Category Archives: Plan Language

Today in ERISA History

Posted on September 27, 2012 by Administrator| Comments Off

Sept. 27, 2007 – The IRS issues Quality Assurance Bulletin FY 2007-2 on the EGTRRA Staggered Remedial Amendment Period and Remedial Amendment Cycle for Individually Designed Plans. In 12 pages, it explains the remedial amendment cycles established by Rev. Proc. 2005-66 for individually designed plans as they were changed by Rev. Proc. 2007-44.

Rev. Proc. 2005-66 was issued by the IRS on Sept. 12, 2005. It created different remedial amendment cycles for pre-approved and individually designed plan document, essentially splitting the plan document world in two. According to Rev. Proc. 2005-66, pre-approved plans, which have reliance on a valid IRS opinion/advisory letter, follow a 6-year restatement cycle whose beginning and ending dates would be established by the IRS at a future date, and all other plans, which are considered individually designed because they lack a valid IRS opinion/advisory letter, follow a 5-year restatement cycle based on the last digit of the sponsoring employer’s Employer Identification Number (EIN).

On July 5, 2006, the IRS issued Quality Assurance Bulletin 2006-2 explaining how the remedial amendment cycles created by Rev. Proc. 2005-66 would work.

On July 9, 2007, the IRS issued Rev. Proc. 2007-44, which revised and superseded Rev. Proc. 2005-66.

On Sept. 27, 2007, the IRS then issued Quality Assurance Bulletin 2007-2, explaining how Rev. Proc. 2007-44 changed the remedial amendment cycles established by Rev. Proc. 2005-66, and superseding QAB 2006-2.

QAB 2007-2 contains a number of helpful charts for understanding the remedial amendment cycles for individually designed plans, including a chart which contains the exceptions to using the last digit of the sponsoring employer’s EIN to establish the Rev. Proc. 2007-44 remedial amendment cycle.

One of the explanations of Rev. Proc. 2007-44 contained in QAB 2007-2 is about terminating plans. QAB 2007-2 states:

For plan terminations the RAC will generally be shortened. Thus, any retroactive remedial plan amendments or other required amendments for a terminating plan must be adopted in connection with the plan termination. This will include plan amendments required to be adopted to reflect qualification requirements that apply as of the date of termination regardless of whether such requirements are included on the most recently published CL. An application will be deemed to be filed in connection with the plan termination if it is filed no later than the later of:

One year from the effective date of termination or

One year from the date on which the action terminating the plan is adopted

In no event can the application be filed later than 12 months from the date of distribution of substantially all plan assets.

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Posted in History, IRS, Plan Language

Tagged ERISA history, individually designed, QAB 2007-2, remedial amendment cycle, Rev. Proc. 2007-44

Today in ERISA History

Posted on May 23, 2012 by Administrator| Comments Off

May 23, 2005 – The IRS issues Announcement 2005-36, closing the GUST program for defined contribution pre-approved prototype and volume submitter plans as of June 15, 2005. This set June 15, 2005, as the mark on the plan document timeline showing the end of the GUST era for defined contribution pre-approved prototype and volume submitter plan documents.

The GUST remedial amendment period generally ended on the later of February 28, 2002, or the end of a plan’s 2001 plan year. However, for certain plans eligible for an extended GUST remedial amendment period under Rev. Proc. 2000-20, 2000-1 C.B. 553, the period generally ended on September 30, 2003.

The term “GUST” refers to the changes made to qualified plans by the following public laws:

the Uruguay Round Agreements Act, Pub. L. 103-465;

the Uniformed Services Employment and Reemployment Rights Act of 1994, Pub. L. 103-353;

the Small Business Job Protection Act of 1996, Pub. L. 104-188;

the Taxpayer Relief Act of 1997, Pub. L. 105-34;

the Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206; and

the Community Renewal Tax Relief Act of 2000, Pub. L. 106-554.

After the IRS closed the GUST program for approving pre-approved defined contribution prototype and volume submitter plan documents, it started reviewing the next generation of defined contribution plan documents – EGTRRA documents. The initial deadline for filing applications for EGTRRA pre-approved defined contribution prototype and volume submitter plan documents was Jan. 31, 2006.

