Employees and executives in Chicago frequently want to know what benefits their employer-sponsored pension or retirement plan has to provide. Generally, both ERISA and the Internal Revenue Code require qualified plans provide a minimum level of participation, vesting, accrual of benefits, non-discrimination, and responsibilities on plan fiduciaries. But ERISA and the Code also provide that once a plan has provided a benefit pursuant to a retirement plan, it may not subsequently take away a protected benefit. This is called the anti-cutback rule. ERISA § 204(g). Employees of a Chicago-based employer recently challenged a plan amendment, arguing it violated the anti-cutback rule. See Carter v. Pension Plan of A. Finkl & Sons Co. for Eligible Office Employees, No. 10-3287, 2011 U.S. App. LEXIS 16824 (7th Cir. Aug. 15, 2011).
In Carter, the employer decided to terminate the pension plan (something an employer has a right to do, provided it meets certain requirements). After notifying all the participants of the proposed plan termination, and initiating the process with the Pension Benefit Guaranty Corporation, the employer amended the plan to provide that a participant who has not yet begun receiving distributions from the plan when the plan would distribute benefits on account of its termination, the participant could elect to start receiving an annuity, even if he still worked for the employer. Subsequently, due to the costs associated with plan termination, the employer abandoned the proposed termination, and enacted another amendment effectively voiding the first amendment allowing the annuity while working.
The participants claimed they had a protected right to receive in-service annuity distributions that could not be taken away pursuant to ERISA’s anti-cutback rule. Both the District Court and Court of Appeals rejected the plaintiffs’ argument, because the right to receive an in-service annuity under the first amendment was conditioned on the plan terminating. Because the plan did not terminate, the first amendment never created a protected benefit.
If you are a participant in an employer-sponsored pension or retirement plan and would like to know if your employer has eliminated a protected benefit, contact an experienced ERISA lawyer.