OPINION OF THE COURT
CENTRAL LABORERS' PENSION FUND V. HEINZ
541 U. S. ____ (2004)
SUPREME COURT OF THE UNITED STATES
NO. 02-891
CENTRAL LABORERS’ PENSION FUND, PETITIONER
v. THOMAS E. HEINZ et al.
on writ of certiorari to the united states court of
appeals for the seventh circuit
[June 7, 2004]
Justice Souter delivered the
opinion of the Court.
With few exceptions, the
“anti-cutback” rule of the Employee Retirement Income Security Act
of 1974 (ERISA) prohibits any amendment of a pension plan that
would reduce a participant’s “accrued benefit.” 88 Stat. 858, 29 U.
S. C. §1054(g). The question is whether the rule prohibits an
amendment expanding the categories of postretirement employment
that triggers suspension of payment of early retirement benefits
already accrued. We hold such an amendment prohibited.
I
Respondents Thomas Heinz and
Richard Schmitt (collectively, Heinz) are retired participants in a
multiemployer pension plan (hereinafter Plan) administered by
petitioner Central Laborers’ Pension Fund. Like most other
participants in the Plan, Heinz worked in the construction industry
in central Illinois before retiring, and by 1996, he had accrued
enough pension credits to qualify for early retirement payments
under a defined benefit “service only” pension. This scheme pays
him the same monthly retirement benefit he would have received if
he had retired at the usual age, and is thus a form of subsidized
benefit, since monthly payments are not discounted even though they
start earlier and are likely to continue longer than the average
period.
Heinz’s entitlement is subject to
a condition on which this case focuses: the Plan prohibits
beneficiaries of service only pensions from certain “disqualifying
employment ” after they retire. The Plan provides that if
beneficiaries accept such employment their monthly payments will be
suspended until they stop the forbidden work.[
Footnote 1] When Heinz retired in 1996, the Plan
defined “disqualifying employment ” as any job as “a union or
non-union construction worker.” This condition did not cover
employment in a supervisory capacity, however, and when Heinz took
a job in central Illinois as a construction supervisor after
retiring, the Plan continued to pay out his monthly benefit.
In 1998, the Plan’s definition of
disqualifying employment was expanded by amendment to include any
job “in any capacity in the construction industry (either as a
union or non-union construction worker).” The Plan took the amended
definition to cover supervisory work and warned Heinz that if he
continued on as a supervisor, his monthly pension payments would be
suspended. Heinz kept working, and the Plan stopped paying.
Heinz sued to recover the suspended benefits
on the ground that applying the amended definition of disqualifying
employment so as to suspend payment of his accrued benefits
violated ERISA’s anti-cutback rule. On cross-motions for judgment
on the pleadings under Federal Rule of Civil Procedure 12(c),
the District Court granted judgment for the Plan, only to be
reversed by a divided panel of the Seventh Circuit, which held that
imposing new conditions on rights to benefits already accrued was a
violation of the anti-cutback rule. 303 F. 3d 802 (CA7 2002).
We granted certiorari in order to resolve the resulting Circuit
split, see
Spacek v.
Maritime Assn., 134
F. 3d 283 (CA5 1998), and now affirm.
II
A
There is no doubt about the
centrality of ERISA’s object of protecting employees’ justified
expectations of receiving the benefits their employers promise
them.
“Nothing in ERISA requires employers to establish
employee benefits plans. Nor does ERISA mandate what kind of
benefits employers must provide if they choose to have such a plan.
ERISA does, however, seek to ensure that employees will not be left
empty-handed once employers have guaranteed them certain benefits.
. . . [W]hen Congress enacted ERISA, it ‘wanted to . . . mak[e]
sure that if a worker has been promised a defined pension benefit
upon retirement— and if he has fulfilled whatever conditions are
required to obtain a vested benefit—he actually will receive
it.’ ”
Lockheed Corp. v.
Spink,
517 U. S. 882, 887
(1996) (quoting
Nachman Corp. v.
Pension Benefit
Guaranty Corporation,
446 U. S. 359, 375
(1980) (citations omitted)).
See also J. Langbein & B. Wolk, Pension and
Employee Benefit Law 121 (3d ed. 2000) (hereinafter Langbein &
Wolk) (“The central problem to which ERISA is addressed is the loss
of pension benefits previously promised”).
ERISA’s anti-cutback rule is crucial to this
object, and (with two exceptions of no concern here [
Footnote 2]) provides that “[t]he
accrued benefit of a participant under a plan may not be decreased
by an amendment of the plan … .” 29 U. S. C. §1054(g)(1).
After some initial question about whether the provision addressed
early retirement benefits, see Langbein & Wolk 164, a 1984
amendment made it clear that it does. Retirement Equity Act of
1984, §301(a), (2), 98 Stat. 1451. Now §204(g) provides that “a
plan amendment which has the effect of … eliminating or reducing an
early retirement benefit … with respect to benefits attributable to
service before the amendment shall be treated as reducing accrued
benefits.” 29 U. S. C. §1054(g)(2).
