Employers need to make sure that their employees know when benefits shift from one plan to another as illustrated by this case from Utah:
Martin Marietta Corporation (Martin) operated a cement plant that it later decided to lease to Southwestern Portland Cement Company (Southwestern). The employees operating the plant became covered by a Southwestern pension plan. When Martin later terminated the lease, many employees began working for Martin and became covered under the Martin pension plan. In connection with the lease termination, Southwestern and Martin agreed that Southwestern’s pension plan would transfer to Martin’s pension plan the assets and liabilities relating to employees who became employed by Martin. Although the pension transfer occurred, Southwestern plan participants were not notified of the transfer. Some years later, Martin employees went back to Southwestern, now owned by CEMEX, Inc. asking for their pension benefits. Southwestern said that the employees were not entitled to benefits because the assets and liabilities had been transferred to the Martin plan. In fact, some of the employees were already receiving benefits from the Martin plan, including benefits based upon their service with Southwestern. The employees then sued CEMEX, Inc., seeking their pension benefits.
The federal district court said that the Southwestern plan (now the CEMEX plan) had to pay benefits to the employees. Because the employees had been participants in the Southwestern plan and had not received notice of the transfer, the transfer was void with respect to them. Thus, participants may receive double benefits for some of their service.
CEMEX/Southwestern claimed that it was not required to give notice. However, CEMEX did not raise that question early in the litigation, relying instead upon an argument that the transfer of pension assets and liabilities was sufficient to terminate the employees’ rights under the CEMEX/Southwestern plan. The court expressed concern that the participants had no knowledge of what had happened to their benefits, noting that one purpose of ERISA was to ensure that participants knew where they stood with respect to a plan. The court refused to allow the employer to argue late in the litigation that notice to participants of a plan merger was not required.
The lesson for employers: If assets and liabilities of one plan are transferred to another plan, make sure the participants are given notice. Otherwise, an employer may find itself paying twice for the benefits.