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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 16, 1997
CERIDIAN CORPORATION
(Exact name of registrant as specified in charter)
Delaware 1-1969 52-0278528
(State or other juris- (Commission File (IRS Employer
diction of incorporation Number) Identification No.)
8100 34th Avenue South, Minneapolis, MN 55425
(Address of principal executive offices) (Zip code)
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Registrant's telephone number, including area code: 612-853-8100
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Item 5. Other Events.
As previously disclosed, Ceridian and its U.S. defined
benefit pension plans (collectively, the _Plan_) have been named
as co-defendants in a class action lawsuit filed in U.S.
District Court in Minnesota involving as many as 12,000 former
employees seeking increased lump sum pension benefit payments.
The plaintiffs, all of whom left the Company before the age of
65 and received lump sum benefit payments, claim that an
improperly high interest (discount) rate was utilized to
calculate their lump sum benefit amounts, thereby lowering the
benefit amounts. On May 5, 1997, the court granted Ceridian's
motion for summary judgment concerning three of plaintiffs'
claims, but denied Ceridian's motion with respect to the
plaintiffs' ERISA benefit claim. In its denial, the court
expressed the view that the Plan required the lower discount
rate that would have provided even larger lump sum payments than
had been paid, and that Ceridian's affirmative defenses would
not defeat plaintiffs' ERISA claim.
To fully appreciate why Ceridian believes that the court's
actions in connection with the remaining count are in error, one
must understand the background to the introduction of the lump
sum benefit feature at the beginning of 1989. Large-scale
layoffs and divestitures took place at Control Data Corporation
from the mid 1980s to the early 1990's, and the Company
voluntarily took a variety of actions to lessen the financial
impact on employees who left the Company, including actions to
increase benefits under the Plan. Beginning in the mid 1980s,
retirement benefits for terminated employees were significantly
enhanced by including severance pay in the calculation of the
amount of retirement benefits.
Then in 1989, the Company voluntarily amended the Plan to
give Plan participants who left the Company after 1988 the option
to immediately receive their retirement benefits in a lump sum
rather than in a stream of monthly payments that could not begin
prior to age 65 (or age 55 in a reduced amount). The lump sum
option was also enhanced _ voluntarily and purposely it was made
much more generous than the normal age 65 retirement benefit. In
fact, the nationally-recognized independent actuary for the Plan
testified in a deposition in this case that the lump sum
retirement benefit introduced by the Company in 1989 was as
generous or more generous than that provided by any other private
retirement plan known to the actuary. Since this lump sum
feature was introduced, approximately 75% of Plan participants
eligible to choose their form of benefit have chosen the lump sum
option. The class plaintiffs have received about $360 million in
lump sum payments (from a Plan whose assets peaked in 1989 at
$730 million). Now, years after the fact (the vast majority of
lump sum benefits having been paid during 1989-1991) and under
the guidance of contingent-fee attorneys who specialize in
exploiting complexities and ambiguities in pension plans and
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reportedly take up to 50% of any recovery, plaintiffs assert that
they are entitled to still larger lump sum benefits, potentially
as much as $69 million plus interest, according to very
preliminary calculations by the Plan's actuary.
From the first day the lump sum benefit feature was
introduced into the Plan, the same discount rate formula was
consistently used to calculate each plaintiff's lump sum benefit
- a formula that was expressly permitted by ERISA (120% of a
specified Pension Benefit Guaranty Corporation (PBGC) annuity
rate), that had been intended when the lump sum feature was
approved and that was the basis for the Plan's funding
assumptions. Unfortunately, the relevant language included in an
exhibit to the revised Plan document was carried over from an
earlier version of the Plan and was incorrect - it did not
explicitly state the 120% factor or the PBGC annuity rate
mandated by the Tax Reform Act of 1986 (_TRA_). As such,
applying the language literally included in the Plan document
would have led to an impermissible result under ERISA. The TRA
allowed pension plan sponsors such as the Company to
retroactively amend pension plans to correct drafting errors and
other technical defects in plan documents to conform plan
documents to the manner in which a plan had been consistently
administered. The Company amended the Plan to specify the
correct formula within the period allowed by the TRA.
The plaintiffs are seeking to impose on the Plan an
obligation to use a discount rate more favorable to them,
essentially arguing that the Plan must be stuck with the
inadvertent omission of any reference to the 120% factor, despite
the contrary intent of those who approved the lump sum feature,
the contrary consistent administration of the Plan, and the later
corrective amendment, but that the Plan document was somehow
_clear enough_ on the issue of the PBGC annuity rate. In the
course of its denial of summary judgment on the ERISA count, the
court apparently, and the Company believes mistakenly, agreed
with the plaintiffs. The Company also believes that the court
mistakenly rejected the Company's assertion that the plaintiffs
waited too long to file suit. Although the court agreed with the
defendants that a two-year statute of limitations applies to
plaintiffs' claims, the court held that the two-year period
doesn't start running until a former Plan participant actually
questions an award amount and the Plan administrator responds
negatively to the inquiry. As a practical matter, this would
mean that the statute of limitations would never be triggered by
most recipients of Plan benefits.
Ceridian strongly believes that the court's decisions
related to the ERISA count are in error, will seek immediate
appellate review, and will appeal any adverse judgment that might
ultimately be entered. Any adverse judgment that might result
would be an obligation of the Plan, and would only indirectly
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affect Ceridian in that Ceridian's obligation to fund the Plan is
determined with reference to the funded status of the Plan. The
funded status of the Plan is affected by a complex interplay of
factors that include the performance of the Plan's investments,
current interest (discount) rates and other actuarial
assumptions. Because of factors such as these, it is not
possible to accurately estimate the impact on Ceridian's funding
obligations (and pension expense for income statement purposes)
that an adverse judgment might have. Ceridian believes that one
option that would be available to it would be to immediately
contribute the amount of any adverse judgment, including accrued
interest, to the Plan and record a corresponding one-time charge
against income. Alternatively, Ceridian believes it would also
be permitted to spread both the cash and income statement impact
of such a judgment over a period of ten years or more, in annual
amounts which, while difficult to estimate, are believed would be
only a small fraction of the amount of any adverse judgment.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned hereunto duly authorized.
CERIDIAN CORPORATION
Dated: May 16, 1997
By: /s/ J.R. Eickhoff
Name: J.R. Eickhoff
Title: Executive Vice President
and Chief Financial Officer
