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The 1st U.S. Circuit Court of Appeals heard oral argument this week in a case raising the issue of whether a Treasury Department regulation allowing companies to amend retirement plans is legal under the Employee Retirement Income Security Act of 1974 (ERISA) if the amended plan cuts workers’ accrued retirement benefits. The hearing in Tasker v. DHL Retirement Savings Plan concerned Jeffrey Tasker’s efforts to recover retirement benefits earned while he work for Airborne Express, which DHL later acquired. In February 2009, Tasker filed suit in the District of Massachusetts alleging that the reductions in his pension plan violated ERISA “anti-cutback rule.” On Nov. 20, 2009, Judge Nancy Gertner dismissed all but one count of the complaint — an allegation that the defendants “have failed to pay [Tasker] any benefits at all” and “refuse to pay his savings plan benefits as an annuity.” In December, Tasker filed a voluntary dismissal without prejudice of that claim “so we could take the key issues up to the court of appeals,” said Tasker’s lawyer, Bob Catapano-Friedman of Boston-based Catapano-Friedman Law Firm. “Those other issues should be something the parties should be able to work out for themselves,” Catapano-Friedman said. According to court papers, Tasker retired from Airborne in 2004, and DHL acquired the company “either shortly before or shortly after his retirement.” After the acquisition, DHL merged Airborne’s defined benefit and defined contribution plans into its own plans. Defined benefit retirement plans offer workers specific benefits based on factors such as age, earnings, and years of service. Defined contribution plan payments depend on how much money the retiree contributed while working and the performance of the plan’s investments. DHL’s change eliminated Tasker’s right to transfer his account balance in DHL’s defined contribution retirement plan to its defined benefit retirement plan. Tasker claimed he received an estimate in March 2004 of a $4,163.92 monthly annuity with a survivor option. He chose to start payments on or after October 2008. In April 2008, DHL’s retirement account trustee company informed Tasker that his expected monthly benefits were approximately $2,200.00. In July 2008, Tasker said he was told that the 2004 estimate “was higher because it contemplated Tasker’s exercise of his transfer right.” Tasker claims on appeal that the plan change violated ERISA’s anti-cutback rule, which bars certain plan amendments that would reduce or eliminate a participant’s accrued benefits. DHL argues that a U.S. Treasury Department regulation allows companies to eliminate such transfer rights, even if the change reduces a participant’s benefits. The regulation in question, which the Internal Revenue Service issued, states that “a plan may be amended to eliminate provisions permitting the transfer of benefits between and among defined contribution plans and defined benefit plans.” Tasker claims the appeal is a case of first impression concerning how courts should “interpret important federal ERISA statutory provisions and regulations.” “The impact of the Court’s decision will be felt by many other participants in the Appellee plans who are similarly affected to Mr. Tasker as well as by many other participants in other ERISA-protected pension plans,” stated Tasker’s appeal brief. During oral argument, Senior Circuit Judge Bruce Selya asked Tasker’s lawyer, Catapano-Friedman, to address Gertner’s observation that the plaintiff hadn’t raised the issue of “the reasonableness of the [Treasury Department] regulation.” “There was no argument based on that,” Selya said. “The district court prefaced its opinion on the observation that there was no challenge to the reasonableness of the regulation and the only claim was how to interpret [whether it allows companies to eliminate transfer rights in all cases].” Catapano-Friedman, who also represented Tasker at the lower court, replied that he didn’t know “whether this particular portion of the regulation or the statute was cited.” ‘It seems to me that you’re making an argument that was never made to district court and I think you know where that will lead,” Selya said. Catapano-Friedman replied that Tasker specifically made the argument that the regulation allowing companies to eliminate the right to transfer funds wasn’t designed to reduce a retiree’s monthly annuity benefit. “We don’t think this is a new argument,” Catapano-Friedman said. “It’s a clear violation of ERISA’s anti-cutback rule,” he said. “We certainly made this argument before the court, below and here.” In an interview after the hearing, Catapano-Friedman said that the existence of the regulation allowing elimination of the transfer benefit “doesn’t mean [that DHL] can also reduce the amount of Mr. Tasker’s pension.” “That is a separate protected benefit [under ERISA],” Catapano-Friedman said. “Go ahead and take away the transfer option but keep his pension the same.” DHL’s lawyer, Jeremy Blumenfeld, a partner in the Philadelphia office of Morgan, Lewis & Bockius, started his argument by stating, “Tasker did not argue below that this regulation exceeded the scope of Treasury’s authority.” At one point during Blumenfeld’s argument, Circuit Judge Kermit Lipez noted that “the numbers are pretty dramatic.” “Just on its face it’s hard to reconcile that dramatic reduction with the overall [goals of] ERISA,” Lipez said. Blumenfeld replied that ERISA’s anti-cutback provisions “protect certain benefits and not others.” Tasker had the right to his defined contribution account balance, which grew between his retirement and 2008, Blumenfeld said. The separate defined benefit plan “had a formula that always included an offset.” The formula was based on years of service, age and salary minus an offset, said Blumenfeld said. Court papers said the retirement plan was “subject to a reduction based on a participant’s account balance in the Profit Sharing Plan,” which is the defined contribution plan. Lipez asked whether, if Tasker had been able to make the transfer in question, he would have avoided the offset to his defined contribution account that had such a major impact on his retirement benefits. “Whether he moves the money or not, that offset still applies,” Blumenfeld said. “Can you explain to us, why did this abrogation of the transfer right have such a dramatic effect on Tasker’s benefits?” Lipez asked. Blumenfeld said he understood that the “retirement income plan [the defined benefit plan] had certain assumptions that don’t apply to benefits under the defined contribution plan.”

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