The First Circuit on an Administrator's Discretion in Determining the Amount of Retirement Benefits

Oddly, this appears to be “calculating benefits” week among the courts of the First Circuit. In addition to the LeBlanc case I discussed in the last post, the First Circuit just ruled on a case involving a challenge to the calculation of pension benefits. Just as in the LeBlanc case, where a district court found that the method of calculation would stand because the administrator had discretion in conducting that effort under the terms of the plan and the calculation method was reasonable, so too does the First Circuit conclude, in Gillis v SPX Corporation, that the administrator’s determination of certain factors in calculating retirement benefits would not be overturned because the administrator had discretion and the determinations made were reasonable given the plan’s terms and purposes.

Appellate Law & Practice, who chronicle all rulings out of the First Circuit regardless of topic, has this somewhat more tongue in cheek take on the case here. While the Gillis case, as the Appellate Law & Practice post reflects, concerns certain issues beyond just the reasonableness of the calculation approach, there isn’t much to the court’s analysis of those issues; the real take away is in the requirement of reasonableness in the calculation activity, and then proceeding from there, the court finds, without too much in-depth analysis of the issues, that the other issues raised by the participant simply don’t support a challenge to that reasonable approach to calculation that was applied by the administrator.
Written By:Ken On January 3, 2008 2:29 PM

Unfortunately, this case was not the basis for addressing the errors of many conversion fine points.

There are many facts being confused here. First, General Signal purchased SPX and then changed its name to SPX. The General Signal (GSX) Plan was merged into the SPX plan with $200M in excess funding removed after the cash balance conversion. (READ BIG CEO BONUS) The GSX employees who were 55 as of 1/1/1999 had the transition benefit included in their opening account balance. Those 45 but not yet 55 did not have the transition benefit included in the opening balance. There was no separate third plan. As explained in SPX literature, â€"there was a group of associates – those within 10 or fewer years of early retirement – who initially didn’t fare as well. To ensure this group also receives comparable benefits to the former plan, SPX established a transition benefit.” Gillis appeared to want his cake and eat it too. After receiving the transition benefit in the opening account balance, he again wanted the transition benefit calculated at age 59.

I have many complaints about the GSX/SPX conversion but Gillis should consider himself really lucky. I was 49 at the time of the conversion with 24 years of service. I needed to work another 6 years to receive the transition pension benefit. Unfortunately, in 2003 and at age 53, my unit of SPX was sold as part of corporate restructuring and I was told I could not qualify for the transition benefit as the new owners would have no pension plan. This loss amounts to a $105,000 (42%) reduction in the age 55 benefit. I have appealed to the plan and pursued every possible alternative to no avail. We were given no choice in the conversion and not provided complete information on the conversion for nine months after the conversion effective date. Many of our opening balances were, even then, calculated incorrectly.

The plan had a 30% reduction in members over 2003/2004 but did not declare a partial termination occurred. Several employees, just days short of the five year cliff vesting, were told they would get nothing. Upon appeal, the Plan ruled they would only vest if there was a partial termination but have received nothing further.

The IRS/PPA of 06 declared conversions after June 2005 must include the prior accrued benefit PLUS the future accrued benefit to address wear away. The SPX Plan provides a 'greater of' benefit provision for either the before benefit or the new converted cash balance benefit but NO combination. My accrued benefit on January 1, 1999 is now greater than the cash balance benefit, in effect showing the wear away has been the entire 4 years, 10 months and 23 days I worked under the SPX Cash Balance Pension formula. No one seems to care about those prior conversions done like SPX, not even the courts.

My calculations in 1999 showed the transition benefit would make me whole with the old plan formula at age 55. I now know, I would have been better off to leave than to believe the SPX lies that they cared about their older employees â€"who initially didn’t fare as well”.

Gillis – you are very lucky!

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