After EGTRRA came the PPA generation of pre-approved defined contribution prototype and volume submitter plan documents. The initial deadline for filing applications for PPA pre-approved defined contribution prototype and volume submitter plan documents was April 2, 2012.

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Posted in History, Plan Language

Tagged ERISA history, GUST History

Today in ERISA History

Posted on May 15, 2012 by Administrator| Comments Off

May 15, 2001 – The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), Pub. L. 107-16, was introduced in the House by Rep. William Thomas (R-CA). It was signed into law by President George W. Bush on June 7, 2001.

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Posted in History, Legislation, Plan Language

Tagged EGTRRA, ERISA history

In a post-Amara World, Ninth Circuit Finds Plan Document Trumps SPD

Posted on March 20, 2012 by Administrator| Comments Off

On Friday, March 16, 2012, the U.S. Court of Appeals for the 9th Circuit decided Skinner v. Northrop Grumman Retirement Plan B, No. 10-55161, affirming summary judgment in favor of Northrop Grumman granted by the U.S. District Court for the Central District of California in a dispute over whether the language of the plan document or the language of the Summary Plan Description (SPD) should control when calculating participants’ retirement benefits.

In June of 2004, Charles Skinner, in anticipation of retirement, received a pension calculation packet illustrating how his benefit would be calculated based on his salary, contributions, and age at retirement. In December of 2004, and again in April of 2005, Mr. Skinner receives additional pension calculation packets. All of the packets included an “annuity equivalent offset” as part of the formula calculating the amount of his benefit. In May of 2005, Mr. Skinner retired.

In February of 2005, Gregory Stratton was also anticipating retirement and received a pension calculation packet which included an “annuity equivalent offset” as part of the benefit calculation. In December of 2005, Mr. Stratton received a Summary of Material Modifications (SMM) which included the annuity equivalent offset. In May of 2006, Mr. Stratton received another pension calculation packet, also including the annuity equivalent offset. In July of 2006, Mr. Stratton retired.

Mr. Skinner and Mr. Stratton filed a lawsuit against Northrop Grumman Retirement Plan B, claiming, in part, that their retirement benefits should have been calculated according to the terms of the 2003 Summary Plan Description (SPD) instead of the Northrop Grumman Retirement Plan B calculating their benefits according to the terms of the plan document. The district court granted summary judgment in favor of the Northrop Grumman Retirement Plan B, finding that Mr. Skinner and Mr. Stratton had not raised a genuine issue of material fact. They appealed to the Ninth Circuit Court of Appeals, which reversed and remanded the case back to the district court, finding that an ambiguity existed between the SPD and the plan documents about the “annuity equivalent offset” which plan administrators used to reduce annual benefit amounts based on the age of the participant at retirement. On remand, the district court again granted summary judgment in favor of the Northrop Grumman Retirement Plan B, and Mr. Skinner and Mr. Stratton appealed again to the Ninth Circuit Court of Appeals.

Around the time of the second appeal to the Ninth Circuit Court of Appeals, Cigna Corp. v. Amara, 131 S.Ct. 1866 (2011) was pending before the U.S. Supreme Court. The Ninth Circuit Court of Appeals delayed hearing argument in this case until the U.S. Supreme Court decided Cigna Corp. v. Amara because it involved a similar dispute over whether the language contained in the SPD or the language contained in the plan documents controlled when calculating a participant’s benefits. In Cigna Corp. v. Amara, when the U.S. Supreme Court “made it clear that ‘summary documents, important as they are, provide communications with beneficiaries about the plan, but that their statements do not themselves constitute the terms of the plan for purposes of section 502(a)(1)(B)”, the Ninth Circuit determined that the claims in this case about Northrop Grumman Retirement Plan B using the formula contained in the plan documents to calculate the participants’ benefits instead of calculating the plaintiffs’ benefits using the language contained in the 2003 Summary Plan Description, could not proceed.

The plaintiffs’ then asked the Court to reform the terms of the plan documents so they were consistent with the 2003 SPD. The Ninth Circuit declined, stating that reformation is proper only in cases of fraud and mistake, which the participants had not alleged in this case, and affirmed the district court’s grant of summary judgment in favor of Northrop Grumman Retirement Plan B.

