Compliance January 7, 2019

Compensation Definition and Plan Docs at Heart of ConAgra ERISA Lawsuit

The complaint stems from defendants’ alleged refusal to pay post-termination benefits to the plaintiff—and a sizable similarly situated class of would-be beneficiaries—pursuant to terms and definitions in plan documents.

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A participant in ConAgra Brands’ retirement plan has filed an Employee Retirement Income Security Act (ERISA) lawsuit against the company, alleging the firm is failing to adhere to the definitions of compensation and permissible contribution stated in plan documents.

The proposed class action was filed in the U.S. District Court for the District of Illinois. According to the text of the compliant, defendants have based a denial of certain retirement benefits to which the plaintiff believes he and a similarly situated class of participants are entitled on a “reinterpretation” of the plan documents that violates the plan’s clear language.

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The text of the suit also challenges the way defendants “have interpreted and applied the plan for years,” arguing the defendants violated ERISA duties by reinterpreting plan language in a conflicted manner aimed at reducing employer costs.  

“Defendants’ purported reinterpretation of the plan was motivated by their desire to save money,” the complaint states. “However, by wrongfully denying millions of dollars in benefits to a large number of plan participants and their beneficiaries, defendants have violated their fiduciary and other legal duties.”

According to the text of the complaint, the plan in question is a sizable one, with more than $1.4 billion in assets as of December 2015 and almost 13,000 participants. Important to the allegations in the case is the fact that, on or about October 1, 2015, ConAgra announced that it would lay off approximately 30% of its global, office-based workforce as part of what it described as an “efficiency plan,” which was meant to result in at least $300 million in cost savings for ConAgra over the next three years. The lead plaintiff says he was laid off as a part of this restructuring, effective April 1, 2016.

Detail from the text of the complaint shows the retirement plan in question accepts both pre-tax and after-tax contributions, which are to be matched by the employer at different rates depending on the date of hire of a given plan participant. Important to the claims in the lawsuit are the mechanics of how “compensation” is defined in the case of a participant’s termination from employment.

The text of the lawsuit explains the following: “Pursuant to Section 1.11 of the plan document, ‘compensation’ includes payments made by the later of 2.5 months after severance from employment, or the end of the calendar year that includes the date of severance, if the payments are payments that, absent a severance from employment, would have been paid to the participant while the participant continued in employment with ConAgra and are bonuses. Pursuant to Section 1.01 of the plan document, ‘Accounting Year,’ as relevant here, is defined as the period beginning on January 1 of each year and ending the following December 31.”

The text of the complaint then notes that, following his termination effective April 1, 2016, the lead plaintiff “maintained a valid deferral election for a pre-tax contribution under the plan during 2016, with a pre-tax deferral percentage equaling 15% of his compensation.” The plaintiff did not have an after-tax election on file.

Subsequently, on or about July 15, 2016, ConAgra paid the lead plaintiff a bonus pursuant to the Fiscal Year 2016 ConAgra Foods Business Management Incentive Plan, which, pursuant to Section 1.11, is “compensation” he would have received if he had continued his employment with ConAgra, the complaint argues.

“Pursuant to Sections 1.11 and 3.01(a) of the plan document and [plaintiff’s] deferral election, defendants should have deferred 15% of [plaintiff’s] bonus to the plan,” the lawsuit contends. “Pursuant to Section 3.02 of the plan document, ConAgra had the obligation to match that contribution, subject to the limitations set forth in Section 3.02 of the plan document. Defendants failed to follow the plan provisions on participant contributions with respect to the bonus [the lead plaintiff] received on or about July 15, 2016. Thus, it did not defer 15% of [the bonus] to the plan and it did not match that contribution.”

According to the text of the complaint, when the lead plaintiff filed a request with plan administrators to receive the amount he believes he is entitled to, the firm provided the following explanation of its denial: “As communicated in the [preliminary] May claim denial letter, the administrative procedure for post-termination bonus payments was changed in 2016 to only apply elective deferral deductions to bonuses paid within 2.5 months after separation from service. The plan was not amended because the change related to the administrative interpretation of existing plan language. Section 3.01 of the plan states that ‘eligible employees’ may specify a deferral rate for payroll deductions. In 2016, administration changed to interpret ‘employee’ more literally. Former employees were only allowed to defer bonuses if they separated from service after May 1, not if they separated from service earlier in the calendar year (which was the procedure in 2015).”

The complaint argues that defendants’ denial of the lead plaintiff’s claim “had no reasonable basis and contradicted the express terms of the plan. [Defendants’] explanation in the appeals denial letter—that the ‘interpretation’ of the term ‘eligible employee’ was ‘narrowed’—is erroneous and cannot alter [plaintiff’s] post-separation contribution rights under the plan document.”

The full text of the complaint can be downloaded here. 

Data & Research January 7, 2019

Few Employers Effectively Timing Employees’ Retirement

While 81% of employers say that managing the timing of their employees’ retirement is an important business issue, only 53% say they have a good understanding of when their employees will retire.

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Although 83% of employers have a significant number of employees at or nearing retirement, only 25% say they are effectively timing their workers’ retirement, according to the 2018 Longer Working Careers Survey by Willis Towers Watson.

While 81% of employers say that managing the timing of their employees’ retirement is an important business issue, only 53% say they have a good understanding of when their employees will retire.

Eighty percent of employers view older employees as crucial to their success. Fifty-four percent believe the loss of talent due to retiring workers over the next five years will be more significant than other labor market risks. Forty-eight percent worry about the loss of organization-specific knowledge, and 50% expect to have difficulty finding workers with similar knowledge and skills.

“Many employers say they are not managing the retirement of their older workers effectively,” says Alan Glickstein, managing director, retirement, at Willis Towers Watson. “With growing numbers of workers either planning to retire or delaying their retirement, the stakes are high. As a result, employers are rethinking how they manage their workers retirement patterns and are taking action.”

Forty-nine percent of employers think that delayed retirements over the next five years will increase benefits costs. Forty-one percent are worried that they will increase wage and salary costs, and 37% are concerned that workers who stay on past normal retirement age will block promotions for younger employees.

To cope with this, employers have either adopted or plan to adopt one or more of the following strategies over the next few years:

  • Offering financial wellbeing programs to older employees approaching retirement.
  • Offering flexible employment, such as the possibility of changing positions (offered by 30% of employers) and the ability to work part time (27%).
  • Permitting retired employees who are collecting benefits to work as consultants or contingent workers (49%).
  • Allowing workers to take a phased retirement (9%).
“Older workers are clearly a sought-after resource, and our research shows there is a definite supply of employees who would like to work into their 60s and beyond,” says Lauren Hock, director, retirement at Willis Towers Watson. “Many employers misunderstand their employees’ motivations and circumstances for retiring. Therefore, they do not have a grasp on their likely retirement patterns and are vulnerable to the  workforce issues associated with employees who linger for financial reasons but have lower engagement and productivity. We believe employers can effectively draw on the expertise of older workers, and this opportunity will require careful management.”

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