The 3rd U.S. Circuit Court of Appeals ruled a pension plan administrator may not apply amended plan terms to participants whose benefits vested under pre-amendment plan documents.
According to the appellate court’s opinion, John Cottillion worked at United Refining Company for 29 years, from 1960 until 1989, and his benefits had vested under “the 1980 Plan,” which is the version of United’s Pension Plan for Salaried Employees that applies to people whose benefits vested after 1980 but before 1987. United amended the plan in 2002, backdated to January 1, 1995, to state that the benefits of terminated, vested participants who begin receiving plan payments before age 65 would be “actuarially reduced to reflect the earlier starting date.” The court determined that if the administrator applied the plan amendment to Cottillion it would be a violation of the Employee Retirement Income Security Act’s (ERISA’s) anti-cutback rule, which prohibits employers from amending a retirement plan in a way that reduces benefits already accrued under the plan.
The case was prompted when, in 1995, the plan’s actuaries claimed United had erroneously paid to terminated, vested participants vested under the 1980 and 1987 plans pensions that were not actuarially reduced, and that this jeopardized the plan’s favorable tax treatment. United sent letters to terminated, vested participants who had not yet begun to receive benefits telling them if they elected to receive retirement benefits before turning 65, the benefit would be reduced to reflect the early election date.
About a year later, United sent letters to terminated, vested participants who were already receiving pensions, saying their benefits should have been actuarially reduced, and that their monthly pensions would be lowered “until the excess payments have been recovered,” after which they would begin receiving the amount they should have been receiving.
Affected employees sued in the U.S. District Court for the Western District of Pennsylvania alleging that United’s actions deprived them of a benefit to which they were entitled under the plan, in violation of ERISA, and that United violated ERISA’s “anti-cutback” rule.
The appellate court agreed, rejecting United’s arguments that summary plan descriptions show the intent was to reduce early retirement benefits all along. The 3rd Circuit noted that the SPDs state that “[i]f the terms of the Plan document and the Trust agreement and of this summary are inconsistent, the terms of the Plan document and the Trust agreement will control.” In addition, United published employee handbooks that are wildly inconsistent about whether benefits are calculated with actuarial adjustment, and these handbooks’ differences with each other and with the SPDs convinced the court that the plain meaning of the plan should control.
The appellate court’s opinion in Cottillion, et.al. v. United Refining Company, et.al. is here.