During the past 2 years, many
companies have decided to "freeze" benefit accruals under their pension plans.
The list of companies doing this contains many household names such as Verizon,
IBM, Coca Cola, and Hewlett-Packard. When a plan is frozen, the employees stop
earning pension benefits credits, meaning that their pension benefit will no
longer continue to grow. A plan cannot take away or reduce the benefits an
employee has already earned, but is is allowed to freeze future benefit
accruals. However, ERISA requires that, if a pension plan is to be frozen, the
participants must receive written notice at least 15 days before the effective
date.
The project recently resolved an
interesting case involving a benefit freeze. Our clent was a 56 year old woman
who had worked for a small employer in Connecticut from 1986 through January of
2003. The company sponsored a Money Purchase Plan, which obligated them to make
specified contributions annually on each employee's behalf. We found that the
company had stopped making contributions into the client's account in September,
2001. However, the company did not notify her of the freeze until November,
2002.
We filed a claim with the plan
administrator, pointing out that, under case law, if a plan fails to comply with
the law, it loses the right to freeze benefit accruals. The employee should
continue to accrue benefits until the proper notice is sent. Our argument was a
success, and, as a result of our efforts, our clent recently received an
additional $10,900.00.
This case underscores the fact that
problems can arise in defined contribution types of plans as well as traditional
defined benefit plans. It is very important for employees to "keep their eye on
the ball" when their retirement income is in an individual account such as the
one in this case.
