ERISA-Ninth Circuit Holds That Decision To Prohibit Transfer Of Account Balances From One Plan To Another Did Not Violate Anti-Cutback Rule

In Andersen v. DHL Retirement Pension Plan, No. 12-36051 (9th Cir. 2014), the Ninth Circuit Court of Appeals (the “Court”) dealt with the question of whether the Defendants’ (“DHL”) decision to eliminate Plaintiffs’ right to transfer their account balances from DHL’s defined contribution plan to its defined benefit plan violated the ERISA “anti-cutback” rule. This rule, found at 29 U.S.C. § 1054(g), prohibits any amendment of an employee benefits plan that would reduce a participant’s “accrued benefit.”

In this case, prior to the amendment challenged in this case, the Plaintiff’s, who were participants in an individual account profit sharing plan at DHL (the “Profit Sharing Plan”), could transfer the funds from their Profit Sharing Plan accounts to the defined benefit retirement plan in which they also participated at DHL (the “Retirement Plan”). The Retirement Plan would offset a participant’s benefit under that plan by his or her Profit Sharing Plan account balance. As a result, the transfer option, if exercised, provided increased funds for the participant under the Retirement Plan, but also reduced the Profit Sharing Account balance to zero, so that there was no offset. As such, the transfer could work to the participant’s advantage. However, DHL amended the Retirement Plan to prohibit the transfers, and this suit ensued.

In analyzing the case, the Court concluded that the amendment to the Retirement Plan eliminating the transfer option did not violate the anti-cutback rule. There is no reduction is a participant’s accrued benefit. The amount of the accrued benefit is determined by formula in Section 4.01 of the Retirement Plan. The amendment did not affect this formula. Under that formula, a participant’s accrued benefit is, and always has been, calculated on the basis of a participant’s final average compensation and years of service, with an offset for an attributed annuity amount based on the participant’s account balance, if any, in the Profit Sharing Plan. The transfer option eliminated was in Section 7.11, and that Section was not part of a participant’s accrued benefit. The Court noted that the anti-cutback rule prohibits the elimination of an optional form of benefit (29 U.S.C. § 1054(g)(2)). But the Court reasoned that the only plan feature eliminated was the Retirement Plan provision under which transfers were accepted, and IRS regulations under the anti-cutback rule permit elimination of this type of feature.

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