Compliance June 10, 2013

Release of Claims Bars Lawsuit for Pension Benefits

June 10, 2013 (PLANSPONSOR.com) – A pension plan participant who signed a release of claims when he was laid off cannot now pursue a claim for more benefits, a court ruled.
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The 7th U.S. Circuit Court of Appeals agreed with a district court that Omar Hakim had constructive knowledge of his ineligibility for benefits before he signed the release in exchange for separation benefits; therefore, the release barred his pension claim.  

According to the court opinion, in 1996, Accenture amended its pension plan to exclude a number of employees in various “service lines” throughout the company. When Hakim was promoted in 1999, he was promoted to a position in which he was no longer eligible to participate in the plan under the terms of the amendment.  

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Hakim’s lawsuit seeks additional benefits based on a lack of notice of the 1996 amendment to the plan in violation of the Employee Retirement Income Security Act’s (ERISA’s) notice provision, Section 204(h). But, the court found a Statement of Individual Benefits that Hakim received in 2000 clearly informed him that his promotion terminated his participation in the plan. Page three of the document states: “Because of your current employment classification, you are ineligible to participate in the Retirement Plan.”

The court noted this language is not highly technical, nor is it buried deep in a document. “It is difficult to imagine a more effective means of providing notice that an employee is no longer eligible to participate in Accenture’s retirement plan,” the 7th Circuit said in its opinion.  

Hakim contends that the release does not bar his claim because ERISA’s anti-alienation provision prohibits the release of ERISA claims through a general release. However, the court pointed out that it previously found in another case that pension entitlements are subject to the anti-alienation provision and cannot be alienated, but contested pension claims fall outside the realm of the provision and can be alienated. An entitlement refers to vested benefits to which a plaintiff is entitled under the terms of the pension plan itself, but a contested claim does not seek benefits to which the plaintiff believes he is entitled under the terms of the pension plan itself, but rather for additional benefits above and beyond the benefits to which he was entitled under the terms of the plan.  

According to the court, Hakim’s claim that he deserves more benefits than he accrued under the terms of the plan on the grounds that the plan administrator failed to provide adequate notice of a reduction in benefits could have been resolved before Hakim signed a release of those claims. The release “released the defendants from liability based on contestable pension claims. . . [it] did not wipe out [the plaintiff’s] claims to any pension benefits to which the plan entitled him.  

The opinion in Hakim v. Accenture United States Pension Plan is here.
Reader Responses June 10, 2013

SURVEY SAYS: What Keeps Sponsors Up at Night?

June 10, 2013 (PLANSPONSOR.com) – Last week, I asked NewsDash readers what issues they worry about as plan sponsors?
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Taking from a panel discussion at our recent PLANSPONSOR National Conference, I offered a list of issues that may keep plan sponsors up at night, and all but three respondents chose from that list. How to increase employee participation and savings rates when they have competing expenses topped the list, with 47.2% of plan sponsors saying that’s an issue they worry about. “Making sure administrative processes are error-free” (38.9%) and “how to measure participants’ retirement readiness” (36.1%) rounded out the top three.  

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One-quarter of responding readers indicated they are concerned about avoiding a regulator audit, and 22.2% chose “providing a good benefit while keeping costs low.” Nearly six percent said they have no worries, and nearly 3% said they worry about all items on the list.  

The results for other issues were: 

 

  • How to de-risk our pension plan – 11.1%; 
  • Whether to offer automatic features in our plan – 13.9%; 
  • Making sure fees for participants are reasonable – 13.9%; and 
  • How a wave of employee retirements will affect our plan size and workforce – 5.6%. 

 

  

The “other” responses included: 

 

  • Employees who won’t/can’t retire since they can’t afford to; 
  • The financial markets and elected official obstruction; and 
  • Competing for limited corporate resources (time and money). 

 

 

Not a lot of verbatim comments this week; hopefully that just indicates my list was more than sufficient, although the comments made me realize “taking care of all fiduciary responsibilities” and “not getting sued” should have been on the list. Editor’s Choice goes to the reader who said: “At some level, on any given day, everything on this list - and more- give me pause/heartburn. But, considering the hours I keep, and the hour at which I get to bed, NONE of them keep me awake!”  

Verbatim  

Things I think about; Will my hair turn dark again and the wrinkles disappear when I hand the baton to the next retirement expert-in-waitng, or so what - what's really the downside to three hots n' a cot, or can (shudder) gub'ment really do it better. Then, of course, it's back to the grindstone where the rubber really meets the road.  

We don't know what other assets a participant may have - so how are we to judge their retirement readiness solely on their 401(k) contributions and asset allocation. A younger participant with minimal conservative investments in our plan may be balancing it against a large prior 401(k) heavily invested in equities. Or maybe lots of current paycheck is paying the mortgage on a rental property they own. Why should employers assume an employee's 401(k) account is the only money the employee has?  

Not only how to measure participants' retirement readiness, but how best to communicate it to them while they still have time to take corrective action which will likely be needed.  

In 2010, we made a plan design change that addressed the long term volatility of our Defined Benefit Plan. You would think my worries are over, but even with the market at this current level I am worried about a crash. Employers are scared about shouldering massive increased employment costs with the ACA and they are simply not hiring anyone. This could lead to the next great recession especially if the employers’ fears are realized.  

As a public plan, we've done all of the above - we've de-risked, have low fees, provide a reasonable benefit at a low cost, have regular clean audits, enjoy low error rates, and deliver a reasonable benefit for public employees. I just worry that another Wall Street meltdown or political interference will derail our efforts to become fully funded over time.  

As the day to day contact from the recordkeeper. Whatever keeps my client up and night, keeps me up to. I see myself as a partner. I was surprised that Fiduciary Responsibilities was not on this list.  

As a Trustee, my real major worry is that some unhappy person may hold me personally (legally) responsible for something done or not done.  

Everybody has a unique situation so it is hard for a plan sponsor to design a program that uniformly makes everyone retirement ready.  

At some level, on any given day, everything on this list - and more- give me pause/heartburn. But, considering the hours I keep, and the hour at which I get to bed, NONE of them keep me awake!  

  

NOTE: Responses reflect the opinions of individual readers and not the stance of Asset International or its affiliates.

 

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