CHALLENGE
A client sought advice concerning an employer-sponsored retirement plan. The employer had presented our client with paperwork stating that the conventional “defined benefit” pension plan had previously been terminated and that our client would be paid a lump sum termination distribution of $X, upon signed agreement. Our client had previously consulted an advisor who calculated the lump sum benefit at almost $2X and suggested an ERISA lawyer be consulted concerning the administration of the plan.

OUR STRATEGY
After gathering all pertinent details of the plan, GCT confronted the employer as plan sponsor and trustee regarding the following potential violations: (1) The retroactive plan “freeze” two years prior with no contemporary notice to the employees would violate express provisions of ERISA and cause the client’s benefits to be understated. GCT requested that two years of service credit be restored. (2) The employer denied service credit for a year in which our client worked 2,000 hours, stating that our client was a shared employee with another employer in the same office for the year in question. This service credit reduction resulted in an understatement of our client’s benefits, an artifice that violated an IRS revenue ruling. GCT requested that the year of service, a factor in the plan’s benefit formula, be restored. (3) The employer circulated a follow-up letter informing all plan participants that, if they failed to sign off on the termination paperwork, the cost of any additional delays would be passed on to participants by further reducing their benefits. This threat represented a blatant abuse of the employer’s responsibilities as a fiduciary of the plan, because a defined benefit plan places the responsibility for incurring any termination-related expenses on the sponsor.

RESULTS
GCT was able to avoid litigation and secure the employer’s agreement to recalculate the lump sum benefit amounts payable to all participants (including our client) and to distribute those amounts. With the three additional years of service credit, our client’s lump sum benefit distribution increased to approximately double the employer’s original computation.