• U.S. Supreme Court Will Determine Whether a Change in the Conditions for Receiving Accrued Benefits Violates ERISA's Anti-Cutback Rule
  • December 6, 2003
  • Law Firm: Ford & Harrison LLP - Atlanta Office
  • The U.S. Supreme Court has agreed to review a decision by the Seventh U.S. Circuit Court of Appeals, which held that an amendment to a pension plan that expanded the definition of disqualifying employment and resulted in a suspension of early retirement benefits violated ERISA's anti-cutback rule. ERISA's anti-cutback rule substantially limits a pension plan's ability to reduce or "cut back" vested pension benefits by amending the plan. See Heinz v. Central Laborers' Pension Fund.

    In Heinz, the plaintiffs retired before age 60. According to the terms of their retirement plan, the monthly benefit payments for those who retired before age 60 were subject to suspension during periods of disqualifying employment. At the time the plaintiffs retired, working as a supervisor was not included in the definition of disqualifying employment and they took jobs as supervisors in the construction industry while still collecting their retirement benefits. Two years after they retired, the plan was amended and the definition of disqualifying employment was expanded to include working in the construction industry in either a union or non-union position. The retirement plan construed this amendment to cover the plaintiffs' employment as supervisors and suspended their monthly benefit payments. The plaintiffs sued, claiming this change violated ERISA's anti-cutback provision. The trial court dismissed the case and the Seventh Circuit overturned the trial court's decision.

    With respect to early retirement benefits, ERISA's anti-cutback rule prohibits plan amendments that have the effect of eliminating or reducing early retirement benefits attributable to service before the amendment. The Seventh Circuit in Heinz held that the plaintiffs' loss of the option to work in the construction industry as supervisors while still receiving their retirement benefits was a reduction of their early retirement benefits in violation of the anti-cutback rule. The court held that a plan amendment that places materially greater restrictions on the receipt of benefits reduces the benefit just as surely as a decrease in the size of the monthly benefit payment.

    The Seventh Circuit rejected the Fifth Circuit's analysis of the same issue in Spacek v. Maritime Ass'n. In Spacek the Fifth Circuit held that an amendment similar to the one at issue in Heinz did not violate the anti-cutback rule because it involved a suspension of benefits, not a reduction. The court in Spacek held that, based on a rule of statutory interpretation, the terms suspension and reduction mean different things. Accordingly, since the anti-cutback provision refers to reductions but not suspensions, a plan amendment that changes the conditions for suspending early retirement benefits does not violate the rule. The Seventh Circuit refused to follow this reasoning, holding that its interpretation that a plan amendment that increases the conditions for receiving plan benefits violates the rule by decreasing the accrued benefits was more consistent with ERISA's purpose of protecting anticipated benefits.

    The U.S. Supreme Court has agreed to review the Seventh Circuit's decision because of the conflict with the Fifth Circuit's decision. The Supreme Court's ruling will provide guidance to employers who sponsor multiemployer benefit plans as well as those who provide defined benefits plans.