ERISA-Sixth Circuit Rules That An Early Retirement Subsidy (If a Retirement Type Subsidy) Cannot Be Reduced By A Plan Amendment

In Fallin v. Commonwealth Industries, Inc. Cash Balance Plan, No. 09-5139 (6th Cir. 2012), plaintiff Donald Corley (“Corley”) alleged that Commonwealth Industries’ pension plan (the “Plan”) had underpaid him, in violation of ERISA, when it did not include a subsidy for early retirement in its benefit calculations. The district court ruled in favor of the defendants, and Corley appealed.

In this case, until 1998, Commonwealth had a traditional defined-benefit pension plan. This plan allowed employees to retire early once they had completed five years of service and reached age 55. Employees taking that option would receive subsidized benefits: monthly payments beginning immediately that were nearly as large as (and, in the case of those age 62-65, the same as) those they would have received if they were 65. By 1998, Corley had performed five years of service, but had not reached age 55. That year, Commonwealth converted its plan into the Plan, which was a cash-balance plan. The Plan replaced defined-pension benefits with hypothetical individual accounts. The initial balance of each account was the value of the benefits the participant had accrued. However, Corley complained that the individual account did include credit for the value of the early-retirement subsidy described above. In ruling against Corley, the district court said that, as of 1998, Corley was not yet entitled to his early-retirement subsidy because he was then not yet 55. Therefore, the early-retirement benefit had not yet accrued, so that the amendment in question-the conversion to the cash balance plan-did not reduce any accrued benefit.

In analyzing the case, the Sixth Circuit Court of Appeals (the “Court”) said that, under ERISA’s anti-cutback rule, a plan amendment cannot decrease a participant’s “accrued benefit” (29 U.S.C. § 1054(g)). Here, Corley had more than five years of service before the 1998 amendment. The subsidy he seeks was therefore attributable to his service before the amendment. And though Corley had not satisfied the age requirement by 1998, the statute allows him to do so-assuming that the subsidy in question is a “retirement-type subsidy”- either before or after the amendment (§1054(g)(2)). The Court ruled that, if this assumption is met, the benefits attributable to pre-amendment service-here the early-retirement subsidy- cannot be reduced by an amendment. To determine if the assumption is met, the Court remanded the case back to the district court.

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