Opinion ID: 174853
Heading Depth: 4
Heading Rank: 3

Heading: Wear-Away Periods

Text: Plaintiffs also fault Solvay's notice for inadequate disclosure of another matter relating to early retirement. They contend that the notice did not include the required information from which individuals can determine whether they will be subject to wear-aways, ... [or] examples to illustrate the `range of reductions' as directed by [26 C.F.R. § 54.4980F-1, A-11(a)(4)(ii)(B)]. Aplt. Br. at 47. Further, they say, the notice did not disclose the duration of the wear-away periods. But these contentions are based on a misreading of the regulation. After declaring that the requirement to disclose the reduction in benefits can be satisfied by providing examples, the regulation states that such examples are required for conversions in two circumstances: any change from a traditional defined benefit formula to a cash balance formula or [2] a change that results in a period of time during which there are no accruals (or minimal accruals) with regard to normal retirement benefits or an early retirement subsidy (a wear-away period). 26 C.F.R. § 54.4980F-1, A-11(a)(4)(ii)(A). [10] Both circumstances are present in the Solvay conversion. It is both a conversion from a traditional defined-benefit formula to a cash-balance formula, and the conversion created wear-away periods. The next provision then describes what should be covered by the examples. It states: Where an amendment results in reductions that vary (either among participants, as would occur for an amendment converting a traditional defined benefit formula to a cash balance formula, or over time as to any individual participant, as would occur for an amendment that results in a wear-away period), the illustrative example(s) provided in accordance with this paragraph (a)(4)(ii) must show the approximate range of the reductions. Id. § 54.4980F-1, A-11(a)(4)(ii)(B). As we understand the quoted language, it says nothing about disclosing the duration of wear-away periods or even about using the term wear-away. It simply requires that the illustrative example(s) ... show the approximate range of the reductions. Id. The concept of a wear-away may provide an interesting, or even useful, lens to examine a conversion from one pension plan to another; but a wear-away is not itself a reduction. A reduction is a decrease in the anticipated pension benefit. Thus, all that the regulation requires with respect to wear-aways in early-retirement benefits is that the illustrations show the approximate range of the reductions in early-retirement benefits. Id. In that regard, the Solvay notice appears to be adequate. The tables in the notice give 14 examples of changes in monthly benefits resulting from the conversion for employees retiring at age 55 (and two examples for retirement at 60). The examples do not conceal the large reductions that may occur, with several examples showing reductions greater than two-thirds of the benefit under the old plan. Plaintiffs say that the examples do not show the range in wear-away periods; but they have made no argument that the range of examples is unrepresentative, misleading, or otherwise inadequate in showing the extent of the reduction in early-retirement benefits. And Solvay's notice does more. It contains a section entitled Early Retirement Benefits that alerts employees to the possibility that there may be years in which those benefits do not grow. The section, which is reproduced earlier in this opinion, see n. 9, supra, does not contain the word wear-away, but the concept is presented. The section states: Some participants may notice that while their lump sum benefit always grows, their monthly benefit may not increase at the same rate or at all in some years. This could be due to ... the fact that the starting account balance used by [Solvay] does not take into account early retirement subsidies. J.App., Vol. II at 344. Further, although the illustration in the section would in itself be inadequate to inform employees of the potential decline in early-retirement benefits, it describes a six-year wear-away period and should assist employees in understanding the wear-away concept. Accordingly, we reject Plaintiffs' argument that Solvay's notice violated § 54.4980F-1 because of an inadequate description of wear-aways.