In McCorkle v. Bank of America Corporation NA, No. 11-1668 (4th Cir. 2012), the plaintiffs, David McCorkle and William Pender (the “Plaintiffs”), appealed the district court’s order dismissing two of their claims against the defendant, Bank of America Corp. (“the Bank”), for alleged violations of ERISA. The gravamen of the Plaintiffs’ two claims is that the Bank of America Pension Plan (“the Plan”)-a defined benefit cash balance plan- employed a normal retirement age (“NRA”) that violated ERISA in calculating lump sum distributions, and also caused the Plan to violate ERISA’s prohibition of “backloading” in the calculation of benefit accrual. The Fourth Circuit Court of Appeals (the “Court”) affirmed the district court’s dismissal of the two claims.
In analyzing the case, the Court noted that ERISA defines NRA (in section 3(24)) as the earlier of: (1) the time a plan participant attains NRA, as defined under the plan, or (2) the later of (a) the time a plan participant turns age 65, or (b) the 5th anniversary of the time a plan participant commenced participation in the plan. For the years at issue here, the Plan defined NRA as the first day of the calendar month following the earlier of (i) the date the Participant attains age sixty-five (65) or (ii) the date the Participant completes sixty (60) months of Vesting Service. The Court further noted that, under section 204(b)(1) of ERISA -the backloading prohibition- a defined benefit plan must satisfy (as one alternative) the “133 1/3 percent” test, under which the amount a participant accrues in any given year is not more than 133 1/3 percent of the annual rate at which he accrued benefits the previous year. This prevents more rapid benefit accrual in the later years of employment. However, the backloading prohibition does not apply once a participant reaches NRA, defined for this purpose as the earlier of age 65 or the normal retirement age specified under the plan. In this case, the Plan provided that a participant who had reached NRA would receive an annual “Compensation Credit” equal to the product of his compensation for the pay period then ended multiplied by the applicable “Compensation Credit Percentage”. The Plaintiffs alleged that this credit, coupled with the Plan’s definition of NRA, violates ERISA’s backloading prohibition.
The Court found (attributable in part to Plaintiffs’ concessions) that the Plan states a valid NRA within the meaning of section 3(24) of ERISA, for purposes of calculating lump sum definitions. The Court found further (again, attributable in part to Plaintiffs’ concessions) that the Plan’s definition of NRA is valid under section 3(24) for purposes of satisfying ERISA’s backloading requirements. Also, the Court ruled that ERISA’s back-loading rules do not apply once a plan participant reaches NRA, so that the Compensation Credit could not cause the Plan to fail to meet those requirements. As such, the Court agreed with the district court that the Plaintiffs’ two claims fail.