Court Backs Rounding by Plan Administrator
A federal district court in North Carolina has ruled that the rounding decision is a discretionary one that a plan administrator can make, and that choosing to round to five decimal places was not an abuse of discretion.
The Duke Energy Retirement Cash Balance Plan was recently sued by a plan participant in the U.S. District Court for the Middle District of North Carolina. The plaintiff in Johnson v. Duke Energy Retirement Cash Balance Plan and Duke Energy Corporation
argued that the plan’s decision to round the interest rate to five decimal points violated ERISA, and claimed that the plan should round to 15 to 17 decimal points.
An analysis of the case by Stinson Leonard Street LLP notes that cash balance plans often provide a pay credit and an interest credit in determining a participant’s accrued benefit; the former often a percentage of compensation, the latter established in the plan document, either as a fixed rate or a formula.
As you might expect, the amounts involved were small, at least at a participant level. The analysis explains that the participant argued that the rounding discrepancy resulted in an underpayment of interest credits that totaled $41.80 between January 2006 and October 2012 — though even that ignored months in which the plan’s rounding convention worked to the benefit of the participant.
Of course, if the suit were expanded to all plan participants, the damages would be much higher given the many participants in the Duke Energy plan.