A defined benefit plan (also referred to as a "Pension Plan") is a qualified plan which
promises employees (participants) a certain level of benefits (such as a stream of
payments) at the time they reach retirement age (which is usually 65). The amount
of benefits (stream of income) is usually based on the employee's average level of
compensation (over the last several years) and the number of years the employee
has worked for the company. Usually, an employee is provided several different
distribution options on how he would like to have his benefits paid. Because these
plans are very complicated and very expensive to fund, companies are utilizing these
plans less and less.
What kind of lawsuits arise in the establishment and administration of
defined benefit plans?
Miscalculation of Benefits. The calculation of benefits under a defined benefit
plan can be very complicated and will involve the assistance of an actuary.
Sometimes these calculations are not done consistently or in accordance with the
plan documents. A common problem is calculating an employee's "years of service"
with the company after a company has been a part of several acquisitions and
mergers. Sometimes the plan documents are either inconsistent or ambiguous and
the employee's benefits can be miscalculated. If the employee can prove his benefits
were miscalculated, then the employee has the right to file a claim (through the plan's
administrative procedures) for additional benefits . If the dispute cannot be resolved,
then the employee would the right to file a lawsuit under ERISA.
Surplus Litigation. Any time a defined benefit plan is merged with another plan or
terminated, there is always significant discussion on how the plan's "surplus" should
be used. Can the surplus be transferred to another qualified plan for the benefit of
different employees? Can the surplus revert back to the employer? Or, should the
surplus be used to benefit the current participants of the plan. Unfortunately, each
situation is different and it is important to consider the governing plan documents and
the merger agreement between the companies and plans. There are also rules
under ERISA and prior federal cases on how the surplus can and should be used.
Misuse of Plan Assets. If a Trustee (or Investment Manager) fails to invest the
plan's assets in a prudent manner or directs the use of such assets for a purpose
that is not for the exclusive benefit of participants, then the trustee could be held
personally liable for losses to the plan.
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