,v~ 

PBGC 

ProtoctingAmerlca•sPcnsions: 

Pension Benefit Guaranty·Corporation 

1200 K Street, N.W1, ·WCl;Shh~gton, D.C. 20005-4026 

September 29, 2011 

Re: 	 Appeal 201 0-0152; Case 200185: The 

Company Cash Balance Pension Plan (the I I'---P-la-n~'~-o-r--th-e---" 

"Plan') 

Dear ~~~~------" 

This Appeals Board decision . responds ·to' your appeal regarding PBGC's 

December 16, 2009 determination regarding b~riefit under the 

Plan. For the reasons we state below, the Appeals Board found no reasL__o_n~tochange PBGC's determination that benefit is payable as a monthly annuity 

rather than as a lump SUITl.. We must, therefore, deny your appeal regarding the form of 

~~~~-benefit With respect to the amount of I I benefit, we decided that . 

PBGC will recalculate monthly PBGC benefit to take into· ac~ount any · 

increases r~suHing from the Plan's Second Amendment. After PBGc· recalculates 

I _j benefit, it will send a ne~ determination letter with a new 45-day 

right tq appeal the amount of his monthly benefit. 

PBGC.'s Determination and Your Appeal 

PBGC's December-16, 2009 determination lette~ sa.id that is entitled to 

a 'monthly benefit of $452.77, payable as a Joint and 50°/o Survivor Annuity. As this 

amount ($452.77) was m·ore than the .amount he was then receiving ($275.90), PBG~ 

informed [ I that PBGC would send him a single payment that incltJdes interest

to make up for the difference. 	 · 

·. In your- January ·28, 201 0 appeal.letter, vou raised two issues. with respect to 

PBGC's December 16, 2009 determination of I j IPlan benefit. 

First, you qu~stioned whether I I pre-termination application for a lump sum 

benefit from the I IPtan was improperly def1ied. You stated that . 

applied for a lump-sum distribution of his Plan benefit on August 15, 2003, but that the 

Administrative Committee of the Plan -denied his application in a letter dated 

2003. You asserted that ·only tne Administr~tive Committee of the Plan 

'---c-ou---c-ld~d-en-y~his application· for a lump-sum, but that the .Board of Directors of 

lldenied the application, .which the Administrative Commit,tee then ·adopted.'---cY~o-uarso--sfated that" it .was I I belief that the Board of ·oir~ctors proce~sed other 
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pcu1icipants' applications for lump-sum benefits· at a September 29, 2003 meeting, a 

meeting during which the Board signed a resol_u.tion to terminate th,e Plan. · ':.. • ' 0 0 • 

You . claim.ed that. appealed the ·denial of his lu~p-sum request on 

November 3, 2003, pursuant to the Plan's claims procedures, an9 that, although the 

Plan was supposed. to answer appeal within 60 days (i.e. by January 2, . 

2004), no decisiofl was ever made. You furth~r claimed that a Notice of Intent to · 

Terminate had not been sent as of this November 3, 2003 appeal-filing date, so that the 

bar on lur:np-sur:n payments under ERISA §4041 (c)(3)(D}(i)(l) and (ii)(ll) would ·not apply. 

You claimed that the Committee violated its 'fiduciary duties by failing to act in 

accordance of the Plan and pay a lump-sum ·benefit. You concluded that the 

..Committee ·violated ERISA .§404(a)(1 ), which requires fiquciaries to "discharge [their] 

duties solely in the h1terest of the participants and beneficiaries." · 

The second issue you raised concerned the amount of monthly· 

payments in..the.event that he is not entitled to a lump.-sum payment. You said. that you 

expect your client's· $452.77 monthly annuity amount has a lump-sum value of less than 

$100,000. You included· with your appeal· letter an ·.email from an actuary with 

PricewaterhouseCoopers ·that indicated the lump-sum va·lue of benefits was 

$563,867 as of January 31, 2003. You claimed that lump-sum amot:~nt 

should be calcuiated as of.August 31, 2003, his da~e of termination of employment, plus 

interest,· Jess all payments made tal . I Should n·ot be entitled-to a.

· lump sum, you requ~sted that. his annuity payment be increased in accordance with the 

actual value of his Plan benefits. 

Legal and Factual Background 

