Solvay Chemicals Inc. converted its traditional defined benefit plan into a cash balance plan. To comply with the requirements of ERISA Section 204(h), the company issued a six-page notice (204(h) Notice) to explain how the conversion to a cash balance plan worked and how any reductions in benefit accrual that would occur. Certain employees filed suit claiming the 204(h) Notice did not fully explain some of the changes and cutbacks made as a result of the conversion. The district court held the 204(h) Notice was deficient. Specifically, they found the 204(h) Notice did not adequately describe the changes in early retirement subsidies between the traditional plan and the cash balance formula. The issue in the current case is whether the violation of ERISA Section 204(h) results in a remedy for the employees. The employees requested that the early retirement subsidies be reinstated. ERISA Section 204(h) provides that a court may award benefits to which the employees would have been entitled only if the notice failure was “egregious.” The term egregious is defined to mean either (i) the company’s failure was within its control and was intentional or (ii) it was within the company’s control and the company failed to promptly provide the required notice or information after discovery of an unintentional failure. The district court found the earliest time the company discovered its failure was when the employees filed the suit. Following the filing of the suit, the company sought additional advice from its ERISA counsel and actuaries and provided additional information. The district court therefore found the company’s failure was not egregious. On appeal to the 10th Circuit Court of Appeals, the decision of the district court was upheld. The 10th Circuit rejected the employees’ claim that the failure was intentional because the company testified it never intended to leave out details, outside lawyers and actuaries testified that the company’s intent was to comply with the requirements of ERISA 204(h), and the outside lawyers and actuaries testified the company never pushed back against their advice and recommendations on what should be included in the 204(h) Notice. Thus the circuit court found the participants did not provide sufficient evidence to indicate that the failure was intentional. Further, the actions of the company to provide additional information to employees did not result in an unintentional error to become an egregious error.
While the company avoided any monetary recoveries to employees because of the 204(h) Notice failure, the case helps reinforce the position that a notice under ERISA Section 204(h) should be as complete as possible and describe every potential reduction in benefits so as to avoid what could be costly litigation. (Jensen v. Solvay Chemicals Inc., 10th Cir., 2013)