Opinion ID: 71822
Heading Depth: 2
Heading Rank: 1

Heading: Whether defendants properly complied with Rev. Proc. 89-65.

Text: 24 Under Rev. Proc. 89-65, 16 plan sponsors could extend the suspension of benefit accruals under Model Amendment 3 until the last day of the 1990 plan year without providing ERISA § 204(h) notice. Only if the suspension of Plan participants' benefit accruals continued beyond December 31, 1990, did defendants have to provide § 204(h) notice by December 31, 1990. 25 1. Whether the defendants amended the Plan to comply with TRA '86 prior to December 31, 1990. 26 Defendants argue that they were not required to give ERISA § 204(h) notice because the October 26, 1990 resolution constituted an amendment to the Plan. 17 We agree with the district court that the language of the Resolution itself indicates that it was not an amendment. Thus, we need not address the several other grounds contributing to the district court's finding that the October 26, 1990 resolution did not constitute an amendment to the Plan. 27 2. Whether defendants provided satisfactory notice of the temporary suspension of the accrual of benefits in compliance with Rev. Proc. 89-65. 28 Defendants also contend that, even if the Plan was not amended until after December 31, 1990, defendants complied with Rev. Proc. 89-65 because of the four notices sent to Plan participants between February 1989 and September 1990. Defendants argue that because they complied with Rev. Proc. 89-65, the suspension of benefit accruals was extended, and the final amendments complying with TRA '86 are therefore retroactive to January 1, 1989. 29 Under the law of ERISA, § 204(h) notice is required in order for a plan sponsor to amend a pension plan like the instant one to reduce the rate of future benefit accruals for plan participants. Section 204(h) of ERISA, 29 U.S.C. § 1054(h), in pertinent part, states the following: 30 A plan ... may not be amended so as to provide for a significant reduction in the rate of future benefit accrual, unless, after adoption of the plan amendment and not less than 15 days before the effective date of the plan amendment, the plan administrator provides a written notice, setting forth the plan amendment and its effective date. 31 While Rev. Proc. 89-65 expressly recognized that the timing requirement of ERISA § 204(h) could not be met, it did not address the fact that, in requiring ERISA § 204(h) notice of the extension of the suspension of benefit accruals, the substantive content of a plan sponsor's notice would necessarily differ from the typical ERISA § 204(h) notice. 18 32 The district court recognized that the notice contemplated by Rev. Proc. 89-65 could not technically satisfy ERISA § 204(h) notice, 19 and held that the reference to 'the notice described in section 204(h)' of ERISA could only have meant that notice would be required of the temporary freeze on benefit accruals effected by Model Amendment 3. In applying this interpretation, the district court concluded as a matter of law that none of the 'notices' relied upon by the Defendants and allegedly given between February, 1989, and the Spring of 1991, were sufficient under ERISA because they did not in fact clearly communicate that the annual rate was suspended, or frozen, and/or such 'notices' were not given by the Plan Administrator as required by the statute.We agree with the substance of the district court's interpretation of the kind of notice required under Rev. Proc. 89-65. What was required was notice that there would be a change in the formula for calculating benefit accruals beginning in 1989, and that the new formula would be determined later pursuant to IRS regulations to be issued. In other words, we conclude that defendants were required to give Plan participants notice of the suspension of benefit accruals, using the shorthand we adopted above. We reject any contention that Rev. Proc. 89-65 required literal compliance with the terms of § 204(h)--i.e., that the notice be given after adoption of the [P]lan amendment and not less than 15 days before the effective date and that the notice set forth the Plan amendment. Because the Plan amendment would not have been adopted as of the time the notice was required (the end of 1990), it would be impossible to give the notice after adoption of the Plan. Likewise, it would be impossible to set forth the Plan amendment (or even its substance). Similarly, because Rev. Proc. 89-65 contemplated a January 1, 1989, retroactive effective date, it would be impossible to give the notice 15 days before the effective date. We will not require the impossible. Normann v. Amphenol Corp., 956 F.Supp. 158 (N.D.N.Y.1997). 