A multiemployer pension plan in critical status didn’t violate provisions of the U.S. Constitution when it was amended to eliminate an early-retirement subsidy as part of a rehabilitation plan filed pursuant to the Pension Protection Act, the U.S. District Court for the Eastern District of Washington ruled.

In a May 2 opinion, Judge Lonny R. Suko claims by a pair of plan participants that the amendment–that eliminated an early-retirement scheme whereby a participant could receive full benefits before reaching age 65 by reaching a combined total of 80 when adding his or her age to the number of years in which he or she participated in the plan and contributed 400 or more working hours–violated both the “takings” clause and the equal protection guarantee of the Fifth Amendment.

The court found that the although the rehabilitation plan was created pursuant to the PPA, it wasn’t a result of state action and thus wasn’t an improper taking of private property by a government actor or a violation of equal protection under the law guaranteed by the Fifth Amendment.

The court also found the PPA constitutional as a rational attempt by Congress to address its legitimate concern that underfunded pension funds in “critical status” wouldn’t be able to meet their benefit obligations without eliminating nonaccrued benefits.

Second Circuit Kills Similar Amendment

The day before the decision was announced in the instant case, the U.S. Court of Appeals for the Second Circuit joined the Third, Fifth, Seventh and Eighth Circuits in striking down a similar amendment in a different plan that would eliminate a nearly identical retirement subsidy for individuals who retired before they had achieved the total of 80 or 90 years that would trigger the early-retirement provisions (Alcantara v. Bakery & Confectionery Union & Indus. Int’l Pension Fund Pension Plan, 2014 BL 121828, 2d Cir., No. 12-4834-cv, 5/1/14).

In the Second Circuit’s opinion, the plan’s requirement that the participants achieve their 80 or 90 year status prior to termination of employment violated the anti-cutback provisions of the Employee Retirement Income Security Act that prevent the amendment of a plan that reduces accrued benefits.

The Alcantara case involved the ability of terminated employees to continue to “age into” their early-retirement benefits by increasing the age part of the equation even after the covered service side of the equation was set. The district court and the Second Circuit both agreed that the ability to “age into” benefits was accrued and thus guaranteed under Section 204(g) of ERISA.

The participants in the instant case argued similarly that their ability to “grow into” their benefit subsidies was protected by ERISA Section 204(g) and thus the removal of that right by the rehabilitation plan executed as required by the PPA was a “taking” in violation of the Fifth Amendment. The district court disagreed, finding that the participants “had an expectancy that they would receive the supplemental benefit, but not an absolute right to collect under all circumstances and the timing of the rehabilitation plan.”

Case Originally Brought Against SOL

The case was reopened in October 2013 after it was earlier dismissed without prejudice by an order of the U.S. Court of Appeals for the Ninth Circuit.

The participants originally brought suit in September 2011 against the Secretary of Labor, contending that the PPA was unconstitutional as applied to them in that it forced the plan to cut their early-retirement subsidy in violation of the anti-cutback provisions of ERISA and therefore deprived them of a fundamental right under the Fifth Amendment.

The district court dismissed the case, finding that the participants took the wrong route in their efforts by suing the Department of Labor and that no provision of ERISA provided a basis for suit against the DOL by plan participants for the actions taken by the plan to comply with the PPA.

Participants Lack Standing

On appeal, the DOL filed a brief urging the Ninth Circuit to affirm the district court opinion and to find that the participants’ constitutionality claims against the PPA failed the rational basis test.

The Ninth Circuit refused to address the merits of the participants’ claims, finding instead that they lacked Article III standing to bring suit against the DOL, vacating the decision of the district court and remanding the case with instruction that the court dismiss the complaint without prejudice.

The participants then amended their complaint to assert claims against the plan and its administrator but claiming the same constitutional basis for relief.

The district court, finding that the neither party was a state actor and that a fundamental right wasn’t implicated, dismissed the complaint for failure to state a claim on which relief could be granted.

The participants were represented by Gery R. Gasick of Peoria, Ill. and Jeffry Keith Finer of Jeffry Finer Law Office in Spokane, Wash.

The plan and administrator were represented by William M. Symmes and Robin Lynn Haynes of Witherspoon, Kelley Davenport & Toole in Spokane, Wash.

The U.S., as intervenor-defendant, was represented by Kenneth Elliot Sealls of the U.S. Department of Justice, Civil Division – Federal Programs Branch in Washington.

Source: Bloomberg BNA