Sixth Circuit Court of Appeals Upholds PBGC Determination Disallowing Post-Termination Plan Amendment
In PBGC v. Kentucky Bancshares, Inc. (6th Cir. 2015, No. 14-5573, unpublished), the U.S. Court of Appeals for the Sixth Circuit upheld a PBGC determination that Kentucky Bancshares violated applicable rules and regulations under ERISA when it changed its pension plan’s interest rate after the plan was terminated. Participants’ benefits would have been reduced by the change to the interest rate. Pursuant to 29 C.F.R. § 4041.8, benefits from a terminated plan are determined under the plan’s provisions as in effect on the date of termination. Amendments that decrease the value of plan benefits may only be made in certain enumerated circumstances, including if the decrease is necessary to retain the plan’s qualified status. Kentucky Bancshares argued that the change was necessary to comply with PPA (and, thus, necessary to maintain the plan’s qualified status), but the court sided with the PBGC, which did not interpret PPA torequire an amendment that would decrease the value of benefits.
Of note in this case is that Kentucky Bancshares began implementing its PPA changes before the plan was terminated but did not actually amend the plan until slightly less than two months after the plan’s termination date. The PBGC rejected the argument from Kentucky Bancshares that evidence showing it had implemented the changes prior to plan termination supported a finding that the plan had been de facto amended prior to termination.