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CCH® PENSION AND BENEFITS — 11/15/06

Retroactive restoration of benefits is required by Heinz

A retirement plan was required to retroactively restore a participant's benefits because they were terminated in violation of ERISA's anti-cutback rule, as interpreted by the U.S. Supreme Court in Central Laborers' Pension Fund v. Heinz (see CCH Pension Plan Guide ¶23,988C ), according to the U.S. Court of Appeals in New York (CA-2).

The participant took early retirement in 1998, and was entitled to benefits from his employer's plan. He then took a supervisory position with a company in the same industry as his employer, which the plan did not prohibit. However, two years later, a plan amendment broadened the definition of disqualifying employment to include the participant's new supervisory position. In March of 2000, the plan informed the participant that his benefits were being suspended.

After the U.S. Supreme Court stated, in Heinz, that ERISA's anti-cutback rule prohibits plan amendments that expand categories of post-retirement employment to effectively trigger suspension of accrued early retirement benefits, the plan restored the participant's benefits, but only as of November 2004. The participant filed suit in district court, seeking his retroactive retirement benefits. When the district court granted summary judgment to the participant, the plan appealed.

IRS guidance does not prohibit retroactive recovery of benefits

The plan had argued that guidance provided in IRS Rev. Proc. 2005-23 (see CCH Pension Plan Guide ¶17,299R-60) limited the retroactive influence of Heinz. Rev. Proc. 2005-23 states that "The purpose of this revenue procedure is to limit the retroactive application of the decision in Central Laborers' Pension Fund v. Heinz....." The district court pointed out, and the appellate court agreed, however, that the guidance was provided by the IRS because many plans had adopted amendments that would violate the provisions of Heinz, and ERISA's anti-cutback rule, in reliance on previously-issued IRS guidance. Concerns arose that those plans risked the loss of qualified status for violating the parallel tax qualification requirements of Code Sec. 411(d)(6). The IRS addressed these concerns in Rev. Proc. 2005-23, issuing relief that would allow plans that adopted suspension of benefits amendments, impermissible under Heinz, to avoid disqualification by adopting reforming amendments. The IRS' purpose in issuing Rev. Proc. 2005-23, according to the appellate court, was merely to avoid having to reassess various plans' tax-exempt status. In fact, stated the court, the IRS provides in both the revenue procedure and in subsequently-issued final regulations (see CCH Pension Plan Guide ¶24,508G) that nothing in Rev. Proc. 2005-23 affects participants' rights to recover benefits, retroactively or otherwise. The appellate court accordingly upheld the lower court's decision.

For more information on this and related topics, consult the CCH Pension Plan Guide.

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