33 While we agree with the substance of the district court's interpretation of the kind of notice required, we disagree with the district court's application of this notice requirement to the facts of this case. The IRS Treasury Regulation (hereinafter Treasury Regulation), which interprets ERISA § 204(h) notice in typical situations, 26 C.F.R. § 1.411(d)-6T (1996), sheds light on how precise ERISA § 204(h) notice must be. 20 Treasury Regulation § 1.411(d)-6T expressly rejects the argument that ERISA § 204(h) notice must contain an exact quotation of the text of the amendment: 34 [T]he notice does not fail to comply with section 204(h) of ERISA merely because the notice contains a summary of the amendment, rather than the text of the amendment, if the summary is written in a manner calculated to be understood by the average plan participant and contains the effective date. The summary need not explain how the individual benefit of each participant or alternate payee will be affected by the amendment. 35 26 C.F.R. § 1.411(d)-6T (1996). Treasury Regulation § 1.411(d)-6T illustrates that, in inquiring into whether a notice satisfies ERISA § 204(h), the focus should be on whether the average plan participant is able to understand the information which the plan sponsor is required to communicate. In this case, we must look at whether the four notices sent by defendants informed the average Plan participant that their benefit accruals were temporarily suspended pending adoption of the new formula as above described. 36 After carefully reviewing the February 1989 Notice, the December 1989 Notice, the April 1990 and the September 1990 Notice, we conclude that the notice requirement was satisfied. We first focus on the February 1989 Notice, which we quote in part again as follows: 37 The 1986 Tax law also requires plans that contain a social security offset to modify the way benefits are earned. Unfortunately, even at this late date, the IRS has not published guidelines on how benefits should be calculated. Although the IRS rules have not been issued, we would like to share some important facts with you: 38 Benefits earned in the Pension Plan through December 31, 1988 will not be affected. 39 There will be no gap in Plan participation; pension benefits will continue to earn credit in 1989. 40 Participants retiring or terminating in 1989 and eligible for payment at that time will be paid Plan benefits earned through December 31, 1988. Credits earned between January 1, 1989 and the date of termination will be paid out later in the year, when the new benefit calculations are known. 41 We refer below to the above-quoted part of the February 1989 Notice as the introductory paragraph and the first through third subparagraphs. 42 We believe that the February 1989 Notice clearly communicates the following: 43 (1) If the plan has a Social Security offset, as in the instant case, the new tax law requires a change in the way benefits are earned. This is made clear in the first sentence of the introductory paragraph. 44 (2) The change will not affect benefits earned through December 31, 1988. This is made clear in the first subparagraph. 45 (3) Although there will be a change in the way benefits are earned after December 31, 1988, there will be no gap in participation, but rather pension benefits will continue to earn credit in 1989. This is made clear in the second subparagraph. 46 (4) Although pension benefits will continue to earn credit after December 31, 1988, the new method of calculation cannot yet be determined because the IRS has not published its guidelines. When the IRS guidelines are issued, the new benefit calculation or formula will be determined. All of this is made clear by the second sentence of the introductory paragraph and the second sentence of the third subparagraph. 21 47 We conclude that the average Plan participant would clearly understand that the old benefits accrual formula would apply through December 31, 1988, that thereafter benefits would continue to accrue but that there would be a change in the formula which could not be determined until the IRS published its guidelines. Thus, the February 1989 Notice clearly communicated precisely the information required by Rev. Proc. 89-65--i.e., that there would be a change in the formula for calculating benefit accruals beginning in 1989, and the new formula would be determined after the IRS issued guidelines. 48 We also note that the February 1989 Notice was sent by the Plan Administrator, 22 as required by ERISA § 204(h). For the foregoing reasons, we conclude that defendants gave the required notice to Plan participants before December 31, 1990, in compliance with the manner in which Rev. Proc. 89-65 incorporates § 204(h). Thus, the Plan amendments ultimately adopted on November 15, 1991, could be retroactive to January 1, 1989. 23 49