October 12, 2015
Authored by: Richard Arenburg
A recent case from a federal court in the Northern District of Georgia provides an interesting perspective on the termination of a nonqualified retirement plan with a traditional defined benefit formula offering lifetime annuity payments. In Taylor v. NCR Corporation et. al., NCR elected to terminate such a nonqualified retirement plan. The termination decision not only precluded new entrants to the plan and the cessation of benefit accruals for active employees, but it also affected retirees in payout status receiving lifetime payments. Those retirees received lump sum payments discounted to present value in lieu of the lifetime payments then being paid to them.
At the time NCR terminated the plan, its provisions apparently provided that the plan could be terminated at any time provided that “no such action shall adversely affect any Participant’s, former Participant’s or Spouse’s accrued benefits prior to such action under the Plan. . . ” The plaintiff was a retiree receiving a lifetime joint and survivor annuity of approximately $29,000 annually. As a result of the plan’s termination, NCR calculated a lump sum benefit for the plaintiff of approximately $441,000, with the plaintiff ultimately receiving a net payment of approximately $254,000 after federal and state income tax withholdings.
The key allegations made by the plaintiff, as recited by the court, were (1) that the lump sum payment caused the plaintiff to incur a significant taxable event and (2) that the plaintiff objected to the use of a discount factor to reduce the value of the lump