Amendment to Welfare Plan Held to Be Constructive Amendment to Pension Plan That Reduced Accrued Benefit

The Court of Appeals for the Third Circuit in Battoni v. IBEW Local Union 102 Employee Pension Plan held that a change in a welfare plan amounted to, in effect, an unlawful cutback of participants’ benefits in a pension plan in violation of the anti-cutback provisions of ERISA and IRC §411(d)(6).  The matter in question involved the merger of two locals of the International Brotherhood of Electrical Workers (IBEW) and their plans.  Prior to the merger, IBEW Local 675’s pension plan permitted beneficiaries to choose between a lump sum retirement benefit or periodic payments, while Local 102’s plan (which was to be the surviving plan) did not provide for such a benefit.  The combined pension plan provided that members of Local 675 retained the right to take a lump sum payment, but only for benefits accrued prior to the merger.

The plans also combined their welfare plans which provided healthcare benefits.  To receive the benefits the retiree had to meet certain conditions.  Shortly after the merger the combined welfare plan was amended to add the requirement that to receive health care benefits an individual must not choose a lump sum benefit under the combined pension plan, a condition that did exist prior to the amendment.  Certain members of Local 675 filed suit claiming that the modification of the welfare plan amounted to an impermissible cut-back of their pension benefit, even though the pension plan itself was not amended, but rather the union amended the welfare plan which is not subject to the anti-cutback rule.

The Court of Appeals, sustaining the District Court, held that the amendment was effectively a part of the pension plan to the extent it pertained to the pension benefits.  The Court held that because the amendment imposed a condition on the receipt of a lump sum benefit under the pension plan, it served to decrease an accrued benefit, citing the Supreme Court’s 2004 holding in Central Laborers’ Pension Fund v. Heinz that the imposition of a new condition on a benefit necessarily makes it less valuable.  The change in the welfare plan was held to constructively be an amendment of the pension plan that decreased an existing benefit in violation of the Anti-Cutback rule.

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