In Battoni v. IBEW Local Union No 102 Employee Pension Plan, Nos. 08-3743, 09-2030 and 08-3924 (3rd Cir. 2010), the Court considered the scope of ERISA’s anti-cutback rule (found at 29 U.S.C. section 1054(g)(1), with a parallel rule in Section 411(d)(6) of the Internal Revenue Code) (the “Anti-Cutback Rule”). At issue was an amendment to a welfare plan (the “Disputed Amendment”), which conditioned receipt of health care benefits from the welfare plan on the non-receipt of a lump sum payment from a pension plan. The plaintiffs challenged the Disputed Amendment as a cutback of their accrued benefits under the pension plan, in violation of the Anti-Cutback Rule.
According to the Court, the Anti-Cutback rule states: “The accrued benefit of a participant under a [pension] plan may not be decreased by an amendment of the plan”. To violate the Anti-Cutback rule, a pension plan must be amended, and the amendment must decrease an accrued benefit.
The lump sum payment lost due to the Disputed Amendment is an accrued benefit. The Disputed Amendment amended a welfare benefit plan, which is not subject to the Anti-Cutback Rule. However, the Disputed Amendment constructively amended the pension plan. This obtains because the Disputed Amendment added a condition to the receipt of an accrued benefit under the pension plan. Under this condition, if a participant elects to receive the lump sum payment under the pension plan, he or she loses health care benefits under the welfare plan. Further, said the Court, the Disputed Amendment decreased an accrued benefit under the pension plan, since it imposed a condition on the receipt of the lump sum payment, rendering that form of payment less valuable. Based on the foregoing, the Court concluded that the Disputed Amendment violated the Anti-Cutback Rule.
Comment: This case cautions an employer to be careful with an amendment to one employee benefit plan which could have an effect-proscribed by ERISA or the Internal Revenue Code-on another employee benefit plan.