ComplianceNovember 8, 2012

Elimination of DC to DB Transfer Permitted

An employer did not violate ERISA by eliminating the right to transfer from a defined contribution to a defined benefit plan, a court found.

Reported by Kristen Heinzinger

The U.S. District Court for the Western District of Washington noted that the Treasury Department has ultimate authority in determining overlapping provisions of the anti-cutback rule of the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code, and has disseminated a regulation that directly addresses the transfer right at the center of the case. That regulation says: “A plan may be amended to eliminate provisions permitting the transfer of benefits between and among defined contribution plans and defined benefit plans.”

According to the court opinion, the 1st U.S. Circuit Court of Appeals, in analyzing an identical suit, found the language in the Treasury regulation allowed the employer to eliminate the transfer option. (See “DC to DB Transfer Elimination Upheld.”)

The district court concluded the Treasury regulation means exactly what it says: a plan may be amended to eliminate the right to transfer funds between plan accounts. Therefore, the plan amendment contested in the current lawsuit did not violate ERISA’s anti-cutback provisions, even if eliminating the transfer option reduced an accrued (but unclaimed) benefit.

Former Airborne Express Inc. employees claimed a 2004 plan amendment to the Airborne Retirement Income Plan (RIP) and Profit Sharing Plan (PSP)violated ERISA’s anti-cut back provision by reducing their monthly annuity pensions. Under both the RIP and the PSP, a participant could elect to receive his benefits as a single life annuity or as a lump sum. Before the 2004 amendment, the RIP contained a provision allowing its receipt of a transfer of the PSP’s account balance.

Airborne was acquired by DHL Holdings Inc. in 2003, now called DPWN Holdings Inc. (DHL). DHL merged the PSP into the company’s equivalent, the DHL Retirement Savings Plan, on December 31, 2004. It also eliminated the right of participants to transfer their DHL Retirement Savings Plan balance to the RIP, effective January 1, 2005. In 2006, DHL merged the RIP into the DHL equivalent, the DHL Retirement Pension Plan.

The court opinion in Andersen v. DHL Retirement Pension Plan is here.