Before discussing the validity of the claim, U.S. District Judge Graham C. Mullen of the U.S. District Court for the Western District of North Carolina noted that the Internal Revenue Service found that the 401(k) transfers violated the Employee Retirement Income Security Act (ERISA).  

Mullen said a plan fiduciary engages in a “prohibited transaction” when, at the expense of plan participants, he uses 401(k) assets for his own or a third party’s gain. He found that in this case, BoA commingled the 401(k) assets with the cash balance plan assets and then invested those assets with the hope of offsetting the Bank’s obligation to fund the cash balance plan. In turn, when the 401(k) assets were transferred and commingled, 401(k) plan participants lost their separate account protections.  

“The Plan fiduciaries thus allowed 401(k) Plan assets to be used for the Bank’s benefit and the expense of the 401(k) participants,” Mullen wrote. “Based on the language of ERISA §§ 406(a)(1)(D) and 406(b), Plaintiffs’ claim is at least plausible on its face.”  

In a separate order, Mullen certified the case as a class action.  

However, Mullen dismissed claims that the cash balance plan’s definition of normal retirement age was unlawful and that plan distributions were miscalculated. He cited a U.S. District Court for the Northern District of Illinois ruling that a cash balance plan that defined normal retirement age by years of vesting service was allowed to do so and thus did not owe participants who had reached this retirement “age” a distribution using a “whipsaw” calculation (see Court OKs Service-Based Retirement Definition for Cash Balance Plan). The court in Illinois held that a participant’s age when beginning work, combined with an additional unit of time, is a valid “age.”  

In addition, the Illinois court found that an IRS ruling that dictates that “normal retirement age under a plan must be an age that is not earlier than the earliest age that is reasonably representative of the typical retirement age for the industry in which the covered workforce is employed did not change its earlier ruling (see New Retirement Age Rule Does not Change Ruling on Plan’s Definition).  

Mullen rejected arguments that the plan erroneously calculated distributions by failing to include a participant’s right to interest credits that could have been earned until age 65, and “the value of [a participant’s] right to leave his account balance in the plan even after attaining normal retirement age and continue to receive investment credits indefinitely. He said a participant’s lump sum distribution need only include pre-normal retirement age interest credits and a participant’s option to keep his money in a cash balance account beyond retirement is not a “benefit” that must be actuarially accounted for when calculating a lump sum benefit.  

Mullen previously dismissed claims that the cash balance plan was age discriminatory, and also cleared PricewaterhouseCoopers from liability for the anti-cutback violation (see PwC Cleared of Anti-cutback Claims over BofA Plan Transfers).