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High Court Takes Up Key Pension Case

The justices will decide whether plans can cut earned benefits to retirees who reenter the workforce in their former industry.

April 20, 2004|David G. Savage | Times Staff Writer

WASHINGTON — About three-fourths of today's older workers say they plan to take other work after they retire. And many of them say they plan to retire early, confident that a pension and a second job would allow them to live comfortably.

But the Supreme Court took up a case Monday that could decide the rules for millions of early retirees and determine whether they could count on receiving their promised pension benefits if they took a new job in the same industry.

The case involves a collision of two provisions of the nation's pension laws. One is the "anti-cutback rule," which bars pension plans from reducing benefits that have already been earned. The other allows multi-employer pension plans to suspend benefits to retirees who take a new job in the same industry.

Last year, a U.S. appeals court in Chicago ruled that federal pension law requires plans to honor their promises. It said a construction industry pension plan in Illinois had violated the law when it "suspended" monthly pension benefits to two retired workers who had taken new jobs, as construction supervisors, that were not covered by their old pension plan.

But the Bush administration urged the high court to review the case and to give pension plans "flexibility" to adjust their rules "in light of local economic conditions and the state of plan finances."

The "temporary suspension of benefit payments ... [would not] constitute a reduction of benefits," U.S. Solicitor Gen. Theodore B. Olson argued in his brief to the court. These suspensions "are by definition temporary," so that the retirees' benefits would resume after they quit working, he added.

That argument ran into sharp questions from the justices.

"It seems to me utterly unrealistic" to say that a cutoff of benefits is not a reduction in benefits, Justice Antonin Scalia said.

"This is a sweeping authority you are asking for," Justice Anthony M. Kennedy told a lawyer for the pension fund.

The justices noted that the provision of the pension law known as the "anti-cutback" rule says that "the accrued benefit of a participant under a plan may not be decreased" by changing the rules of the plan.

The Illinois case centers on the "multi-employer pension plans," common in industries such as trucking, construction and filmmaking, in which workers often work for different employers but are enrolled in the same pension plan.

The suspension rule in these plans, pushed by the unions, was meant to block retirees from taking jobs at lower wages and undercutting full-time workers.

The court's ruling in Central Laborers Pension Fund vs. Heinz will affect millions of workers and retirees covered by those plans. And some legal experts say the outcome could have an even broader effect if the court changed the "anti-cutback" rule for pensions in general. If the court were to adopt the government's view, pension trustees would be permitted to suspend pension benefits for retirees who take new jobs.

It is difficult to know exactly how many workers a ruling could affect. Working after retirement has become commonplace. The Social Security Administration reports that roughly one in every five recipients of retirement benefits also has wage income. However, the agency does not have data on how many of those individuals have returned to work in their former profession.

AARP, in a brief to the court, said both workers and retirees would be harmed if pension planners were free to change their rules for those who had already earned their benefits.

"No employee will ever be able to meaningfully plan for retirement

The Chicago appeals court sided with the two workers, Tom Heinz and Rick Schmitt. As construction workers, they had earned enough credits to retire at age 39 with their monthly pension benefits from the Central Laborers' Pension Fund.

Under the rules of the plan, they could not take laboring jobs with another employer that was covered by the same plan. That would amount to "double-dipping" -- collecting and earning benefits from the same plan simultaneously.

But lawyers for both sides said the administration's position was not aimed at traditional double-dipping, because Heinz and Schmitt took jobs as supervisors and were thus covered by a different pension plan.

Two years later, their first pension plan changed its rules and said retirees were "disqualified" from receiving monthly benefits if they worked "in any capacity" in the construction industry. Heinz and Schmitt were told their pensions had been "suspended."

Heinz and Schmitt sued the pension plan, contending that the change in the rules and the suspension of their benefits violated federal pension law.

Workers who earn a pension "are entitled to rely on the promises that were made," David Gossett, their attorney, told the justices Monday.

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