In Cottillion v. United Refining Company, Nos. 13-4633 & 13-4743 (3rd Cir. 2015), the Third Circuit Court of Appeals (the “Court”) was called on the apply ERISA’s anti-cutback rule, under which an amendment may not reduce a plan benefit.
In this case, John Cottillion worked at United Refining Company (the “Company”) for 29 years. He was age 54 when he quit, and his benefits under the Company’s retirement plan (the “Plan”) had vested. When Cotillion quit, the Company wrote him a letter, informing him that he may elect to have his monthly retirement benefit from the Plan begin at any time after the month in which Cottillion would turn 60, and that his monthly retirement benefit will be $573.70 at age 60. The letter did not state that the amount of Cottillion’s benefit depended on whether he elected to receive it at age 60 or later, or that the benefit would otherwise be reduced if payment started before age 65. Payment of Cottillion’s pension benefit commenced before he reached age 65, without a full actuarial reduction. Later, claiming that the failure to apply a full actuarial reduction is an error, the Company attempted to cancel Cottillion’s monthly pension payments, then $506.58, and recoup from Cottillion the purportedly excess payments, in the amount of $14,475. This suit commenced, with Cottillion challenging the Company’s attempted actions. The district court held that these actions would violate ERISA’s anti-cutback rule, 29 U.S.C. 1054(g).
In analyzing the case, the Court said (among other things) that the Company action complained of is based on an erroneous interpretation of the Plan, and that an erroneous interpretation of a plan provision that results in the improper denial of benefits to a plan participant-which occurred in this case- may be construed as an “amendment” for the purposes of the anti-cutback rule. The Court summarized its findings by saying that the Company provided a detailed pension plan that clearly explained how to calculate payments owed to those who, like Cottillion, earned accrued benefits and left employment before he was eligible to receive them. The pension plans’ method of calculation did not include an actuarial adjustment for participants who took benefits before turning 65, and ERISA forbids the Company from drafting those reductions into the Plans whether by amendment, interpretation, or otherwise. The Company must pay the employees what it promised, and thus the district court holding is affirmed.