Krumme v. WestPoint Stevens, Inc., 1998 U.S. App. LEXIS 8364 (2^nd Cir. May 1, 1998)-This is a dispute among the parties over a pension plan committee's authority to adopt actuarial assumptions in connection with calculating an accelerated lump sum payment of future accrued retirement benefits.

In 1975, Cluett established an employee benefit program for its senior executives, the Executive Permanent Insurance Program (EPI Program). Among other things, the EPI Program provided deferred compensation benefits to its participants. Upon reaching age 65, EPI Program participants would receive lifetime monthly payments equal to, on an annual basis, 30% of the participants' final base salary. Krumme and each of the Allen plaintiffs agreed to participate in the EPI Program.

On October 24, 1988, a wholly owned subsidiary of Farley, Inc. (Farley) initiated a tender offer for all outstanding shares of WestPoint common stock. By November 21, 1988, Farley controlled 35.17% of that stock. Threatened with a hostile takeover, WestPoint sought to protect the retirement benefits of EPI Program participants. See Allen v. WestPoint-Pepperell, 933 F.Supp. 261, 264 (S.D.N.Y. 1996) (finding that WestPoint sought to "protect participants in the event the company experienced a change in control") (hereinafter "Allen I"). Specifically, on November 11, 1988, WestPoint offered EPI Program participants an amendment to the EPI Program (EPI Amendment) under which the participants in the event of a "Change in Control," could choose a lump sum payment in an amount that would be the "Actuarial Equivalent" of their future stream of retirement benefits. The "Actuarial Equivalent" represented an amount having the "same present value" as the stream of retirement benefits under the EPI Program. As an additional measure of protection for EPI Program participants, the EPI Amendment included a fee-shifting provision to reimburse EPI Program participants for their costs and attorney's fees incurred in connection with enforcing their rights under the EPI Program after a change in control, regardless of whether the participant is a prevailing party.

Due to a drafting error, the discount rate for calculating the lump sum under the EPI was fixed at 5%. WestPoint attempted to correct this error by amending the plan to adopt a rate which is 120% of the PBGC floating rate. At all times relevant, the rate was 9.3%. (The higher the rate the lower the lump sum.)

Krumme sued claiming that the Committee had no authority to change the discount rate since it made no formal amendments. Instead the Committee adopted the new rate in its minutes. The Second Circuit found for the plan. It followed Dooley v. American Airlines, 797 F.2d 1447 (7^th Cir. 1986), cert. denied, 479 U.S. 1032 (1987). In Dooley the seventh circuit held that a change in the discount rate is not a plan amendment.