Compliance April 28, 2009

Court Dismisses Claims against JPMorgan Cash Balance Plan

JPMorgan Chase&Co. did not violate the Employee Retirement Income Security Act (ERISA) with its 1989 conversion to a cash balance pension plan and subsequent plan amendments, a court ruled.
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The U.S. District Court for the Southern District of New York also ruled that JPMorgan’s predecessor banks, including Chemical Banking Corporation, did not violate ERISA.

Former participant Frank Bilello alleged that the plan’s failure to specify a projection method for the accrual of benefits resulted in an accrual that was not “definitely determinable” in violation of ERISA. However, the court noted that Sections 402(a)(1) and 402(b)(4) of ERISA do not mention a “definitely determinable” violation created by employer discretion regarding interest rate projection methods. They require generally that benefit plans be “established and maintained pursuant to a written instrument’ that “specif[ies] the basis on which payments are made to and from the plan,’ the court pointed out.

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U.S. District Judge Denise Cote pointed out that Internal Revenue Code (IRC) § 401(a)(25) is the source of the “definitely determinable’ language, and because the definitely determinable requirement is found only in the IRC, and is not expressly incorporated into ERISA, it should not be read into that statute.

In addition, Cote found that Bilello’s allegation that notices distributed in connection with the 1989 and 1997 plan amendments violated ERISA because they failed to warn of a significant reduction in benefit accrual and inaccurately described the plan mistakenly attempts to hold defendants to the standard of ERISA § 204(h), 29 U.S.C. § 1054(h) currently in place, which requires that the notice accompanying a reduction in benefit accrual must “provide sufficient information … to allow applicable individuals to understand the effect of the plan amendment.’ The version of the statute in place at the time of the amendments required notice of only a plan amendment and its effective date, Cote pointed out.

Although the court dismissed those claims, it did not dismiss Bilello’s claim that the notice of plan conversion violated ERISA Section 204(h) because it was inaccurate and misleading.

The case is Bilello v. JPMorgan Chase Retirement Plan, S.D.N.Y., No. 07 Civ. 7379 (DLC), 4/24/09.

Products April 28, 2009

TIAA-CREF Product Addresses Retiree Health Care Costs

TIAA-CREF has developed an offering that seeks to provide employees of nonprofit institutions a way to save during their working years for health care expenses in retirement.
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The Retiree Health Care Savings Plan allows employers to set up defined-contribution style plans to which employees can contribute part of earnings, post-tax, to be used for health care costs in retirement. Employers have the option of contributing to the plan as well. Employer contributions and earnings are not taxable when used for medical expenses in retirement.

Doug Chittenden, vice president for institutional product management at TIAA-CREF, told PLANSPONSOR that the firm increasingly heard from clients of all types about the challenges in offering retired employees health care subsidies or benefits. Following a symposium in which the topic of retiree health care costs was discussed, TIAA-CREF decided the only solution is to start now and pre-fund for health care costs, and formed a task force that has been working on the solution for the past two years.

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The Retiree Health Care Savings Plan is a trust-structured solution where the plan sponsor is the owner of the trust, but the participants’ accounts are individually recordkept. The plan sponsor will decide investment options, and TIAA-CREF anticipates that most will allow participants to direct investments of their accounts. According to Chittenden, most clients currently looking at the program are eyeing lifecycle funds, but sponsors can choose any type of investment for their programs’ menu.

The plan will look similar to participants’ 403(b) accounts, and participants will be able to use TIAA-CREF’s Web site and other tools for account monitoring and management, Chittenden said. Once in retirement, participants will be able to use a debit card to access benefits at the point of service.

TIAA-CREF started the program for its own employees on January 1, and expects to offer it to about 15 more plan sponsor clients this year. Chittenden said the program will be offered across all client institutions next year.

 

Employers interested in the Retiree Health Care Savings Plan can find out more from a TIAA-CREF representative or by calling 888.842.7782. The firm will be putting information about the program on its Web site soon.

 

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