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Posted in Litigation, Plan Language

Tagged 9th Circuit, Amara, Cigna, defined benefit, ERISA, Northrop Grumman, Skinner, SPD

IRS Pre-Approved 412(i) Prototype and Volume Submitter Plan Documents Not an Urban Myth

Posted on March 8, 2012 by Administrator| Comments Off

With the IRS deadline of April 30, 2012 fast approaching to restate GUST defined benefit plans onto EGTRRA pre-approved prototype and volume submitter plan documents, I’ve heard a lot of discussion about how the IRS will not pre-approve 412(i) plan documents for use as prototypes or volume submitters. (412(i) plans are also referred to as 412(e) plans or 412(e)(3) plans due to the Pension Protection Act of 2006 renumbering 412(i) to 412(e)(3)). Some of my colleagues are so passionate about this topic that they will not entertain the notion that sections 6.03 and 16.02 of Rev. Proc. 2005-16, which contains the types of plans the IRS will not pre-approve as prototypes or volume submitters, does not include all 412(i) plans.

In fact, it states just the opposite. Section 6.03(16) of Rev. Proc. 2005-16 says the IRS will not issue EGTRRA opinion letters for “Fully-insured section 412(i) plans, other than plans that, by their terms, satisfy the safe harbor for section 412(i) plans in section 1.401(a)(4)-3(b)(5)”.

Section 16.02(15) contains identical language applicable to advisory letters issued to volume submitter plan documents.

The Defined Benefit List of Required Modifications (DB LRMs), which the IRS issued in June of 2007 to help plan document providers write their EGTRRA ndefined benefit prototype plan documents, includes a number of sections containing suggested language for 412(i) plan documents. DB LRM 31 explains what provisions a pre-approved 412(i) prototype plan document should contain before the IRS will consider issuing an opinion letter to that plan document, pre-approving it for use as a prototype plan document. It says:

“Because of the potential for discrimination, fully-insured section 412(i) plans in the Master and Prototype program must satisfy the safe harbor for section 412(i) plans contained in section 1.401(a)(4)-3(b)(5) of the regulations. In general, to be eligible for this safe harbor, a section 412(i) plan must:

1. satisfy the accrual rule of Code section 411(b)(1)(F) (see LRM 32);

2. constitute an insurance contract plan within the meaning of Code section 412(i) (see LRM 32);

3. incorporate the section 412(i) fresh-start rule in LRM #23 and the definition of frozen projected benefit in LRM 32.

4. contain a benefit formula that would satisfy the requirements of either Regulations section 1.401(a)(4)- 3 (b) (4) (i) (C) (1) (safe harbor for unit credit plans using fractional accrual rule) or (C) (2) (safe harbor for flat benefit plans) if the participant’s stated normal retirement benefit accrued ratably over each employee’s period of plan participation through normal retirement age.

5. provide that the scheduled premium payments under an individual or group insurance contract used to fund an employee’s normal retirement benefit are level annual payments to normal retirement age (see LRM 32);

Provide that the premium payments for an employee who continues benefiting after normal retirement age are equal to the amount necessary to fund additional benefits that accrued under the plan’s benefit formula for the plan year (see LRM 32);

6. apply experience gains, dividends, forfeitures, and similar items solely to reduce future premiums (see LRM 87) ;

7. provide that all benefits are funded through contracts of the same series which, among other requirements, must have cash values based on the same terms (including interest and mortality assumptions) and the same conversion rights. A plan does not fail to satisfy this requirement, however, if any prospective change in the contract series or insurer applies on the same terms to all employees in the plan (see LRM 32); and

8. provide that if permitted disparity is taken into account, the normal retirement benefit formula satisfies the requirements of section 1.401(l)-3 of the regulations, and the 0.75-percent maximum excess or offset allowance is reduced by multiplying the factor by an additional 0.80 (see LRM 27D).)”

The IRS then provides suggested sample language in several sections of the 2007 DB LRMs designed to meet these requirements.

