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ENGLEWOOD, Colo.-Telecommunications giant US West Inc. will absorb $8 million in future pension administration plan costs to settle a class-action suit filed by retirees.
The proposed settlement would end a 2-year-old lawsuit filed by a retired employee who alleged that US West was not authorized by its defined benefit pension plan to pay administrative expenses from plan assets. The suit, which later received class-action status, sought $30 million to be paid back into the pension plan.
US West said its actions were proper and that the Employee Retirement Income Security Act specifically allows employers to pay plan administrative expenses out of plan assets-if plan documents give employers permission to do so.
Plaintiffs contended, though, that the language in US West's benefit documents were not clear on what expenses would be paid out of plan assets.
While US West said its actions followed federal law, it agreed to settle the lawsuit to end litigation expenses.
"It came down to a semantic dispute over the interpretation of highly technical language. We determined that we'd rather put money in the pension fund, where it will ultimately benefit retirees, than spend it on attorneys fees for this needless litigation," said Sharon Naylor, vp-human resources for US West in Englewood, Colo.
The $8 million that US West has agreed to pay to settle the suit, though, will not actually go to the plan. Under the terms of the proposed settlement, which still must receive final approval by a U.S. District Court in Denver, US West will directly pay the next $8 million in pension plan administrative expenses. Once the $8 million mark is reached, the company will again tap plan assets to cover administrative expenses.
US West did not change its basic plan documents but has slightly changed the wording of a document describing the fiduciary responsibility of its employee benefits committee. Earlier, the document said expenses of the committee would be paid by the company. It has been reworded to say that expenses of the benefits committee only would be paid by the company. US West also will pay fees for plaintiffs' counsel, which haven't been determined yet. Currently, the US West plan has about $10.4 billion in assets and is overfunded. The plan has about 109,000 participants.
Benefit experts say paying pension plan administrative expenses from pension plan assets is common and is sanctioned by ERISA.
"ERISA clearly permits payments of administrative expenses from retirement savings plans," said James Brickman, a principal with The Kwasha Lipton Group in Fort Lee, N.J.
Under ERISA, such payments are sanctioned so long as they are for the exclusive benefit of participants, said William Fornia, a principal in the Denver office of Buck Consultants Inc., adding that operating a plan is for the exclusive benefit of participants.