Bank of America established a cash balance defined benefit pension plan in 1998. In that plan, normal retirement age was defined as the earlier of attainment of age 65 or completion of 16 months of vesting service.

The purpose of this definition of normal retirement age was to avoid what is known as the “whipsaw effect” in a cash balance plan. The whipsaw effect could require that a lump-sum payment be distributed to a participant of an amount greater than what the cash balance plan’s hypothetical account balance would be at the time of distribution. By defining normal retirement age to be equivalent to the time at which vesting occurs under the plan, any participant with a vested interest would not have a whipsaw effect resulting from projecting the hypothetical account balance forward to normal retirement age using one rate of interest and bringing it back to time of distribution using a different interest rate established under rates published by the Internal Revenue Service (IRS).

A group of plaintiffs brought a class-action lawsuit challenging the validity of Bank of America’s use of this definition of normal retirement age, arguing that it resulted in an impermissible backloading of benefit accruals The U.S. Court of Appeals for the Fourth Circuit affirmed the lower court’s decision that calculation of a normal retirement age based on years of service met the requirements of Employee Retirement Income Security Act of 1974 (ERISA) Section 3(24) and rejected the backloading claim. (McCorkle, et al. v. Bank of America Corp., 4th Cir. 2012)