Employer Cleared in Conversion Distribution Dispute

A federal judge in Kentucky has cleared an employer of charges it violated the Employee Retirement Income Security Act (ERISA) by not including early retirement benefits in a participant’s lump sum distribution.

Chief Judge John G. Heyburn II of the U.S. District Court for the Western District of Kentucky ruled that Commonwealth Industries was not obligated to include in Donald Corley’s distribution the early retirement benefits Corley claimed he was due from the defined benefit plan before its cash balance conversion. Corley argued in the 2007 suit that by failing to pay him these early retirement benefits, the plan had violated ERISA’s anti-cutback rule.

Heyburn turned away Corley’s contention that the early retirement benefits were “accrued benefits” that could not be taken away during a DB to cash balance plan conversion. Heyburn pointed out that, at the time of the conversion, Corley was younger than 55, and he had not yet met the conditions for early retirement benefits so the benefits were not accrued. Under the traditional plan, early retirement benefits were available, and “accrued,” once a participant reached age 55 and had completed five years of credited service.

Heyburn also cleared the employer of wrongdoing in connection with Corley’s contention it had failed to provide him with ERISA-mandated notice of the conversion. ERISA requires notice of amendments that reduce the future accruals of benefits, but when the plan was converted, there was no reasonable expectation that Corley would suffer a significant reduction in the rate of future accruals, the court said.

The court also noted that the plan did not characterize the early retirement benefits as accrued benefits. Instead, the plan defined the early retirement benefits as a “conditional benefit” if a participant satisfied the eligibility requirements.

Finally, Heyburn dismissed Corley’s contention that the plan improperly reduced his benefits by failing to correctly perform a whipsaw calculation.

The case is Corley v. Commonwealth Industries Inc., W.D. Ky., No. 3:07-CV-196-H, 12/3/08.