Appellate Court Affirms AT&T's Victory in Cash Balance Suit

The 3rd U.S. Circuit Court of Appeals affirmed a lower court ruling that AT&T did not violate the Employee Retirement Income Security Act (ERISA) and the Age Discrimination in Employment Act (ADEA) in its cash balance plan.

The court noted that one implication of AT&T’s pension plan change was that many older participants experienced seven to eight years of “wear-away,” a period during which their cash balance would grow, but their early retirement benefits would not increase. The appellate court agreed with the district court the since the cash balance accounts would grow, the plan 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 (see “AT&T Cleared in Cash Balance Suit“).   

The dismissal of Phillip Engers’ plan amendment claims was also affirmed, as the 3rd Circuit found the plain language of the plan amendments did not allow for departing participants to receive double benefits and that the plan committee did not abuse its discretion when coming to this conclusion.  

In addition, the appellate court agreed with the lower court that Engers could not recover on his plan disclosures claims because he had failed to show “extraordinary circumstances” such as “‘circumstances . . . where the employer has acted in bad faith, or has actively concealed a change in the benefit plan, and the covered employees have been substantively harmed by virtue of the employer’s actions.’”

Engers also argued that accrual of early retirement benefits rather than cash balance amounts should be considered in applying the ERISA anti-backloading rule. He claimed that the anti-backloading rule applies to the accrual rate of benefits that are “payable,” which in his view refers to benefits that are immediately payable to a plan participant, i.e., early retirement benefits. However, the appellate court pointed out that the plain language of ERISA § 204(b) refutes this argument: the anti-backloading rule applies to “the annual rate at which any individual who is or could be a participant can accrue the retirement benefits payable at normal retirement age under the plan.”  

Finally, the 3rd Circuit affirmed dismissal of Engers’ anti-cutback claim because before-age 50 benefits were increased from nothing to a percentage of the age-55 early retirement benefit under the amended plan.  

The 3rd Circuit’s opinion is here.