PBGC provides pension insurance in accordance with the Employee Retirement 

Income Security Act of 1974; as amended ("ERISA"). ·If a plan· sponsor is unable to 

support its single-employer defined-benefit pension· plan,. PBGC becomes trustee ofthe 

plan and pays pension benefits as defined in the plan, subject to legal limitations and 

requirements set by Congress under ERISA, and PBGC's rules and regulations. •'. 

The I IPlan is ~ cash~balance plan,· which .was cre~ted on May 3~. 

1998, as .th~ result of the. merger of three traditional defined-ben~fit plans. The Plan 

Administrator signed a Notice of Intent to Terminate the Plan ("NO IT;" PBGC. Form 600) 

on November 19, '2003, proposing January 21, 2004 as· the Plan's terminatio.n date, and 

PB~C received the NOIT on November 25, 2003. The Plan Administrator submitted the 

Distress Termination Notice (PBGC Form 601) in April2004, on which it was noted that 

notices of intent to terminate were issued. to all interested parties (other than PBGC) on 

November 11, 2003. Th~ Plan terminated on Janu~ry 21 ,. 2004, and 

PBGC beC?ame trustee of the Plan on February 23, 2005.. 

Shortly after PBGC b~came trustee of the Plan, P~GC · collected 

participant data and plan qata from a ·variety of sources, . such as the. Plan's former 

administrator and the Plan's former actuary. P~GC necessar!IY relies on the data it 
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collects from a former administrator unless (1) PBGC's audit ofthat data shows that it is 

-wrong, or (2). a participant supplies PB_GC wit~ doc~:~ment~ sh?wing that. the data is 

wrong.­

· Your client signed a written request for a lump-sum distribution 9f his 

,-----------Plan benefit on) j On J )2003, an

Administrative Committee Member, informed your client,· on behalf of the Administrative 

Committee, that the Board of Directors of the C9mpany decided in their 

September 29, 2003 meeting to terminate the[ Plan. I [concluded

that: "(b)ecause appli~able ·law prohibits the payment of lump sum distributions in . 

anticipation of the termination of the Plan·, your benefit ~equest is being denied. "

1 · 

On the General lnform~tion Form (PBGC Form 702) that your cli~nt ·signed and 

dated on 2005, before PBGC sent hjm any _estimates of his PBGC benefits, he 

.made the followi~ statement: · 

. . 

Under terms of my pension plan, I am el_ltitled to a Lump sum. I am also 

entitled to a ,greater benefit than _I am informed the PBGC is required to pay. 

Absent breaches of fiduciary d_uty by the plan's fiduciaries, I would have received 

a lump sum well in advance ·of the PBGC's takeover of the plan. Therefore, my 

·communication with the PBGC concerning this matter as well as any acceptance 

of benefits from the PBGC are without pr~judice to my claims for those breaches 

of fiduciary duty. · 

Effective May 1, 2007, your client began· receiving an estimated monthly benefit. 

of $275.90, payable as a Joint and 50o/o Survivor Annuity. As a .result of the ·appeal 

filing, PBGC has not yet- increased his monthly benefit to the amount of $452.77 stated 

in PBGC's December 16, 2009.deterniination letter. · 

Discussion 

. . 

1. PBGC Cannot Pay Your Client a Benefit in the Foim of a Lump Sum . 

ERISA § 404-1 (c)(3)(D) states, in gene~al, that a plan administrator cannot pay 

benefits in a form other ·than an annuity after it issues a Notice of Intent to Terminate 

("NOir) the plan to PBGC. . 

We note that, at the same Board of Directors' meeting, the Board denied the lump-sum request of 

another former exeeutive presu~ably because .he also had actual knowledg_e ofj j 

intention to tell'T)inate the Plan. . · . . · · 

1 
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PBG_C lias promulgated a regulation that provides additional guidance regardi~ 

the ERISA § 4041 ( c)(3)(D) require(Tlents. Section 4041.42 of PBGG's regulations 

provides as follow~: 

(a) General fUie. Except to the e~ent specifically prohibited by this 

section. during the pendency of termination proceedings the plan administrator 

