By: Mark Casciari and Justin T. Curley

 In McCorkle v. Bank of America Corp., 2012 U.S. App. LEXIS 15346 (4th Cir. July 25, 2012), the Court of Appeals for the Fourth Circuit affirmed a district court’s finding that benefit accrual increases to participants who have reached normal retirement age (sometimes hereafter “NRA”) do not run afoul of ERISA’s prohibition against “backloading” accruals in later years of service. 

 To avoid backloading, ERISA requires that a pension plan satisfy one of three alternative uniform accrual rules, one of which is the “133⅓ percent” test.  That test ensures that the benefit amount a plan participant accrues in any given year is not more than 133⅓ percent of the annual rate at which she accrued benefits in the previous year.  See ERISA Section 204(b)(1), 29 U.S.C. § 1054(b)(1).  This anti-backloading provision is aimed at ensuring that an employer does not provide low rates of accrual in early years of service, when a plan participant is most likely to leave, and concentrate the accrual of benefits in later years of service when she is most likely to remain with the employer.

 In McCorkle, the plan had calculated NRA as “the first day of the calendar month following the earlier of (i) the date the Participant attains age sixty-five (65) or (ii) the date the Participant completes sixty (60) months of Vesting Service.”  The plaintiffs conceded on appeal that the plan’s NRA definition was valid under ERISA.  However, plaintiffs argued that, even if the Plan’s NRA definition was valid, benefit increases after NRA violated ERISA’s backloading prohibition.

 The Fourth Circuit relied on the abandonment by class counsel, before the district court, of plaintiffs’ contention that the plan’s NRA was invalid.  Counsel had conceded as well at the district court level that the backloading claim hinged on an initial finding that the plan’s NRA is invalid under ERISA. 

 The Fourth Circuit also found that the backloading claim failed because ERISA’s anti-backloading rules do not apply once a plan participant reaches NRA.  The Fourth Circuit relied primarily on Section 411(b)(1)(B) of the Internal Revenue Code and ERISA Section 204(b)(1)(B), 29 U.S.C. § 1054(b)(1)(B), each of which states that the 133⅓ percent test governs “the annual rate at which any individual who is or could be a participant can accrue the retirement benefits payable at normal retirement age under the plan.”  (Emphasis added.)  The 133⅓ percent test, the court stated, is based on the benefit payable at NRA, and, it therefore follows that the anti-backloading rules restrict only those benefits that accrued prior to NRA.  

 McCorkle is the first reported Court of Appeals decision to find that ERISA’s anti-backloading provisions do not apply to benefit accrual increases for plan participants who have reached normal retirement age.