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CCH® PENSION AND BENEFITS — 07/31/09

Post-retirement benefit not an "accrued benefit" protected by anti-cutback rule

A post-retirement increase in benefits is not an "accrued benefit" for a specific retired participant if it was not provided for in the terms of the plan in effect when the participant was actually employed, the U.S. Court of Appeals in Cincinnati (CA-6) has ruled in Thornton v. Graphic Communications Conference of the International Brotherhood of Teamsters Supplemental Retirement and Disability Fund. Thus, a plan's decision to rescind a benefits increase adopted after the participant's retirement did not violate the anti-cutback rule in Code Sec. 411(d)(6).

Benefit increases

A participant in a multiemployer defined benefit plan retired in 1995 and began receiving a monthly retirement benefit. In 1997, 1998 and 1999, the plan's Board of Trustees adopted amendments to the plan providing for benefit increases for all active and retired participants. In 2002 the Board adopted an amendment rescinding the 1999 increase for plan participants who retired prior to February 1, 1999.

The retiree filed suit in district court alleging that the decision to rescind the increase violated the anti-cutback rule. He also argued that the Board's decision to adopt the benefit rescission was a breach of its fiduciary duty under ERISA. The district court granted summary judgment in favor of the plan, and the retiree appealed.

"Accrued benefit" defined

The anti-cutback rule protects only an "accrued benefit" as that term is defined in Code Sec. 411(a)(7)(A). According to the court, an analysis of the textual context demonstrates that Congress did not consider post-retirement benefit increases to be "accrued benefits." Code Sec. 411's emphasis on the accrual of benefits during employment "service" illustrates that the terms of plan documents in effect during a given participant's active employment dictate his "accrued benefit." Thus the court concluded that a post-retirement increase in benefits does not create an accrued benefit unless it is in accordance with the plan in effect when the employee was working.

While a 2005 regulation (IRS Reg. §1.411(d)-3) directly supports the retiree's position that post-retirement benefit increases are considered accrued benefits, the court concluded that the regulation is not applicable to a 2002 plan amendment.

No breach of fiduciary duty

Finally, given that the Board's decision to rescind the benefit increase did not violate the anti-cutback rule, the Board did not breach its fiduciary duty in making that decision.

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