WASHINGTON, DC (AP) Employers cannot cut back on pensions for workers who retire early from one job and then take another, the Supreme Court ruled June 7 in a decision with potential implications for millions of retirees.
The high court was unanimous in saying that an employer-funded pension plan cannot change the rules to yank benefits to two Illinois construction workers who had retired with full pension benefits after 20 years on the job.
The ruling applies primarily to private-sector workers covered by group pension plans. Group, or multiemployer, benefits plans are common in industries such as construction, trucking, mining, retail and manufacturing. About 9.5 million people were covered by such plans in 2002, according to federal data.
The case concerns traditional pension plans offered by employers, as opposed to the increasingly popular 401(k) plans that typically blend employer retirement contributions with contributions from employees.
The Illinois workers were 39 when they retired in 1996, and planned to keep working in new jobs. Under the rules of their pension plan, Thomas Heinz and Richard Schmitt were told they could draw retirement benefits so long as they did not take on certain jobs in the same industry.
Both men took jobs as construction supervisors, jobs that at the time still allowed the men to collect benefits along with their new paychecks. But the Central Laborers’ Pension Fund changed the rules in 1998 and told the men that they could not draw a pension while working in construction industry jobs.
“Heinz worked and accrued retirement benefits under a plan with terms allowing him to supplement retirement income by certain employment, and he was being reasonable if he relied on those terms in planning his retirement,” Justice David Souter wrote for the court.
By changing the rules retroactively, the pension fund would force Heinz to forgo work opportunities he had banked on, the justices said.
“We simply do not see how, in any practical sense, this change of terms could not be viewed as shrinking the value of Heinz’s pension rights and reducing his promised benefits.”
The ruling is based on the language of a 1974 federal law governing pensions, health plans and other benefits provided by private employers. The Employee Retirement Income Security Act is known as ERISA for short.
“I don’t think there’s any ambiguity” in that law, said David Gossett, lawyer for the two workers. “The Supreme Court got it, they understood that ERISA is about pension expectations, and you can’t change the rules retroactively.”
Early retirement is a popular option for millions of private-sector workers, as well as military, law enforcement and other government employees. Many are eligible for pension benefits after 20 years or so.
Those benefits typically come with some strings, however, such as the requirement at issue in this case. Employers say they need to protect against “double-dipping,” when retired employees collect a pension meant to secure their retirement but go on working in a job similar or identical to the one they left.
Four justices filed a short concurring opinion to note that the ruling would not prevent the Labor or Treasury Departments from issuing new national regulations to allow pension plans to do just what the construction fund did in this case.