The 11th U.S. Circuit Court of Appeals found that Jean Marie Cinotto had not accrued the “benefit” of a lower Social Security offset in the calculation of her retirement benefits at the time the formula for the offset was changed. The court found that while the plan arguably gave a participant a right to a certain offset formula upon reaching age 52 and becoming entitled to a retirement benefit, that right was dependent upon future service. Cinotto was younger than age 52 when the amendment changing the offset formula went into effect.
The court noted that in the plan’s own definition of “accrued benefit,” it states: “No Participant shall have an Accrued Benefit based on future or projected service or Earnings regardless of the use of future dates by the Plan.” Before the amendment went into effect, Cinotto expected that if she continued to work at Delta and retired from Delta after reaching age 52, the plan would estimate her Social Security benefits by assuming “no pay” after December 31, 2005. That did not mean the retirement formula using that particular offset was part of her accrued benefit, the court said in its opinion.
The appellate court cited the Supreme Court’s decision in Central Laborers’ Pension Fund v. Heinz (see “Pension Fund Violated ERISA’s Anti-Cutback Rule”), in which it defined benefit accrual as “the rate at which an employee earns benefits to put in his pension account.” Distinguishing between an accrued benefit and a future benefit accrual, the Supreme Court made clear that a pension plan may be amended, “as long as the change goes to the terms of compensation for continued, future employment.” The high court’s conclusions were supported by Internal Revenue Service regulations establishing that the anti-cutback rule “flatly prohibits plans from attaching new conditions to benefits that an employee has already earned.” (See “IRS Issues Guidance on Anti-Cutback Case Enforcement”).
The 11th Circuit affirmed a district’s court decision that Delta’s amendment changing the Social Security offset formula did not violate ERISA’s anti-cutback rule (see “Delta Sued over Pension Calc Changes”).The appellate court’s opinion is available at http://www.ca11.uscourts.gov/opinions/ops/201014704.pdf.
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