According to the opinion by the 4th U.S. Circuit Court of Appeals, the plan calculated NRA as “the first day of the calendar month following the earlier of (i) the date the participant attains age sixty-five (65) or (ii) the date the participant completes sixty (60) months of vesting service.” The appellate court agreed with a North Carolina district court’s decision 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 Moves Forward Claim BoA Cut Back Separate Account Benefits”).  

The lower court also 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.” The court found 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.   

In their appeal, the plaintiffs conceded that Bank of America used a lawful definition of NRA, but still argued that the NRA violated ERISA’s anti-backloading provisions. The appellate court said the chief failing of the plaintiffs’ claim is that ERISA’s backloading rules do not apply once a plan participant reaches NRA. 

However, the plaintiffs pointed to Internal Revenue Service Notice 2007-69 (see “IRS Lends Helping Hand on Plan Retirement Age Changes”), in which they argued the Notice’s “purpose” section identifies potential violations of the vesting and accrued benefit requirements for defined benefit plans under [IRC] § 411 that may arise from a definition of normal retirement age based on a minimum period of service. 
 

The 4th Circuit said the notice concerns the implications of new Treasury regulations that are prospective in nature only. The first paragraph of the Notice is clear: “[t]his notice provides temporary relief for certain pension plans whose definition of normal retirement age may be required to be changed to comply with the regulations regarding a plan’s normal retirement age that were recently issued under section 401(a) of the [IRC].” The obvious thrust of this language is that the violations identified in the Notice are related to the newly promulgated regulations as they apply once those regulations are in effect, the court said.  

It referred only to how a plan was to be analyzed going forward, not retroactively to plan years already passed and for which remedial efforts were not possible, such as in the Bank of America case. 

The opinion in McCorkle v. Bank of America Corporation is at http://www.ca4.uscourts.gov/Opinions/Published/111668.P.pdf.