Kammerer v. The Motion Picture Industry Pension Plan: Calculating a Ratable Share when ERISA Plan Does Not Define a Full Year of Participation

Kammerer v. The Motion Picture Industry Pension Plan: Calculating a Ratable Share when ERISA Plan Does Not Define a Full Year of Participation

ERISA and CFR Provisions: Under 29 U.S.C. § 1054(b)(4)(B), ERISA Section 204(b)(4)(B), 29 C.F.R. § 2530.204-2(c)(1), employees who are credited with at least 1,000 hours of service in a plan year must receive at least a ratable portion of the accrued benefit to which they are entitled if they were employed on a full time basis. There are at least two methods by which employers can ensure that plan participants receive a prorated benefit and, thus, ensure compliance with ERISA.

Methods of Compliance: Under the first approach, a plan provides an employee with credit for the exact percentage of a full year based upon the number of hours of service with which the employee is credited during the year. Thus, if an employee is credited with 1,400 hours of service during a computation period and a full year of participation in 2,000 hours of service, the employee would be credited with 0.7 of a year of service. 29 C.F.R. § 2530.204-2(c)(4)(1).

However, as a less time intensive alternative for determining benefit accrual service, an employer can create a range of hours and all employees who fall within the same range of hours receive the same percentage of credit. As long as all employees within the range earn at least a pro rata portion of the full time benefit, the plan complies with ERISA. 29 C.F.R. § 2530.204-2(c)(4)(ii). For example, if a plan defines a full year as 2,000 hours of service, the plan could provide a 60% benefit to employees who work between 1,001 and 1,200 hours. Because 1,200 is 60% of a full year, i.e., 2,000 hours, all employees in the range will earn at least a pro-rata portion.

Full year of credit for less than a full year of participation. ERISA permits a plan to award a full year of credit for less than a full year of participation, "provided that such crediting is reasonable and consistent for all employees within the same job classification, reasonably established." 29 C.F.R. § 2530.204-2(c)(2). For example, if a full year of participation under a plan is 2,000 hours, and a plan used 100 hour intervals as a range, an employee who was credited with 1901 hours of service would be credited with a full year of service; if the employee were credited with only a 90% credit, ERISA would be violated because the employee would not have been credited with at least a ratable portion of an accrued benefit.

Situation in Kammerer: In Kammerer v. The Motion Picture Industry Pension Plan, 51 E.B.C. 1297 (S.D.N.Y. 2011), aff'd, 2012 U.S. App. LEXIS 13541 (2d Cir. July 3, 2012) [enhanced version available to lexis.com subscribers], the court was asked to address the manner in which the proration requirement should be applied where the plan document did not clearly define a full year of participation.

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