ERISA's Anti-Cutback Rule Not Violated By Eliminating Transfer Provision, Court Rules

Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...

A pension plan sponsor did not violate the Employee Retirement Income Security Act's anti-cutback rule when it eliminated a provision permitting plan participants to transfer assets from a defined contribution plan to a defined benefit plan, the U.S. District Court for the Western District of Washington ruled Nov. 2 (Andersen v. DHL Retirement Pension Plan, W.D. Wash., No. 2:12-cv-00439-MJP, 11/2/12).

The participants argued that eliminating the transfer provision violated ERISA's anti-cutback rule by improperly decreasing their accrued benefits.

Chief Judge Marsha J. Pechman determined that a Treasury regulation clearly granted authority to the plan sponsor to eliminate the transfer provision and insulated it from the participants' claims.

Benefits Reduced Following Amendment.

Randal Andersen worked for Airborne Express Inc. and participated in two ERISA-governed pension plans offered by Airborne. A defined benefit plan provided benefits based on a participant's years of service and final average compensation. Benefits under the defined benefit plan were offset by any benefits a participant earned in Airborne's individual-account defined contribution plan, which paid benefits based on a participant's investments.

Both the defined benefit plan and the defined contribution plans permitted participants to receive benefits as a lump sum or single life annuity. Participants could also transfer their defined contribution plan account balance to their defined benefit plan.

Airborne was acquired by DHL Holdings (USA) Inc. in 2003. DHL merged Airborne's defined contribution plan into the DHL defined contribution plan in December 2004 and eliminated the transfer provision. The Airborne defined benefit plan was merged into the DHL defined benefit plan in 2006.

Andersen and other former Airborne employees sued DHL, the pension plan, and the plan committee and alleged ERISA violations due to the elimination of the transfer provision. DHL moved to dismiss the complaint.

Regulations Permit Plan Amendment.

The participants argued that DHL violated ERISA's anti-cutback provision by eliminating their right to transfer funds from the defined contribution plan to the defined benefit plan. In its motion to dismiss, DHL argued that Treasury regulations explicitly permitted it to eliminate the participants' transfer rights.

The court explained that the U.S. Court of Appeals for the Ninth Circuit had not previously examined the “intersection of ERISA's anti-cutback provisions” and Treasury regulation 26 C.F.R. §1.411(d)-4, which addresses a participant's transfer rights. The court examined the First Circuit's decision in Tasker v. DHL Retirement Savings Plan, 621 F.3d 34, 49 EBC 2635 (1st Cir. 2010) (193 PBD, 10/7/10; 37 BPR 2235, 10/12/10), which addressed “identical claims as those asserted here and the identical 2004 plan amendment as the one challenged here.”

In Tasker, the First Circuit determined that the Treasury regulation's “unambiguous language” permitted DHL to eliminate the transfer option, the district court said. The court, quoting Tasker, said that the Treasury regulation provided “a clear grant of safe passage for plan amendments that eliminate transfer options (even when the elimination may have the incidental effect of reducing benefits).”

The court was persuaded by Tasker's reasoning and determined that the regulation permits plan amendments that “eliminate the right to transfer funds between plan accounts.” DHL's “2004 plan amendment did not violate ERISA's anti-cutback provisions, even if eliminating the transfer option reduced an accrued (but unclaimed) benefit,” the court said.

The participants were represented by Robert S. Catapano-Friedman of Catapano-Friedman Law Firm, Boston, and Michael E. Withey of Law Offices of Michael Withey, Seattle. The plan was represented by Jeremy P. Blumenfeld, Nicole A. Diller, and Brian T. Ortelere of Morgan Lewis, San Francisco and Philadelphia, and Michael P. Monaco of Song Mondress, Seattle.

By Matthew R. Madara  

The full text of the opinion is at

Request Pension & Benefits Daily™