ElderLaw News — The Estate Planning & Elder Law Firm, P.C. — MD, VA, DC
ElderLaw News

ElderLaw News is a weekly e-newsletter that brings you reports of legal developments and other trends of vital interest to seniors and their advocates. This newsletter is brought to you by The Estate Planning & Elder Law Firm, P.C., William S. Fralin, Esq., President.

Protecting Your Retirement Plan in a Corporate Transition

When companies go through any form of restructuring, retirement plans are often given limited attention. Merger discussions usually entail the future of the company, not the future of its retiring employees. Thus, elderly employees' pension plans can become an elephant in the board room. A recent Wall Street Journal article discusses this issue.

First and foremost, employees should meet with their retirement plan administrators frequently to obtain the most recent plan documents. Administrators are often skilled in human resources decisions, not financial or economic predictions, so employees should not rely on any representations that come from the meeting. Instead, a lawyer with financial planning abilities should look at the plan documents obtained from the administrator. Because plan administrators are not licensed securities advisors, and corporate trustees of retirement plans probably have thousands of accounts, it is important to have an individual review by a non-commissioned counselor.

Second, every employee should learn the vocabulary of the employee's retirement plan. What kind of plan is it? Many plans are defined contribution plans in which the investor, not the employer, bears the risk. These plans allow for both employer and employee contributions; however, the contribution is defined, the benefit is not. Even defined benefit plans can quickly change due to a company's bankruptcy or relationship with a union. Employees should also research tax implications and whether or not beneficiary designations are necessary.

Third, employees should continually remind themselves that annually distributed plan summaries are an introduction to their benefits, not the final verdict. A summary is simply a snapshot of current activity; it does not display how an economic or corporate change will alter the benefits of a plan.

Annual plan summaries and the predictions of plan administrators have put many retirees into troublesome situations lately. (See CIGNA v. Amara, No. 09-804 of the 2010 Term of the Supreme Court). After CIGNA converted its defined benefit pension plan to a cash balance plan, it issued a summary plan description (SPD) to plan participants. Plan participant Janice Amara brought a class action suit claiming that CIGNA's notice of the changes was improper, particularly because the new plan in certain respects provided employees with less generous benefits. After years of appellate litigation, the U.S. Supreme Court decided the CIGNA dispute.

The court held that although §502(a)(1)(B) of the Employee Retirement Income Security Act (ERISA) did not give the district court authority to alter CIGNA's plan, relief was authorized by §502(a)(3), which allows a participant, beneficiary, or fiduciary "to obtain other appropriate equitable relief" to redress violations of ERISA "or the [plan's] terms." The Court concluded that statements in the SPD "do not themselves constitute the terms of the plan for purposes of §502(a)(1)(B)." In short, a summary plan description that is wrong is not binding on an employer; thus, even if an employee thinks that the employee already has it in writing, the employee may not have enough to enforce the employer's promises.

What would be enough for a plan summary or a plan administrator's statements to be enforced? The Court discussed equitable remedies, specifically the appropriate equitable relief granted by ERISA: "Because §502(a)(3) authorizes 'appropriate equitable relief'' for violations of ERISA, the relevant standard of harm will depend on the equitable theory by which the District Court provides relief. Potential equitable theories include estoppel, reformation, and surcharge. If the remedy is equivalent to estoppel, a showing of detrimental reliance must be shown." In summary, an employee would have to carefully document the employee's reliance on a plan, sit through litigation, and hope for the best if the employee relied on the words of an administrator instead of obtaining legal counsel.


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The Estate Planning & Elder Law Firm, P.C. is an elder law firm. We represent older persons, disabled persons, their families, and their advocates. The practice of elder law includes estate planning, estate and trust administration, powers of attorney, advance medical directives, titling of assets and designations of beneficiaries, guardianships, conservatorships, and public entitlements such as Medicaid, Medicare, Social Security, and SSI, disability planning, income tax planning and preparation, care management, and fiduciary services. For more information about The Estate Planning & Elder Law Firm, P.C., please visit our website at http://www.chroniccareadvocacy.com.

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