With lump-sum retirement distributions gaining favor among employers with defined benefit plans, sponsors should note a decision from a federal district court that supported the right of lump-sum payout recipients to receive a cost-of-living adjustment that is actuarially equivalent to the COLA paid to annuitants.
In Pikas v. Williams Cos., District Judge Gregory Frizzell granted the class of lump-sum distribution beneficiaries their motion for a ruling on the liability of Williams and its benefits committee and administrator. However, Frizzell delayed to a separate proceeding a decision on reimbursement. He based his decision on the fact that ERISA requires any lump-sum payment to be actuarially equivalent to the accrued benefit, which, in this case, included a COLA. The judge ruled that because any annuitant at normal retirement age will receive a set monthly payment that will increase by way of a COLA throughout the annuitant’s lifetime, the COLA is part of the accrued benefit.
Background of the Case
In 1991, Williams Cos. amended its pension plan to offer a lump-sum distribution option, but excluded from the calculation of lump sums the actuarial value of COLAs that would have been applicable to the same pension benefit when distributed as an annuity.
Plan participants who received lump-sum payouts and did not receive the value of the COLA in their distributions sued the plan sponsor several years later, claiming that the failure to treat the COLA as part of their accrued benefits violated ERISA.
Frizzell, in supporting his ruling, referred to Williams v. Rohm & Haas Pension Plan, in which the 7th U.S. Circuit Court of Appeals handed down effectively the same decision Frizell did in Pikas in favor of lump-sum recipients.
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