<nobr>Jun 8, 2004</nobr>

ERIC: Supreme Court Opinion on Anti-Cutback Rule

June 8, 2004 - Yesterday, the Supreme Court of the United States issued a ruling in Central Laborers' Pension Fund v. Heinz, U.S. 02-891 (6/7/04). The case raised the question of whether an amendment to a multiemployer pension plan expanding the categories of postretirement employment that triggers the suspension of benefits violated ERISA's anti-cutback rule. The full text of the opinion can be found on ERIC OnLine at: http://www.eric.org/forms/uploadFiles/30BC00000002.filename.CentralLaborHeinz.pdf

Decision of the Court

The question before the court was whether ERISA's anti-cutback rule (ERISA §204(g), 29 U.S.C. §1054(g)) prohibits an amendment expanding the categories of postretirement employment that triggers the suspension of payment of early retirement benefits already accrued. The Court held that such an amendment is prohibited under the rule.

Facts of the Case

Respondents were retired participants in a multiemployer pension plan (the "plan") Administered by the Central Laborers' Pension Fund (the "Fund"). Respondent Heinz retired under the Plan's "service only" pension plan that paid him a benefit equivalent to his normal retirement benefit, but prohibited the retiree from engaging in certain forms of "disqualifying employment" upon retirement. When Heinz retired, construction employment in a supervisory capacity was not included in the Plan's definition of "disqualifying employment". Heinz therefore accepted a position as a construction supervisor after his retirement.

Two years later, the plan's definition of disqualifying employment was expanded to include any work within the construction industry. The plan interpreted the amended definition to cover supervisory work and warned Heinz that if he continued in his position as a supervisor, his monthly pension payments would be suspended in accordance with the plan.Heinz continued working, and his benefits were suspended.

Heinz sued to recover the suspended benefits. He asserted that applying the amended definition of disqualifying employment so as to suspend payment of his accrued benefits violated ERISA's anti-cutback rule. The district court granted judgment for the plan, only to be reversed by the Seventh Circuit, which held that imposing new conditions on rights to benefits already accrued was a violation of the anti-cutback rule.

Opinion of the Court

Citing Lockheed Corp. v. Spink, 517 U.S. 882, 887, the Supreme Court noted that the anti-cutback provision is crucial to ERISA's central object of protecting employees' justified expectations of receiving the benefits that they have been promised. The Court found that the 1998 amendment undercut Heinz's justifiable reliance on the plan's terms in planning his retirement, as it amended the plan to only pay benefits if he accepted a substantial curtailment in his opportunity to perform the work he was trained to do. According to the Court, the change of terms resulted in a shrinking of the value of Heinz's pension rights and reduced his promised benefits.

The plan argued that the anti-cutback rule should be applied only to amendments directly altering the monthly payment's dollar amount and not to a suspension of benefits. The Court rejected this argument as unduly constricted and circumventing the real questions: whether a new condition may be imposed after a benefit has accrued, and whether the right to receive certain money on a certain date may be limited by a new condition narrowing that right.

In addition, the Court also pointed to the IRS regulation found at 26 CFR §§1.411(d)-4, A-7, which prohibits and employer from amending a plan to add employer discretion or conditions restricting the availability of a section 411(d)(6) protected benefit. The Court stated that the regulation coincides with the Court's current reading of §204(g).

Finally, the Court held that ERISA §203(a)(3)(B), which provides that the right to an accrued benefit shall not be treated as forfeitable solely because the plan suspends benefit payments when beneficiaries are employed in the same industry and geographic area covered by the plan, is irrelevant to the case. The Court held that §203(a)(3)(B) is a statement regarding the terms that can be offered to plan participants up front, not an authorization to adopt retroactive amendments.


Vanessa A. Scott
Legislative Counsel
The ERISA Industry Committee
1400 L Street, NW Suite 350
Washington, DC 20005
Tel: 202.789.1400 Fax 202.789.1120
http://www.eric.org

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