Get more! Sign up for PLANSPONSOR newsletters.
Compliance February 20, 2008
Court Clears CIGNA of Cash Balance Wrongdoing
February 20, 2008 (PLANSPONSOR.com) - A federal
judge in Connecticut has joined with most of his colleagues
around the country in ruling on a seven-year-old lawsuit that
CIGNA Corp's cash balance plan is not age
discriminatory.
Reported by Fred Schneyer
U.S. District Judge Mark R. Kravitz of the U.S. District Court for the District of Connecticut ruled after conducting a seven-day non-jury trial that the CIGNA plan did not run afoul of the Employee Retirement Income Security Act’s (ERISA) anti-backloading prohibition. What the plaintiffs saw as age discrimination, Kravitz asserted, was only the transition from a traditional pension plan that was heavily age-favored to a cash balance plan that was “still age-favored but less so.”
In terms of an ERISA Section 204(b)(1)(H) violation, Kravitz agreed with CIGNA that in determining the “rate of benefit accrual,” courts should focus on what an employer puts into a plan, rather than what an employee takes out of the plan at retirement. Kravitz pointed out that while federal courts have differed on the issue of how to define “rate of benefit accrual,” the large majority of courts that have found that the phrase should be defined by looking at employer “inputs” rather than employee “outputs.”
Also, Kravitz admitted, when there is wear away, even though the employee continues to work for CIGNA and continues to receive benefit credits, the employee’s expected retirement benefits have not grown beyond what the employee was entitled to before the conversion. The court next rejected the participants’ argument that the plan violated ERISA’s anti-backloading rule, which prohibits employers from pushing the bulk of retirement benefits to their employees’ pensions until late in the employees’ careers.
CIGNA converted its traditional defined benefit plan to a cash balance plan in 1998. A group of participants filed a lawsuit in 2001 contending that the cash balance program was age discriminatory, violated ERISA’s anti-backloading rule, and resulted in the forfeiture of accrued benefits. The participants further alleged that CIGNA’s notice of the plan conversion did not comply with ERISA.
In December 2002, the district court certified the lawsuit as a class action consisting of approximately 25,000 CIGNA employees and retirees (See CIGNA Cash Balance Conversion Suit Certified as Class Action ).
The ruling in Amara v. Cigna Corp., D. Conn., No. 3:01CV2361 (MRK), 2/15/08 is here .