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Posted in 412(i), Plan Language

Tagged 412(e), 412(e)(3), 412(i), fully insured defined benefit, Plan Documents

Still No News From IRS on Extension of 403(b) Written Plan Requirement

Posted on December 4, 2008 by Suzanne Wynn| Comments Off

Today’s news is that there is no news on whether there will be an extension of time to comply with the Final 403(b) Regulations. The announcement made by IRS Senior Tax Law Specialist Bob Architect during the IRS’ webcast today was that the Service has received comments requesting an extension and that the IRS will be responding to those comments about the effective date of the Final 403(b) Regulations in some form in the next 2-3 weeks. No hints were given on whether the response would be to extend the January 1, 2009, deadline to comply with the written plan requirement, or that the Service has decided not to extend the deadline.

With just 27 days left in December, I am hoping that the announcement is made sooner rather than later. When the IRS released Notice 2005-95 at the end of December in 2005 extending the deadline for the Automatic Rollover amendment, it felt like administrators who had spent the summer and fall of 2005 diligently getting amendments signed were being punished while their procrastinating colleagues were being rewarded. In 2005, if the announcement had been made in late November or early December, any ill feelings about the extension may have been alleviated. Instead, because the IRS announced the extension past the point when any reasonable plan would have signed the extensino, the only plans able to take advantage of the extension were plans that had made no attempt to comply.

This time, complying with the written plan requirement contained in the Final 403(b) Regulations is a little different because the entire plan industry is now in the position of creating plans to comply with the deadline without the necessary guidance from the IRS. Agent Architect said that guidance will be forthcoming before the end of the December in the form of a proposed revenue procedure and LRMs containing 65-70 pages of guidance and proposed plan language. While it makes perfect sense to extend the deadline so that, in this tight economy, the guidance is released before the plan sponsors spend money for compliance, the IRS still isn’t providing any indication on which way they will go.

Some other items covered during today’s webcast:

- Treas. Reg. 1.414(c)-5 is effective Jan. 1, 2009, and is worth reviewing for the entire tax exempt community, especially for plan sponsors who may be in a controlled group situation. It applies a controlled group determination of who the employer is for the first time to the tax exempt community.

- The model plan contained in Rev. Proc. 2007-71 will not be supplemented or updated to include more sophisticated plan provisions, such as matching contributions or non-elective contributions. In the first half of 2009, the IRS will be opening a pre-approved program for approving prototype and volume submitter plan documents containing these types of provisions. In the second part of 2009, the IRS will be opening a determination letter program for 403(b) plans to review plans which are using sophisticated provisions but are not using a pre-approved prototype or volume submitter plan document. I was really excited to hear this because my firm will be submitting both prototype and volume submitter 403(b) plans as soon as the program opens.

- The EPCRS program is being updated to include a future correction program for 403(b) plans.

- Freezing contributions to a 403(b) plan does not terminate the plan. If a plan freezes contributions but does not terminate by Jan. 1, 2009, the plan is required to comply with the written plan requirement contained in the Final 403(b) Regs. Terminating a 403(b) plans means that the plan is liquidated and distributed in a timely manner. For some plans, because the plan sponsor does not have the power to liquidate and distribute the assets held in individual accounts, it is not possible for the plan sponsor to terminate the plan.

- A plan with only salary deferrals is still required to comply with the written plan requirement of the Final 403(b) Regs.

- The Final 403(b) Regs do not restrict rollovers, and rollovers should not be confused with in-service contract exchanges.

[tag]pension protection act, ppa, 403(b), 1.414(c)-5, IRS, rollovers, ERISA[/tag]

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Posted in 403(b), IRS, Plan Language

IRS Releases Cumulative List for Cycle D Plans

Posted on December 2, 2008 by Suzanne Wynn| Comments Off

The IRS has released Notice 2008-108, which contains the 2008 Cumulative List of Change in Plan Qualification Requirements, also known as the Cycle D Cumulative List. Cycle D plans are: (1) individually designed single employer qualified plans where the last digit of the plan sponsor’s EIN ends in 4 or 9; or (2) multiemployer plans under Code section 414(f). Cycle D plans are required to restate onto an updated plan document which incorporates the provisions contained in this Cumulative List and submit for a determination letter between Feb. 1, 2009, and Jan. 31, 2010.

