Definition of Participant Governs Nonqualified Plan Payments

A group of retirees should not have received a lump-sum payment from a nonqualified plan at a change in control because they were not “participants” as defined by the plan.

A federal appellate court found three retirees of Bausch & Lomb were not “participants” as defined in its nonqualified plan for executives and, therefore, not subject to the change-in-control provisions of the plan.

The retirees sued Bausch & Lomb because their recurring payments from the plan were stopped and they were paid a lump-sum of their remaining account value, which they contended reduced their overall benefits.

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

The 2nd U.S. Circuit Court of Appeals agreed with a lower court that since the plan defines “retired participant” separately from “participant,” and since the change-in-control provision of the plan only applies to “participants,” the retirees should not have received a lump-sum distribution upon a change in control of the company. The plan defined “participant” as “an employee of the company who has been selected to participate in the plan,” while “retired participant” was defined as “a former participant who is receiving benefits under this plan.” The court noted that retired participants are no longer “employee[s] of the company,” as is required to be a participant, and a retired participant, as a matter of logic, cannot be both a “former Participant” and a current participant.

In addition, the court pointed out that the change-in-control section of the plan provides that, for purposes of determining the participant’s accrued benefit, the date of the change of control will act as a stand-in for the date of termination of employment. The retirees already had a date of termination and did not need a stand-in date.

The 2nd Circuit affirmed a lower court’s ruling that Bausch & Lomb misinterpreted the change-in-control provision of the plan.

As a remedy, the lower court allowed for the retirees to keep their lump-sum payments but have monthly payments reinstated at a lower amount in consideration of the lump sum. The 2nd Circuit found that the district court’s remedy does not run afoul of the principle, announced by the U.S. Supreme Court in CIGNA Corp. v. Amara, that a district court has no authority to “reform” an Employee Retirement Income Security Act (ERISA) plan. The court said the only relief ordered by the district court—reinstatement of monthly benefit payments that Bausch & Lomb had unlawfully stopped—was explicitly called for by the plan itself. In addition, the appellate court said the district court’s practical measure of a “credit” in the amount of the lump sum is a traditional application of the remedy of contractual expectation damages—ensuring that plaintiffs are restored to the same financial position they would have been in, but for Bausch & Lomb’s breach.

The decision in Gill v. Bausch & Lomb is here.

 

Fidelity Introduces IRA Match Program

A new program from Fidelity seeks to bring one of the most popular features of 401(k) accounts to individual retirement investors, in the form of a matching contribution.

Fidelity Investments has introduced a program to motivate investors to accelerate their retirement preparedness through a matching contribution component to qualifying individual retirement accounts (IRAs).

IRA Match, which Fidelity says is the first of its kind in the IRA market, encourages investors to increase their retirement savings by matching annual contributions to new or existing IRAs. Fidelity says its matching contributions to qualifying IRA holders start at one percentage point and range up to 10% for the largest contributors. 

Want the latest retirement plan adviser news and insights? Sign up for PLANADVISER newsletters.

Lauren Brouhard, senior vice president for retirement at Fidelity Investments, says the company’s research shows an employer match encourages 401(k) participants to save more and contribute regularly. “We wanted to bring this powerful behavioral draw to our IRA customers to not only motivate them to choose a Fidelity IRA, but also to continue growing their savings even more,” she notes. 

The match is available to new or existing customers who transfer a Roth, traditional or rollover IRA to the company. When this occurs, and an individual makes contributions to their IRA over the next three years, Fidelity will match their annual contribution, up to 10%. Direct rollovers from a 401(k) or 403(b) plan are ineligible for the match. So, for example, a customer who transfers $500,000  will earn 10% on future contributions. If a contribution of $5,500 is made in the first year, that customer will receive a $550 match.

Fidelity’s matching structure will be most compelling for the select group of IRA savers able to stock away more than $500,000 annually. This group will get a 10% match. Fidelity explains the matching structure as follows:

  • $10,000 earns 1% match;
  • $50,000 earns 1.5% match
  • $100,000 earns 2.5% match
  • $250,000 earns 5% match; and  
  • $500,000 earns 10% match.

Investors interested in signing up may do so by visiting www.fidelity.com/iramatch or calling a Fidelity representative.

«