The U.S. Supreme Court has issued an opinion in Central Laborers’ Pension Fund v. Heinz, unanimously affirming a Seventh Circuit holding in the case that the “anti-cutback” rule of ERISA (29 U.S.C. 1054(g)(1)) prohibits “an amendment expanding the categories of postretirement employment that triggers suspension of payment of early retirement benefits already accrued under a pension plan.”

Facts of the case: Retired participants under a multiemployer pension plan (a defined benefit pension plan, referred to as the “Plan”) worked in the construction industry before retiring, and by 1996 had accrued enough pension credits to qualify for early retirement payments under the Plan. The Plan payed the participants the same monthly retirement benefit they would have received if they had retired at the usual age. The benefit was subsidized, meaning that monthly payments were not discounted even though they started earlier. The pension was subject to a condition that prohibited beneficiaries from “disqualifying employment” after they retired. The Plan provided that, if they accepted such employment, their monthly payments would be suspended until they stopped the forbidden work.

When the participants retired, the Plan had defined “disqualifying employment” as any job as “a union or non-union construction worker.” This condition did not cover employment in a supervisory capacity. The individuals took jobs as construction supervisors after retiring, and the Plan continued to pay their pension. However, two years after they retired, the Plan’s definition of “disqualifying employment” was expanded by amendment to include any job “in any capacity in the construction industry (either as a union or non-union construction worker).” The Plan interpreted this definition to mean that it covered supervisory work and warned the retired participants that if they continued on as supervisors, their monthly pension would be suspended. The participants kept working, and the Plan stopped paying.

Discussion: The participants sued to recover the suspended benefits on the ground that applying the amended definition of “disqualifying employment” so as to suspend payment of the accrued benefits violated ERISA’s anti-cutback rule. The District Court granted judgment for the Plan. The Seventh Circuit reversed, holding that imposing the new condition on rights to benefits already accrued was a violation of the anti-cutback rule. This was in direct conflict with the Fifth Circuit, which in the case of Spacek v. Maritime Association, I.L.A. Pension Fund, 134 F.3d 283 (5th Cir. 1998) had held that a post-retirement plan amendment which suspended a retiree’s early retirement benefits was not in violation of the anti-cutback rule. In Spacek, the Court had reasoned that the anti-cutback rule related to a reduction of benefits and not to a suspension of benefits.

The Supreme Court affirmed the Seventh Circuit’s holding in an opinion written by Justice Souter. A one-sentence concurrence was written by Justice Breyer, with the Chief Justice, Justice O’Conner and Justice Ginsberg joining in. The concurrence states that the Secretary of Labor or Secretary of Treasury should be allowed to issue regulations explicitly allowing plan amendments to enlarge the scope of “disqualifying employment” with respect to benefits attributable to already-performed services.

One of the most interesting parts of the case is that the Court notes a statement in the Internal Revenue Manual which had supported the position that the amendment could be made, and that the IRS had routinely approved amendments to plan definitions of “disqualifying employment.” However, the Court cited Treasury regulations under Internal Revenue Code section 411(d)(6) as creating a conflict with these provisions. The Court held that these Treasury regulations “flatly prohibit[ed] plans from attaching new conditions to benefits that an employee has already earned.”

In a footnote, the court states:

Nothing we hold today requires the IRS to revisit the tax-exempt status in past years of plans that were amended in reliance on the agency’s representations in its manual by expanding the categories of work that would trigger suspension of benefit payment as to already-accrued benefits. The Internal Revenue Code gives the Commissioner discretion to decline to apply decisions of this Court retroactively. . . [T]his would doubtless be an appropriate occasion for exercise of that discretion.

The court also states:

This is not to say that section 203(a)(3)(B) does not authorize some amendments. Plans are free to add new suspension provisions under section 203(a)(3)(B), so long as the new provisions apply only to the benefits that will be associated with future employment.

(This case could have far-reaching implications for the suspension of benefit rules even in the non-multiemployer setting. Query: Will the opinion affect IRS rules providing that, as noted in the briefs, no actuarial adjustment is required for benefits suspended under the suspension of benefit rules. As the Government’s Amicus Brief (filed in favor of the plan) states:

The regulations . . specify that, in computing the actuarial equivalent of the retirement benefit available at normal retirement age for the purposes of this provision, “[n]o adjustment to an accrued benefit is required on account of any suspension of benefits if such suspension is permitted under [ERISA] section 203(a)(3)(B).” 26 C.F.R. 1.411(c)-1(f). The Fifth Circuit correctly concluded in Spacek that, “because the reduction in total benefits paid over the lifetime of the plan participant as a result of the suspension need not be accounted for actuarially in computing the participant’s accrued benefit under [29 U.S.C.] § 1054(c)(3),” an amendment authorizing such a suspension “does not serve to decrease the participant’s accrued benefits, and thus cannot violate [the anti-cutback provision of] § 1054(g).” 134 F.3d at 291

Other Resources Pertaining to the Case:

Oral Argument Transcripts are here (via Appellate.net). Briefs are here and here with an amicus brief filed by the government on behalf of the Plan here.

A previous post about the case is here.

Articles:

• USA Today.com: “Supreme Court rules against pension plan”
• Reuters: “Court: Retiree Pension Benefits Can’t Be Cut”
• The New York Times: “Supreme Court Rules in Favor of Early Retirees Denied Pensions”

Regarding audioblogs highlighted here in this post, SCOTUSblog (a blog devoted to Supreme Court coverage) has a new Audio-Blog component which yesterday featured Lyle Denniston summarizing the rulings issued by the U.S. Supreme Court. Access it here.