ERISA-Tenth Circuit Holds That The Inadequacy Of A 402(f) Notice Was Not Egregious, So Employees Could Not Recover Subsidies Lost In Plan Coversion

In Jensen v. Solvay Chemical, Inc., No. 11-8092 (10th Cir. 2013), the defendant, Solvay Chemical, Inc. (“Solvay”), converted its defined benefit pension plan into a so-called “cash balance” plan. This coversion eliminated certain popular early retirement subsidies. Employees brought this suit, seeking restoration of the lost early retirement benefits, based on an inadequate 204(h) notice that Solvay had provided about the conversion (the inadequacy arising from the notice’s failure to, among other things, properly describe what early retirement subsidies already existed under the pre-existing defined benefit plan) .

In analyzing the case, the Tenth Circuit Court of Appeals (the “Circuit Court”) noted that employees may recover amounts based on an inadequate 204(h) notice only if the inadequacy is “egregious”. The Circuit Court said that there are two applicable definitions under § 204(h) . First, a notice’s inadequacy will be “egregious” if the inadequacy was “within [the employer’s] control” and was “intentional “. Second, the notice’s inadequacy is “egregious” if the inadequacy was “within [the employer’s] control” and the employer failed “to promptly provide the required notice or information after [it] discover[ed] an unintentional failure to meet the requirements of” § 204(h)”.

The district court found that the notice’s inadequacy was not egregious under either of these meanings. Far from intentionally failing to disclose information on early-retirement benefits, the district court found that “Solvay did its best to comply with” § 204(h). The district court further found that “the earliest time Solvay discovered its failure was after the filing of this case” and that the company “sought the advice of its ERISA counsel to ensure it remained compliant” as soon as it discovered the problem. Since it found that the notice’s inadequacy was not egregious, the district court ruled that the employees could not recover the lost subsidies. The employees appeal. The Circuit Court concluded that the district court had not made a clear error, and as such, the Circuit Court affirmed the district court’s ruling.

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