This Cumulative List states that the IRS, when reviewing determination letter applications for Cycle D plans, will not consider any:

This restriction is important to note because it clarifies how to treat the overlap between many of the Pension Protection Act provisions which become first effective on January 1, 2010, and the submission deadline of January 31, 2010. The IRS included a number of PPA provisions on this Cumulative List, and Notice 2008-108 states that all plans submitted in Cycle D will receive a determination letter which covers PPA ’06, even if the deadline for amending under section 11007 of PPA ’06 is after January 31, 2010.

The other interesting provision contained in Notice 2008-108 is that it provides an alternative submission date for Cycle D plans. For Cycle D plans whose first plan year begins on or after January 1, 2009, and ends on or after February 1, 2010, the plan sponsor can defer submission of the plan until Cycle E, which runs from Feb. 1, 2010 to Jan. 31, 2011. The IRS states that this is a one-time-only deferral and all subsequent submissions of Cycle D plans will take place within Cycle D.

[tag]pension protection act, ppa, Cumulative List, Cycle D, Notice 2008-108, ERISA[/tag]

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Posted in IRS, Plan Language

California Supreme Court’s Decision on Domestic Partnerships May Raise Some Plan Document Issues

Posted on May 16, 2008 by Suzanne Wynn| Comments Off

Yesterday, in In re Marriage Cases, No. S147999 (May 15, 2008), the California Supreme Court addressed the issue of whether domestic partnership is the same as marriage. As framed by the Court, the issue they addressed in this decision is:

“Accordingly, the legal issue we must resolve is not whether it would be constitutionally permissible under the California Constitution for the state to limit marriage only to opposite-sex couples while denying same-sex couples any opportunity to enter into an official relationship with all or virtually all of the same substantive attributes, but rather whether our state Constitution prohibits the state from establishing a statutory scheme in which both opposite-sex and same-sex couples are granted the right to enter into an officially recognized family relationship that affords all of the significant legal rights and obligatinos traditionally associated under state law with the institution of marriage, but under which the union of an opposite-sex couple is officially designated a “marriage” whereas the union of a same-sex couple is officially designated a “domestic partnership.” The question we must address is whether, under these circumstances, the failure to designate the official relationship of same-sex couples as marriage violates the California Constitution

The Court provides an extensive discussion of this issue, and concludes that:

“Accordingly, in light of the conclusions we reach concerning the constitutional questions brought to us for resolution, we determine that the language of section 300 limiting the designation of marriage to a union “between a man and a woman” is unconstitutional and must be stricken from the statute, and that the remaining statutory language must be understood as making the designation of marriage available both to opposite-sex and same-sex couples. In addition, because the limitation of marriage to opposite-sex couples imposed by section 308.5 can have no constitutionally permissible effect in light of the constitutional conclusions set forth in this opinion, that provision cannot stand.”

It is the Court’s focus on the term “marriage” which is interesting from a qualified plan perspective. For as long as I can remember, a great debate has been waged over the plan language on “spouse” and “marriage” due to the federal pre-emption of issues involving ERISA. Marriage is one of those plan areas which is State regulated but has plan document implications because there is no federal pre-emption of marriage. It has remained a hybrid between the two worlds of federal pre-emption and State regulation for ERISA issues.

For example, qualified 401(k) plan documents will contain provisions about how a participant’s account balance will be distributed upon their death. Because it is possible, though unlikely, that a participant could die before receiving a full distribution of the vested portion of their account balance, the Internal Revenue Code contains a provision for a qualified preretirement survivor annuity (QPSA). A carefully drafted 401(k) plan will contain information incorporating this Internal Revenue Code provision regarding a QPSA, and may contain plan language something like this:

“Qualified Preretirement Survivor Annuity. Unless an optional form of benefit has been selected within the Election Period pursuant to a Qualified Election, the vested Account Balance of a Participant who dies before the Annuity Starting Date shall be applied toward the purchase of an annuity for the life of his surviving spouse (a QPSA). The surviving spouse may elect to have such annuity distributed within the 90-day period after the Participant’s death. For purposes of a QPSA, the term “spouse” means the current spouse or surviving spouse of a Participant, except that a former spouse will be treated as the spouse or surviving spouse (and a current spouse will not be treated as the spouse or surviving spouse) to the extent provided under a QDRO.”

