Plan Terms and Tax Rules: What Does “Retire” Mean To Qualify for Retirement Benefits?
In Metzgar v. U.A. Plumbers & Steamfitters Local No. 22 Pension Fund, 2022 U.S. App. LEXIS 5466 (2d Cir. Mar. 2, 2022), the Second Circuit in a summary order affirmed the district court’s decision granting summary judgment in favor of plan trustees regarding the trustees’ reinterpretation of what “retire” means under the terms of the pension plan.
Plaintiffs were participants in the U.A. Plumbers & Steamfitters Local 22 Pension Fund (the “Fund”), a defined benefit multi-employer pension plan governed by an Agreement and Declaration of Trust (the “Trust”). The Fund provided benefits to participants according to a Restated Plan of Benefits (the “Plan”). The Plan set the normal retirement age at 65, but it also provided a “Special Early Retirement” option to employees after their 55th birthday whose combined age and years of service equaled 85 or more. The Trust gave the trustees full discretionary authority to interpret the Plan.
Until fall 2011, the Plan operated with the understanding that participants did not have to stop working for a covered employer to receive special early retirement pension payments; they only had to stop working in a disqualifying employment position. This allowed participants to continue working in non-disqualifying employment (such as in a managerial position or as a project manager) while receiving pension benefits through the Plan.
In fall 2011, the Plan trustees reviewed the Plan and determined they had to change their interpretation of the term “retire” under the Plan because allowing participants who were not fully retired – i.e., those who had not severed their employment with their employers – to receive pension payments was putting the Fund in jeopardy of losing its tax-exempt status. The Plan trustees informed Plaintiffs that they could either cease their now disqualifying employment and continue to receive pension payments, or they could elect to continue their disqualifying employment resulting in the suspension of their pension payments.
Plaintiffs brought suit against the Fund, its Board of Trustees, and its Plan Administrator alleging: 1) this change violated ERISA’s anti-cutback rule; 2) the change was a wrongful denial of benefits in violation of ERISA § 502(a)(1)(B); and 3) Defendants breached their fiduciary duty to Plaintiffs.
The Second Circuit agreed with the district court that Defendants did not violate ERISA’s anti-cutback rule. In doing so, the appellate court reasoned that Defendants’ reinterpretation of “retire” did not constitute an “amendment” of the plan because its actual terms had not changed. In addition, under Defendants’ reinterpretation, Plaintiffs were never entitled to the accrued benefit they claimed to have lost.
The Second Circuit also affirmed the district court’s conclusion that Defendants’ decision to require Plaintiffs either to stop working or to stop receiving pension benefits was not arbitrary and capricious because it was based on a reasonable interpretation of the Plan. The Second Circuit noted this interpretation was based on the trustees’ reasonable conclusion this change was required to maintain the Plan’s tax-exempt status. The Second Circuit further explained that Plaintiffs failed to demonstrate how Defendants’ decision “to correct what they reasonably thought was an erroneous interpretation of the Plan in order to protect its tax-exempt status demonstrated a failure to exercise ‘care, skill, prudence, and diligence.’”