Judge Faults Pension Plan Payout Calculation
Business Insurance Online (01/13/03) Vol. 37, No. 2 p.24; Anand, Vineeta

In the Western District of Michigan, U.S. District Court Judge Richard Alan Enslen has ruled that Bowater Inc. cannot include calculations on life expectancy in determining the lump-sum payouts from the company's cash balance plan for workers who quit before they reach retirement age. The case is the second of its kind, following a similar ruling by a U.S. District Court judge in the Southern District of Illinois regarding lump-sum payouts from Xerox Corp.'s cash balance pension plan. In the Michigan case, Frank J. Crosby argued that the Bowater Retirement Plan for Salaried Employees should have paid him more, and should not have calculated his probability of death when determining his lump-sum payout. Judge Enslen ruled that cash balance plan sponsors can only calculate the probability of death for employees who are at retirement age, not those who are younger than 65. The judge cited an Internal Revenue Service (IRS) guidance from 1996 that did not include mortality discounts in its example of lump-sum payout calculations. Judge Enslen ordered Bowater to recalculate Crosby's lump-sum payment, excluding the probability of death calculation.


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