While “spouse” in an integral part of the QPSA information for most plans, and plans normally contain an extensive definition section for terms used within the plan, the term “spouse” is a sticking point among pension geeks. One theory is that, since marriage, and therefore who is a spouse, is an integral part of several key components of the plan, the term should be defined in the definitions section of the plan document. A competing theory is that the plan document should sidestep the issue of who is a spouse by omitting the definition of spouse, since marriage, and therefore who is a spouse, is governed by State law, and qualified plan documents are required to comply with ERISA, which is federal.

One problem with including the definition of spouse within the plan document is that each State has its own laws when it comes to marriage and who is a spouse. Try to write a definition of spouse without using the term “marriage” or “married” and see how difficult it becomes. With the California Supreme Court focusing on what the term “marriage” means under California law, and with so many California employers sponsoring qualified plans, there will be a lot of pension geeks flipping through their plan documents this weekend to see how the plan addresses this issue.

[tags]Pension Protection Act, ppa, marriage, spouse, In re marriage cases, California Supreme Court, domestic partner, ERISA[/tags]

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Posted in Domestic Relations Order, Litigation, Plan Language

Some Plan Implications of Reclassification as IBM Reclassifies Employees from Salaried to Hourly

Posted on April 29, 2008 by Suzanne Wynn| Comments Off

Paul Secunda has an interesting post today on the Workplace Prof Blog about IBM reclassifying workers from salaried to hourly. The corporate buzzword for this is “reclassification”, and the story, which originated on NPR Marketplace, also mentions FedEx reclassifying drivers as independent contractors, and Allstate reclassifying agents as independent contractors.

For plan documents, the grandfather of reclassification is Microsoft. Several years ago, Microsoft reclassified employees as independent contractors, and within their plan document, excluded employees classified as independent contractors from becoming participants. Microsoft’s reclassification language spread through qualified plan documents, and is memorialized in IBM’s plan document, as of the January 1, 2005 restated plan, as:

“1.20. “Employee” means an employee of any Employer who receives stated compensation other than a pension, severance pay, retainer, or fee under contract. The term “Employee” excludes any Leased Employee and any person who is included in a unit of employees covered by a collective bargaining agreement that does not provide for his membership in the Plan. Any person deemed to be an independent contractor by any Employer and paid by the Employer in accordance with its practices for the payment of independent contractors, including the provision of tax reporting on Internal Revenue Service Form 1099, shall be excluded from the definition of Employee for all purposes under the Plan, notwithstanding any subsequent reclassification of such person for any purpose under the Code, whether agreed to by the Employer or adjudicated under applicable law

Section 1.46 of IBM’s plan document defines “Regular Employee” as:

“1.46. “Regular Employee” means an Employee as so defined by the rules and regulation of his Employer, who is (i) compensated by salary or by commission, or partly by salary and partly by commission, (ii) subject to the Employer’s performance evaluation program, and (iii) employed for an indefinite period

Eligibility is contained in Section 3.01 of IBM’s plan document, which states:

3.01. Eligibility

(a) Except as provided in subsection (c), each Employee of an Employer shall be eligible to become a Participant at any time during service as a Regular Employee

In this type of plan which restricts eligibility to Regular Employees as defined by the plan document, and Regular Employees are defined as employees paid by salary or comission, hourly employees are not eligible to participate in the 401(k) plan. For plan documents, this is the real issue with Reclassification because it can be used by some companies to restrict plan participation.

Once an employee becomes a participant in the plan, they cannot be reclassified out of participating. For reclassified employees, Section 3.04(a) of IBM’s plan states that:

3.04. Effect of Status Change on Participation

(a) Except as provided in subsection (b), a Participant who

(i) has been employed by the Employer or an Affiliate as a Regular Employee, then

(ii) ceases to be a Regular Employee, but

(iii) remains in the employ of an Employer or an Affiliate

shall continue to be a Participant in the Plan, but shall not be eligible to receive allocations of Deferred Cash Contributions or Matching Contributions, and shall not be eligible to make After-Tax Contributions, while his employment status is other than as a Regular Employee.

And this really is the heart of Reclassification when is comes to qualified plan documents – the reclassification has an impact plan eligibility and on employer contributions into the plan. For participants who are reclassified out of employer contributions, they remain as participants but their accounts will not grow as the employer prospers. The NPR Marketplace story states that IBM reported a 25 percent jump in profits a couple of weeks ago so it is not clear why IBM decided to engage in reclassification.