must continue to carry out the normal operations of the plan, such as putting 

participants into pay status, collecting contributions due t~e plan, and i_nvesting 

plan assets. . 

(b) ·Prohibitions after issuing notice of intent to terminate. The plan . 

adJ't:linistrator may not make loans to plan participants beginning on the first day 

he or she issues a notice of intent to terminate. and from that date until a 

distribution is permitted pursuant to § 4041.50, the plan administrator may not­

(1) Distribute plan assets pursuant to, or (except as required.. 

by this ~art) take any other actions to implement, the termin~tion of t~e plan; 

(2) · .Pay benefits attributable to employer contributions, other 

than death ben~fits, in any form other than as an annuity; or · 

(3) Purchase irrevocable commitments to provide benefits 

from an insurer. 

PBGC has established a policy (Policy 5.4-9) regarding Lump Sum Benefit 

Payments. in. PBGC's Operating Policy Manual. ·Basec;t on secti,qn 4041.42 of PBGC's 

regulations, Section D of Policy 5.4-9 explains PBGC's processing of ·unpaid plan 

applications for l.ump-sum benefits as follows: · 

D. 	 Unpaid Plan Applications for Lump-Sum Payments 

1. 	 Distress Termination. If a plan terminated in a di~tress termination • 

.PBGC will not accept a plan application to pay a benefit in a lump sum 

received by the olan administrator before DoPT - even if it was received 

before. the date of the Notice of Intent to Terminate (the aNOIT"). The 

_sam~ rule applies to a plan application to pay a benefit in a lump sum if a 

distress ~ermination was subsequently converted to a PBGC-initiated · 

termination (an "involuntary terminationu). PBGC will recalculate and 

value. the benefit as of DoPT and determine· if the· benefit is payable in a 

. lump sum or as annuity as provided i~ section .C. General Policy. 

2: PBGC-Initiated Tennination. 


IUnd~rling added for emphasis.] 


In accordance with the clear terms of Section 0.1 of Policy 5.4-9 •. PBGC cannot· 

. accept and· honor . application for alump-sum benefit despite the fact that it 

was submitted before the NOIT date. 

·:rhe result· spelled out in Policy 5.4-9 is dictated by. a straightforward reading of 

ERISA § 4041 (c)(3)(D) and § 4041.42 of PBGC's regulations. Both the law and the 

2 29 Code of Federai.Regulations ("CFRn) § 4.041.42. 
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regulation provide a black-line rule in the case of distress terminations, to wit, if the plan 

administrator ·did not make a lump:-sum distribution of a participant's! benefif before. the 

NOIT date, the plan administrator cannot thereafter make a lump-sum distribution of the 

participant's benefit. · ·· · 

As the Plan's former administrator could not make a lump-sum 

distribution of benefit at any time after the NO IT date, no lump-sum· 

distribution was due and payable as of the Plan's termination dpte. Jhus, while PBGC 

will generally pay benefits that were due and payable .as of a plan's termination date as 

pre-termination-liability payments if a plan's. assets are ·sufficient to pay them, in your · 

client's case, PBGC cannot pay your client a lump-sum benefit because no lump-sum 

benefit was due and· paY:abl~ to him as. of the _Plan's terr:nination date. 

2. Calculation of I I Benefit under the Second Amendment to the 1998

Restatement 

The Enclosure is a copy of the Second Amendm~nt to the 1998 Restatement, 

which is a special amendment providing a Supplemental Executive Retirement Plan 

("SERP") benefit s'olely for I 1· · · 

When PBGC . calc;i.Jiated benefit, it was aware of the Second 

Amendment to the '1998 Restatement but was reportedly told by employees at 

that: (1) the Plan's former administrator did not execute the Second ~~

"--,.A.--m_e_n----jdment; and (2) the Plan's former administrator did not intend to honor the Second 

Amendment when calculating benefit. 

The Ap eals Board reviewed the copy of the Second Amendment that PBGC 

received from We note that 1 it bears the signature of 

