton Industries, Inc., when it was acquired by Northrop, and they participated in the Litton’s Retirement Plan B. Northrop decided to consolidate all pension plans it had inherited through acquisitions into a single cash balance plan, effective July 1, 2003. It sent an SPD to participants at that time.

The court pointed out that the SPD included a caveat that it was only a summary and that participants should refer to the master plan document for more information. In addition, Northrop held Town Hall meetings in which the benefits calculations, including the offset, were discussed, and participants had received a summary of material modifications which described benefits calculations, including the offset.

The case is Skinner v. Northrop Grumman Retirement Plan B, C.D. Cal., No. CV 07-3923-JFW (JTLx), 1/26/10.