Suits against company health and pension plan administrators are becoming more common as companies are forced to rein in excess potential liabilities from defined benefit plans. The Supreme Court agreed to review a Ninth Circuit decision that imposes fiduciary obligations on a company's decision to convert a defined benefit pension plan into annuities pursuant to ERISA requirements.
The Ninth Circuit ruled that the company could violate its fiduciary obligation if it doesn't undertake an "intensive and scrupulous investigation" into the possibility of merging the retirement assets into a multi-employer pension plan.
On 6/11/07, the Supreme Court unanimously disagreed. It deferred to an interpretation by the Pension Benefit Guaranty Corporation (PBGC) that the statute does not permit merger as a method of termination. Indeed, such an action could have detrimental consequences for the participants and beneficiaries of a single-employer plan as well as for the plan's sponsors. If a company chose this route instead of liquidating the fund and buying annuities, it would lose the ability to recover any residual assets that remain in the fund after it has satisfied its obligations to employees and retirees. There may also be additional funding requirements attributable to the multi-employer fund down the road.
The Court's decision will make it easier for companies to remove potentially large contingent liabilities from their benefits packages.