a former Vice President of (2) it is dated as if 

~;----------o-___j

~igne_d on 

'---I-p~n..--------,______......--~; and (3) the text of the amen suggests that the amendment was 

approved by the fo_rmer Boa~d of Directors ofl I 

The Appeals Board reviewed the Actuarial Valuation Report for the Plan year 

beginning January · 1, 2002 that was prepared by the I I Plan's former 

actuaries. The report, which was addressed to stated, in part, 

as follows: · · 

Changes in Plan Provisions 

Effective January 31, 2001, the Plan was amended to provide benefits that were 

previously provided from a Supplement Executive Retirement Plan (

11 SERP") for 

. ) I The increase in benefits from the Cash Balance Plan ton 

/results in a dollar for dollar.decrease in benefits provided from theSE~ 0

The increase in normal cost ·ot the Cash Balance Plan resulting from this 

amendment is approximately $106,000 in 2002. 

The Appeals Board also reviewed documentation that it received from the Plan's. 

former actuaria' firm. That docume~tation showed the results of th_e nondiscrimination 
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testing· th~t it- p~rformed and submitted to I I benefits attorneys in ·. 

preparation for the adoption of the· Second Amendment. The cover letter from the 

actuaries to the attorneys concluded that the results of the testing indicated that the 

addition of the·SERP benefit fo·r would not violate the nondiscrimination rules. 

Afte·r reviewing all of the available evidence, a divided Appeals Board decided 

(by a 2 to 1 vote) that: · 

(1) 	. the Second Amen.~ment was executed by the former Plan Administrator 

and it was a valid amendment to the Plan; and 

(2) 	 PBGC will recalculate benefit to take into account the 

provisions of the Second Amendment, to the extent allowed by law, and ·

provideI Iwith a new 45-day .right of appeal regarding the all)ount 

of his month_ly ben~fit. 

. Please note that, it appears that the Second Amendment to the 1998 

Restatement could result in a monthly benefit that is larger than the maximum monthly 

benefrt th~t PBGC is· allowed to. guarantee for plans that terminated in 2004. See 

ERISA§ 4022(b)(3); 29 U.S.C. § 1322(b)(3). 

. . 

Please also note that, as the Second Amendment to the 1998 Restatement was 

I adoptjd on April 26, 2002, it was ill effect for less than two full years when the L____-

Pian terminated on January 21, 2004. As a result, any increase$ that might 

otherwise result from the adoption of the Second Amendment will be limited by ERISA's 

·Five-Year Phase-ln.rule. See ERISA§ 4022(b)(7); 29 U.S."C. § 1322{b)(7). 

Decision· 	 ·.. 

Havin·g applied provisions of the Plan;. the law and PBGC's rules to 

the facts of your case, the Appeals Board found no reason to. change PBGC's 

determination that benefit is payable· as a monthly annuitY rather than as a 

lump sum. We must, therefore, deny your appeal regarding the form ofL_______ 

benefit. Thi$ decision is PBGC's final action regarding the issues you raised in your 

appeal. If your client wishes, he may seek review of this decision in an appropriate· 

federal district ~ourt.. 

With respect ·to the amount of benefit, we decided that. PBGC will 

recalculate monthly benefit to take into account ·any increase~ in. his PBGC 

benefit resulting from the Plan's · Second Amendment. After PBGC recalculates 

L___~____j benefit, it will send a new determination l~tter with a ~ew 45-day 


right to appeal the amount of his monthly benefit. · 


. . We regret the dj:Y in respf"ding to yo~r appeal and aprreciate your patience 

while PBGC prepares new determ1nat1on letter. · If I has other 

questions about his PB C ·benefit, he may call PBGC's Customer Contact .Center at 

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1-800-400-7242 and ask to speak to. the authorized representative assigned to the'---

~~ 

Plan (Case 200185). .. 

Sincerely, 

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c-:~· -~---

·~.~· ..., 

·- ·-,--- ·-. .. .....·· -·· 

Michel Louis 


Appeals Board Member.