Anti-cutback rules and early retirement benefits.

• Author: Amoroso, Vincent

Cir. 1991); Edwards v. State Farm Mutual Automobile Insurance Co., 851 F2d 134 (6th Cir. 1988); Mcknight v. Southern Life & Health Insurance Co., 758 F2d 1566 (11th Cir. 1985); and Fuller v. CBT Corp., 905 F2d 1055, 1060 (7th Cir. 1990) ("In the event of a conflict between the handbook and plan, the former may trump--clearly so, when it is the employee relying on the handbook, for it is hardly realistic to expect him to read further.").

The appeals court dismissed the lower court's ruling that even if the SPD did control, the employee must show he had relied on the SPD and suffered prejudice as a result of that reliance. The Court of Appeals said the district court must try the case, and if it found either that the employee relied on the SPD or was prejudiced by the SPD, the court must rule for him.

The court did not discuss how the plan was to distribute money in violation of the plan document. Presumably, the plan would have to be amended to comply with the SPD.

At least three recent cases in three different Federal circuits have spoken to the interpretation of Section 204(g) of the Employee Retirement Income Security Act of 1974 (ERISA) regarding the prohibition on plan amendments reducing accrued benefits (the anti-cutback rule) and its application to early retirement benefits. Unfortunately, these cases do not appear to take a consistent view; indeed, one appears simply to ignore the law as it applies to early retirement benefits.

Background

ERISA Section 204(g) reads (in relevant part) as follows:

(1) The accrued benefit of a participant under a plan may not be decreased by an amendment of the plan, other than an amendment described in section 302(c)(8) [certain amendments made shortly after the close of the plan year] or section 4281 [certain amendments made on termination of a multiemployer plan].

(2) For purposes of paragraph (1), a plan amendment which has the effect of--

(A) eliminating or reducing an early retirement benefit or a retirement-type subsidy (as defined in regulations), or

(B) eliminating an optional form of benefit, with respect to benefits attributable to service before the amendment shall be treated as reducing accrued benefits. In the case of a retirement-type subsidy, the preceding sentence shall apply only with respect to a participant who satisfies (either before or after the amendment) the preamendment conditions for the subsidy....

Before July 31, 1984, this section did not protect early retirement benefits...