Elimination of accrued early retirement supplement violated anti-cutback ruleElimination of accrued early retirement supplement violated anti-cutback rule

A company violated ERISA’s anti-cutback rule by eliminating an early retirement supplement that the plan clearly defined as an accrued benefit, according to the Fourth Circuit Court of Appeals in Richmond, VA.

Early retirement pension supplement

A plan authorized a supplemental early retirement benefit (4.12(a) benefit) to employees who satisfied specified eligibility requirements. The benefit was substantial, providing plan members electing early retirement on or after January 1, 2005 with $700 per month.

The plan’s terms expressly included the 4.12 (a) supplement in its definition of accrued benefits. However, the plan’s benefits committee, in December 2004, amended the plan to eliminate the benefit. A subsequent amendment, effective December 31, 2005, further stated that a plan member’s accrued benefit would be frozen as of December 31, 2005 and not increased thereafter. In addition, no additional credit service was to be awarded or earned under the plan. However, an employee could “continue to earn Eligibility Service in accordance with the terms of the plan for purposes of determining eligibility for certain benefits and eligibility for a vested pension.”

Employees affected by the amendment brought suit, alleging that the 2004 plan amendment eliminating the 4.12(a) benefit violated ERISA’s anti-cutback rule. The Fourth Circuit in 2012 (CA-4 (2012), 474 F. App’x 310) agreed, holding that the terms of the plan clearly defined the 4.12(a) supplemental benefit as an accrued benefit protected by ERISA.

While the 2004 amendment issue was being deliberated on remand, the company declined to pay employees who after December 31, 2005 “have or may have become eligible” for 4.12(a) benefits related to the freeze of benefits on December 31, 2005. The employees affected by the 2005 amendment were then added to the prior complaint. In July 2012, the parties filed cross-motions for summary judgment on the issue of whether the 2005 amendments resulted in the unlawful elimination of the 4.12(a) benefits.

The trial court initially noted that the 2005 amendment did allow plan participants to earn eligibility service years for purposes of “certain benefits.” Relying on the unambiguous plan language and the 4th Circuit’s earlier ruling that the elimination of the 4.12(a) supplement violated the anti-cutback rule, the court granted summary judgment to the employees. The court further rejected the company’s request to remand the issue to the plan’s benefits committee, explaining that a different interpretation of the plan’s clear language would be an abuse of the committee’s discretion.

Accrued benefit status not conditioned on prior satisfaction of eligibility requirements
On appeal, the company maintained that the employees affected by the 2005 amendment were not eligible for the 4.12(a) benefit because they did not satisfy the requisite eligibility requirements for the benefit prior to the effective date of the amendment. According to the company, because the employees did not satisfy the eligibility requirements prior to the 2005 amendment they never accrued the benefit. As the employees never accrued the benefit, its elimination did not constitute an unlawful cutback of benefits.

In rejecting the company’s argument, the Fourth Circuit stressed that the 4.12(a) benefit was an accrued benefit, as clearly defined by the plan. As the employees “can or already do” satisfy the requisite eligibility requirements for the benefit, the court could not lawfully eliminate the benefit, the court explained.

Future service incorporated into calculation of accrued benefits. The court further explained that the 2005 amendment explicitly incorporated future service into the calculation of an accrued benefit. The 2005 amendment, the court emphasized, thereby allowed plan participants to continue to earn eligibility service years to determine eligibility for certain benefits, including the 4.12(a) benefits.

Remand to benefits committee

As the 2005 amendment unambiguously allowed plan members to earn eligibility service years for 4.12(a) benefits, the court concluded that no remand to the benefits committee was warranted.
Source: Savani v. URS Professional Solutions, LLC (CA-4).

A company violated ERISA’s anti-cutback rule by eliminating an early retirement supplement that the plan clearly defined as an accrued benefit, according to the Fourth Circuit Court of Appeals in Richmond, VA.

Early retirement pension supplement

A plan authorized a supplemental early retirement benefit (4.12(a) benefit) to employees who satisfied specified eligibility requirements. The benefit was substantial, providing plan members electing early retirement on or after January 1, 2005 with $700 per month.

The plan’s terms expressly included the 4.12 (a) supplement in its definition of accrued benefits. However, the plan’s benefits committee, in December 2004, amended the plan to eliminate the benefit. A subsequent amendment, effective December 31, 2005, further stated that a plan member’s accrued benefit would be frozen as of December 31, 2005 and not increased thereafter. In addition, no additional credit service was to be awarded or earned under the plan. However, an employee could “continue to earn Eligibility Service in accordance with the terms of the plan for purposes of determining eligibility for certain benefits and eligibility for a vested pension.”

Employees affected by the amendment brought suit, alleging that the 2004 plan amendment eliminating the 4.12(a) benefit violated ERISA’s anti-cutback rule. The Fourth Circuit in 2012 (CA-4 (2012), 474 F. App’x 310) agreed, holding that the terms of the plan clearly defined the 4.12(a) supplemental benefit as an accrued benefit protected by ERISA.

While the 2004 amendment issue was being deliberated on remand, the company declined to pay employees who after December 31, 2005 “have or may have become eligible” for 4.12(a) benefits related to the freeze of benefits on December 31, 2005. The employees affected by the 2005 amendment were then added to the prior complaint. In July 2012, the parties filed cross-motions for summary judgment on the issue of whether the 2005 amendments resulted in the unlawful elimination of the 4.12(a) benefits.

The trial court initially noted that the 2005 amendment did allow plan participants to earn eligibility service years for purposes of “certain benefits.” Relying on the unambiguous plan language and the 4th Circuit’s earlier ruling that the elimination of the 4.12(a) supplement violated the anti-cutback rule, the court granted summary judgment to the employees. The court further rejected the company’s request to remand the issue to the plan’s benefits committee, explaining that a different interpretation of the plan’s clear language would be an abuse of the committee’s discretion.

Accrued benefit status not conditioned on prior satisfaction of eligibility requirements
On appeal, the company maintained that the employees affected by the 2005 amendment were not eligible for the 4.12(a) benefit because they did not satisfy the requisite eligibility requirements for the benefit prior to the effective date of the amendment. According to the company, because the employees did not satisfy the eligibility requirements prior to the 2005 amendment they never accrued the benefit. As the employees never accrued the benefit, its elimination did not constitute an unlawful cutback of benefits.

In rejecting the company’s argument, the Fourth Circuit stressed that the 4.12(a) benefit was an accrued benefit, as clearly defined by the plan. As the employees “can or already do” satisfy the requisite eligibility requirements for the benefit, the court could not lawfully eliminate the benefit, the court explained.

Future service incorporated into calculation of accrued benefits. The court further explained that the 2005 amendment explicitly incorporated future service into the calculation of an accrued benefit. The 2005 amendment, the court emphasized, thereby allowed plan participants to continue to earn eligibility service years to determine eligibility for certain benefits, including the 4.12(a) benefits.

Remand to benefits committee

As the 2005 amendment unambiguously allowed plan members to earn eligibility service years for 4.12(a) benefits, the court concluded that no remand to the benefits committee was warranted.

Source: Savani v. URS Professional Solutions, LLC (CA-4).

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