Thomas Wetzler v. Illinois CPA Society & Foundat

Citation: Not availableDocket: 08-2923

Court: Court of Appeals for the Seventh Circuit; November 9, 2009; Federal Appellate Court

Original Court Document: View Document

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Thomas R. Wetzler, after twenty-two years of employment with the Illinois CPA Society, requested a lump-sum disbursement of his retirement benefits from the Illinois CPA Society Foundation Retirement Income Plan. At the time of his request, the Plan lacked sufficient assets to fulfill this payment without violating the Internal Revenue Code. The Plan denied Wetzler's request, citing legal obligations to maintain compliance and protect other participants’ interests. Wetzler subsequently filed a lawsuit claiming that an amendment to the Plan contravened the anti-cutback provisions of the Employee Retirement and Income Security Act (ERISA). 

The district court ruled in favor of the defendants, leading to Wetzler's appeal. The Plan, which is a defined benefit plan with fewer than 100 participants, had assets of approximately $2 million when Wetzler retired in May 2006. A previous HCE had received a lump-sum payout in 2002, which the Plan later deemed erroneous. To rectify this, the Plan adopted Amendment One in June 2004, mandating that all distributions comply with Treasury Regulations and allowing past distributions only if secured appropriately. Despite receiving information indicating a lump-sum option was available, Wetzler was informed the next day that such a disbursement was not permissible due to funding limitations. The appellate court affirmed the district court's ruling.

Wetzler deferred his benefits on May 30, 2006, and later requested a Plan Amendment in September 2006 for a lump-sum disbursement without security, which the Executive Committee denied. In January 2007, he demanded a lump-sum rollover into an IRA, but the Plan denied his request due to underfunding, citing Treasury Regulations and the risk to its tax-qualified status. On June 7, 2007, Wetzler repeated his demand, offering to post security, but the Plan again rejected it. He filed suit on August 7, 2007, claiming that Amendment One violated ERISA's anti-cutback rules by eliminating an available benefit and that the Plan acted arbitrarily in denying his requests. The district court granted summary judgment for the Plan, stating that the administrator had discretion to interpret the Plan and that the denial of a lump-sum distribution was consistent with the Plan's terms and ERISA's provisions. Wetzler appealed, challenging the standard of review, the legality of Amendment One under ERISA, the assertion that lump-sum distributions were not allowed prior to Amendment One, and the characterization of the Plan's denial as arbitrary and capricious. The appellate court reviews the district court's decisions de novo, with denials of benefits generally reviewed de novo unless the plan grants discretion to the administrator, in which case the arbitrary and capricious standard applies. The legality of any term under ERISA is reviewed de novo.

The Plan grants the Administrative Committee broad discretion to interpret its provisions, determine eligibility, and resolve disputes. The district court needed to ascertain whether a lump-sum distribution was available before Amendment One, as ERISA's anti-cutback rule prohibits reductions in accrued benefits due to plan amendments. This required evaluating the administrator’s interpretation using the arbitrary and capricious standard. The court found that the administrator's determination that a lump-sum distribution was not available prior to the amendment was appropriate.

Upon establishing this, the district court then employed de novo review to assess if the plan violated ERISA's anti-cutback rules. Wetzler claimed the court erred by concluding that Amendment One did not violate these provisions. The administrator argued that Section 5.02, which permitted lump-sum distributions, must align with the Internal Revenue Code, indicating such distributions were not feasible without violating tax qualification requirements under Section 401(a), particularly regarding discrimination against Highly Compensated Employees (HCEs) like Wetzler. 

The administrator maintained that because the plan was underfunded, a lump-sum distribution would breach Section 401(a). As both parties acknowledged the plan's underfunded status, the court found that the administrator's interpretation—that a lump-sum benefit was unavailable prior to Amendment One—was justified and not arbitrary. Wetzler further contended that I.R.S. Revenue Ruling 97-26 allowed for lump-sum distributions under certain conditions even when a plan was underfunded. However, the court noted that such revenue rulings carry minimal deference and are not binding, thus reaffirming the administrator's decision.

No language in the CPA Society's Plan allows for distributions similar to those in Revenue Ruling 92-76, indicating the original intent to exclude such provisions. The Administrative Committee's temporary amendment supports this interpretation. The Administrator’s decision to adhere to binding regulations rather than a less authoritative Revenue Ruling is not deemed unreasonable, especially considering the potential financial burden on the plan and the risk of losing tax status. 

The analysis next focuses on whether Amendment One, which permitted a lump-sum distribution to Highly Compensated Employees (HCEs) during a specific underfunded period if security was provided, violated ERISA's anti-cutback provisions. Under ERISA, accrued benefits cannot be diminished by plan amendments, protecting employees' expectations. The case of Cent. Laborers’ Pension Fund v. Heinz illustrates that amendments cannot curtail previously accrued benefits. 

While a lump-sum distribution is classified as an optional form of benefit under ERISA, Wetzler argues that Amendment One eliminated this option, violating the anti-cutback provision. However, since HCEs lacked the ability to receive lump-sum distributions prior to Amendment One due to underfunding, the situation differs from Heinz, where existing benefits were altered. Thus, the anti-cutback provision only applies if the benefit in question was already available to the employee before the amendment.

Amendment One did not eliminate any previously available lump-sum options for plan members; rather, it corrected a distribution that was non-compliant with Treasury Regulations. Plan participants were not entitled to a lump-sum distribution under the Plan, thus Amendment One did not violate ERISA’s anti-cutback provision, as it did not make any participant ineligible for benefits they were previously entitled to. Additionally, even if lump-sum distributions were considered an 'optional form of benefit' prior to the Amendment, it brought the Plan into compliance with the Internal Revenue Code, thereby exempting it from ERISA’s anti-cutback statute. 

Wetzler's claim that the denial of his lump-sum distribution request was arbitrary and capricious is undermined by the plan administrator's reasonable basis for the denial, which included concerns about the Plan's financial integrity and compliance with tax regulations. The District Court found that the lump-sum distribution was never available to Wetzler under the Plan's terms, and the prior distribution, made in error, was rectified by requiring security from the recipient. Therefore, the Plan's decision to deny Wetzler’s request was deemed reasonable and not arbitrary. The District Court correctly upheld the administrator’s interpretation of the Plan, affirming that the Plan did not violate ERISA’s anti-cutback provisions and that the denial of Wetzler’s request was justified. The decision is AFFIRMED.