IBM Wins Dismissal of Pension Lawsuit

A lawsuit against IBM’s pension plan will not proceed, following a judge’s ruling in U.S. District Court for the Southern District of New York.

Updated with new information

A federal judge in New York last week granted the motion to dismiss a lawsuit against IBM, tossing out with prejudice all four of the counts asserted by the plaintiffs.

Judge Nelson S. Roman on Thursday threw out the allegations—brought by IBM pension plan participants Joshua Knight, Michael Campbell, and Ernest Fabrizio—ruling the IBM Personal Pension Plan “statute of limitations is enforceable,” he wrote.

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The lawsuit had argued IBM and the plan administrator committee violated provisions of ERISA when using outdated mortality assumptions when calculating joint and survivor benefits for participants. The case is Joshua Knight et al. v International Business Machines et al.

IBM reopened the frozen cash balance pension plan, in November.

Using outdated assumptions would continue to “result in a miscalculation of benefits wherein joint and survivor benefits are less than the actuarial equivalent value of a participant’s single life annuity benefit,” argued plaintiffs in an amended complaint.

Additionally, the lawsuit alleged IBM failed to disclose to participants that they would receive less than the actuarial equivalent value of their accrued, vested pension benefit if they selected a joint and survivor annuity.

The plaintiffs have 30 days to appeal after the order is entered on the court’s docket, according to the court documents.

Allegations of violations of the Employee Retirement Income Security Act—claims not asserting a breach of fiduciary duty—may be constrained by the statute of limitations set forth in a plan document as long as the statute of limitations is reasonable, wrote Roman.

“The parties did so here…the plan provides that ‘a claim or action to recover benefits allegedly due…with respect to the plan’ is untimely unless that claim is filed within two years of accrual,” wrote Roman, quoting from the IBM Plan and Pension Projection Statements.

“The complaint was dismissed based on statute-of-limitations grounds rather than on substantive grounds, so the case is of limited scope,” explains Drew Oringer, partner in and general counsel at the Wagner Law Group, which is not involved in the litigation.

The IBM plan typically calculates benefits as a single life annuity. ERISA also requires a qualified joint and survivor annuity as the default benefit for married participants.

Plan participant benefits are converted from a single life annuity to the various forms of joint and survivor annuities using interest rates and mortality tables to form the plan’s assumptions for calculating actuarial equivalence.

To calculate a participant’s expected benefit amount, the plan converts a participant’s single life annuity using the following assumptions: “8% interest and the Unisex Pension-1984 Mortality Table with a three-year setback for participants and a six-year setback for beneficiaries,” according to the amended complaint.  

The Unisex Pension—1984 Mortality Table—is a mortality table created by the Committee on Self-Administered Retirement Plans from the Society of Actuaries in 1976, which was based on mortality experience data among non-insured private pensioners observed over the years 1965-1970, wrote Roman.

Following the initial lawsuit, which was filed in June 2022, the complainants filed the amended class action complaint in August 2022.

IBM filed the motion to dismiss in January 2023.

The IBM Personal Pension Plan comprises $25.5 billion in retirement assets for 250,506 participants as of the last DOL Form 5500 filing.

Representatives of IBM did not respond to a request for comment nor did attorneys for the plaintiffs.

Are Roth Excess Deferrals Taxed Twice?

Experts from Groom Law Group and CAPTRUST answer questions concerning retirement plan administration and regulations.

Q: I read your Ask the Experts column on Roth excess deferrals, and was a bit confused. I had a 2023 Roth excess deferral that was distributed in early 2024. The column indicates that the deferrals “are taxable solely in the calendar year contributed” which, to me, means that my Roth excess deferral would be taxable as income to me on my 2023 tax return. But my excess Roth deferral was already taxed, as Roth contributions are after-tax, not pretax. Would I be taxed twice on my Roth excess deferral in 2023?

Kimberly Boberg, Kelly Geloneck,  Emily Gerard and David Levine, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

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A: You would not be taxed twice if the excess Roth contributions, and earnings thereon, are distributed by April 15 of the year following the year in which the excess Roth contributions were made. Here, if the amounts are distributed by April 15, 2024, you will receive two 2024 Forms 1099-R: one reporting the amount of your excess Roth contributions as nontaxable in 2023 (as you already paid taxes on these amounts); and one reporting the earnings on such excess as a taxable distribution in 2024.

Forms 1099-R for 2024 distributions are due in 2025. Therefore, you should receive these Forms 1099-R in early 2025 to reflect the distribution of the excess and earnings. However, it is important to note that these 2024 Forms 1099-R are for information purposes only and do not need to be attached to your tax return.

NOTE: This feature is to provide general information only, does not constitute legal advice and cannot be used or substituted for legal or tax advice.

Do YOU have a question for the Experts? If so, we would love to hear from you! Simply forward your question to Amy.Resnick@issgovernance.com with Subject: Ask the Experts, and the Experts will do their best to answer your question in a future column.

 

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