Opinion ID: 770714
Heading Depth: 3
Heading Rank: 3

Heading: The lump-sum calculations.

Text: 18 At the time of her termination, Esden had $1,533.98 in her cash balance account. It is undisputed that, had Esden not elected to take her benefit in the form of a lump sum, the minimum amount of her accrued benefit, expressed as a lump sum at normal retirement age of 65, would have been $7,086.83. This figure is calculated by projecting the Cash Account Balance from Esden's termination date through age 65, assuming annual Interest Credits of 5.5%. 10 The defendant rightly characterizes this as an estimate. Insofar as actual Interest Credits would fluctuate with the average 3-month Treasury Bill rate to which they are indexed, then Esden's actual accrued benefit at age 65 would differ. But this amount is also a minimum: under no circumstances, pursuant to the terms of the Plan, could Esden's accrued benefit at age 65 be less than $7,086.83 because the annual Interest Credit was guaranteed to be at least 5.5%. In the same manner, the maximum amount of her accrued benefit can be calculated by projecting Esden's cash balance account through age 65, assuming annual Interest Credits of 10.0%, the maximum rate allowed by the plan. This calculation yields a balance of $23,386.18. There is no dispute that, had Esden not elected a lump-sum distribution on termination, then her accrued benefit, expressed as a lump sum payable at normal retirement age, would have fallen within the range $7,086.83-$23,386.18. No other amount was possible under the terms of the Plan. Discounted to present value, as of the date of Esden's termination, according to the methodology required by I.R.C. § 417(e)(3), ERISA § 205(g)(3), and Treas. Reg.§ 1.417(e)-1(d), as made applicable by I.R.C. § 411(a)(11), ERISA § 203(e)(2) and Treas. Reg. § 1.411(a)-11(d), this minimum accrued benefit had a present value of $1,595.52. This amount exceeds the $1,533.98 that Esden received as her lump sum distribution by $61.54. This is the crux of the plaintiff's claim: Esden contends she forfeited at least $61.54 of benefits because of the payment option she chose. Class members have similar claims. 19 The Plan is drafted so that whenever a participant elects a lump-sum distribution, the benefit received will always be her Current Cash Balance Account. In sum, the Plan employs language that attempts to comply with the traditional annuity-based framework of the Treasury regulations, while guaranteeing that the lump-sum distribution would always be the Current Cash Balance Account. To achieve this result, section 4.1 of the Plan provides that at any time a participant's Accrued Amount is her Current Cash Balance Annuity. Under section 4.2, the Current Cash Balance Annuity is calculated by (1) projecting the Current Cash Balance Account to age 65 at a rate of 4% compounded annually, and then (2) converting this amount into a single-life annuity payable monthly by applying an annuity factor not in dispute. In short, the Plan is drafted to ensure that a participant's Normal Retirement Benefit (defined as her Accrued Amount determined as of Normal Retirement Age of 65) is always projected at a rate of 4%, notwithstanding that actual Interest Credits, while variable, cannot accrue at a rate lower than the guaranteed minimum rate of 5.5%. 20 In the case of an election to take a lump-sum distribution, under section 7.4(d) of the Plan, the amount paid out is the greater of the actuarial equivalent of the Current Cash Balance Annuity or the Current Cash Account Balance. The mortality and interest rate assumptions to be used in determining actuarial equivalence are set out in Exhibit A of the Plan. As required by I.R.C. § 411(a)(11)(B) and ERISA § 203(e)(2) at the time of Esden's distribution, the Plan provides that the interest rate assumption was the PBGC interest rate structure for deferred annuities. Because this structured interest rate has always exceeded the 4% projection rate, the Plan guarantees that whipsaw will never occur: the discount rate (provided by statute) always exceeds the projection rate (provided by the Plan). Therefore, the actuarial equivalent of the Current Cash Balance Annuity will never exceed the Current Cash Account Balance. As a consequence, the Plan will always pay out the Current Cash Account Balance. The key issue raised by this case is whether that 4% projection rate is proper.