Pension Fund Violated ERISA's Anti-Cutback Rule

June 7, 2004 (—ERISA does not allow employers to decrease pensions for early retirees who then go to work somewhere else, the U.S. Supreme Court ruled today.

In the case Central Laborers’ Pension Fund v. Heinz, twoIllinois construction workers were eligible for full retirement benefits when they retired early in 1996.   Thomas Heinz and Richard Schmitt Jr. were told they could draw retirement benefits so long as they did not take on certain “disqualifying employment” after they retired.   At the time, “disqualifying employment” was defined as a job as a construction worker.   Both Heinz and Schmitt took new jobs as construction supervisors – jobs that, at the time, were not considered “disqualifying employment” and therefore the men still collected their pension benefits.

However, in 1998, the Central Laborers’ Pension Fund expanded the definition and said the men could not draw a pension while working in any construction industry job.   When the men kept their supervisor jobs, the pension plan suspended their payments.

Heinz sued the pension plan, claiming that the payment suspension violated the“anti-cutback” rule of the Employee Retirement Income Security Act of 1974 (ERISA), whichprotects against cutbacks in benefits that take effect after a worker has retired.   The high court agreed in a unanimous ruling in favor of two workers.

“There is no way that, in any practical sense, this change of terms could not be viewed as shrinking the value of Heinz’s pension rights and reducing his promised benefits,” the court said.

“Heinz worked and accrued retirement benefits under a plan with terms allowing him to supplement retirement income by certain employment, and he was being reasonable if he relied on those terms in planning his retirement,” Justice David Souter wrote in the decision, saying that by applying new rules retroactively, the retirees would have to forgo employment opportunities he was counting on.

Four justices wrote an addendum to the decision, stating that the court’s ruling would not prevent the Labor or Treasury department to issueregulations “explicitly allowing plan amendments to enlarge the scope of disqualifying employment with respect to benefits attributable to already-performed services.”

The decision is available HERE