[tags]Pension Protection Act, ppa, reclassification, IBM, eligibility, independent contractor, NPR Marketplace, Workplace Prof, Paul Secunda, ERISA[/tags]

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Posted in Eligibility, Independent Contractors, Plan Language

Married for One Year Language Defeats Claim for Benefits

Posted on March 25, 2008 by Suzanne Wynn| Comments Off

Common language contained somewhere in most qualified plan documents is the definition of spouse. Within that definition can be the requirement that a participant must be married for a period of one year before the spouse is recognized by the plan as the participant’s spouse. In a recent case from the 5th Circuit Court of Appeals, the interpretation of married for one year was central to the outcome of the claim for benefits.

In Robinson v. New Orleans Employers ILA AFL-CIO Pension Welfare Vacation & Holiday Funds, No. 07-30433 (CA5, March 13, 2008), the 5th Circuit held that the district court properly granted summary judgment for the plan, and affirmed the district court’s decision. The district court’s decision granted summary judgment to the plan, finding that the plan administrator did not abuse his discretion when he applied the plan language in determining that the plaintiff and his spouse were not legally married when the plaintiff retired, and therefore the plaintiff’s widow was not entitled to a 50% Qualified Surviving Spouse benefit after the death of the plaintiff.

The relevant plan language provided a 50% Qualified Surviving Spouse benefit after the death of the participant. To qualify, the plan stated that:

“the Employee must at the time of making the application for same, have been married to the qualified spouse for a period of at least 12 months immediately preceding the Approved Retirement Date.”

The Court also stated, in a footnote, that:

“A person also can be a ‘qualified spouse’ even if the employee and spouse are married for less than one year on the annuity starting date if the spouse is ‘legally married to the Employee on his Annuity Starting Date and for at least a one year period ending on or before the Employee’s death.”

In this case, Mrs. Robinson met neither condition. When the participant took early retirement on August 29, 1983, he was not legally married to Mrs. Robinson. Because they were not married on the Approved Retirement Date, it was not possible for her to meet either condition in the plan to qualify for the 50% Qualified Surviving Spouse benefit, so the plan administrator properly applied the plan language in denying her claim for benefits.

In an equitable world, whether Mrs. Robinson should have qualified for a 50% Qualified Surviving Spouse benefit is another story. When Mr. Robinson died in 2004, she had known him, dated him, lived with him and married him over a 49-year period. According to the 5th Circuit, the Robinsons met in 1955 and dated for many years. In 1978, they moved in together and started living together in Louisiana as husband and wife. Since Louisiana does not recognize common law marriage, they were not considered legally married during the time they were living together. On May 5, 1996, they were legally married in Louisiana. As Mr. Robinson took early retirement on August 29, 1983, they were not actually legally married on the date he retired.

The language in the plan document was derived from the Internal Revenue Code section 417(d), which states:

“(d) Survivor annuities need not be provided if participant and spouse married less than 1 year.

(1) In general. Except as provided in paragraph (2), a plan shall not be treated as failing to meet the requirements of section 401(a)(11) merely because the plan provides that a qualified joint and survivor annuity (or a qualified preretirement survivor annuity) will not be provided unless the participant and spouse had been married throughout the 1-year period ending on the earlier of –

(A) the participant’s annuity starting date, or

(B) the date of the participant’s death.

(2) Treatment of certain marriages within 1 year of annuity starting date for purposes of qualified joint and survivor annuities. For purposes of paragraph (1), if -

(A) a participant marries within 1 year before the annuity starting date, and

(B) the participant and the participant’s spouse in such marriage have been married for at least a 1-year period ending on or before the date of the participant’s death,

such participant and such spouse shall be treated as having been married throughout the 1-year period ending on the participant’s annuity starting date.

In denying Mrs. Robinson’s claim for benefits despite her 49-year history with Mr. Robinson, the plan administrator did what they were required to do under the language in the plan document and the Internal Revenue Code, whether they wanted to or not.

[tags]Pension Protection Act, PPA, 417(d), spouse, defined benefit, 50% annuity, marriage, ERISA[/tags]

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Posted in Defined Benefit, Litigation, Plan Language