Hence the question here: did the 1998
amendment to the Plan have the effect of “eliminating or reducing
an early retirement benefit” that was earned by service before the
amendment was passed? The statute, admittedly, is not as helpful as
it might be in answering this question; it does not explicitly
define “early retirement benefit,” and it rather circularly defines
“accrued benefit” as “the individual’s accrued benefit determined
under the plan … .” §1002(23)(A). Still, it certainly looks as
though a benefit has suffered under the amendment here, for we
agree with the Seventh Circuit that, as a matter of common sense,
“[a] participant’s benefits cannot be understood without reference
to the conditions imposed on receiving those benefits, and an
amendment placing materially greater restrictions on the receipt of
the benefit ‘reduces’ the benefit just as surely as a decrease in
the size of the monthly benefit payment.” 303 F. 3d, at 805.
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. The 1998 amendment undercut any such
reliance, paying retirement income only if he accepted a
substantial curtailment of his opportunity to do the kind of work
he knew. 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.
B
The Plan’s responses are
technical ones, beginning with the suggestion that the “benefit”
that may not be devalued is actually nothing more than a “defined
periodic benefit the plan is legally obliged to pay,” Brief for
Petitioner 28, so that §204(g) applies only to amendments directly
altering the nominal dollar amount of a retiree’s monthly pension
payment. A retiree’s benefit of $100 a month, say, is not reduced
by a postaccrual plan amendment that suspends payments, so long as
nothing affects the figure of $100 defining what he would be paid,
if paid at all. Under the Plan’s reading, §204(g) would have
nothing to say about an amendment that resulted even in a permanent
suspension of payments. But for us to give the anti-cutback rule a
reading that constricted would take textual
force majeure,
and certainly something closer to irresistible than the provision
quoted in the Plan’s observation that accrued benefits are
ordinarily “expressed in the form of an annual benefit commencing
at normal retirement age,” 29 U. S. C. §1002(23)(A).
The Plan also contends that,
because §204(g) only prohibits amendments that “eliminat[e] or
reduc[e] an early retirement benefit,” the anti-cutback rule must
not apply to mere suspensions of an early retirement benefit. This
argument seems to rest on a distinction between “eliminat[e] or
reduc[e]” on the one hand, and “suspend” on the other, but it just
misses the point. No one denies that some conditions enforceable by
suspending benefit payments are permissible under ERISA: conditions
set before a benefit accrues can survive the anti-cutback rule,
even though their sanction is a suspension of benefits
.
Because such conditions are elements of the benefit itself and are
considered in valuing it at the moment it accrues, a later
suspension of benefit payments according to the Plan’s terms does
not eliminate the benefit or reduce its value. The real question is
whether a new condition may be imposed after a benefit has accrued;
may the right to receive certain money on a certain date be limited
by a new condition narrowing that right? In a given case, the new
condition may or may not be invoked to justify an actual suspension
of benefits, but at the moment the new condition is imposed, the
accrued benefit becomes less valuable, irrespective of any actual
suspension.
C
Our conclusion is
confirmed by a regulation of the Internal Revenue Service (IRS)
that adopts just this reading of §204(g). When Title I of ERISA was
enacted to impose substantive legal requirements on employee
pension plans (including the anti-cutback rule), Title II of ERISA
amended the Internal Revenue Code to condition the eligibility of
pension plans for preferential tax treatment on compliance with
many of the Title I requirements. Employee Benefits Law 47, 171–173
(S. Sacher et al., eds. 2d ed. 2000). The result was a
“curious duplicate structure” with nearly verbatim replication in
the Internal Revenue Code of whole sections of text from Title I of
ERISA. Langbein & Wolk 91, ¶ ;6. The anti-cutback rule of ERISA
§204(g) is one such section, showing up in substantially identical
form as 26 U. S. C. §411(d)(6).[Footnote 3] This duplication explains the provision of the
Reorganization Plan No. 4 of 1978, §101, 43 Fed. Reg. 47713 (1978),
92 Stat. 3790, giving the Secretary of the Treasury the ultimate
authority to interpret these overlapping anti-cutback provisions.
See also Langbein & Wolk 92, ¶ ;7 (“The IRS has [regulatory]
jurisdiction over … benefit accrua[l] and vesting”). Although the
pertinent regulations refer only to the Internal Revenue Code
version of the anti-cutback rule, they apply with equal force to
ERISA §204(g). See 53 Fed. Reg. 26050, 26053 (1988) (“The
regulations under section 411 are also applicable to provisions of
[ERISA] Title I”).
The IRS has formally
taken the position that the anti-cutback rule does not keep
employers from specifying in advance of accrual that “[t]he
availability of a section 411(d)(6) protected benefit [is] limited
to employees who satisfy certain objective
conditions … .” 26 CFR §§1.411(d)–4, A–6(a)(1) (2003).
Without running afoul of the rule, for example, plans may say from
the outset that a single sum distribution of benefits is
conditioned on the execution of a covenant not to compete.
§1.411(d)–4, A–6(a)(2). And employers are perfectly free to modify
the deal they are offering their employees, as long as the change
goes to the terms of compensation for continued, future employment:
a plan “may be amended to eliminate or reduce section 411(d)(6)
protected benefits with respect to benefits not yet
accrued … .” §1.411(d)–4, at A–2(a)(1). The IRS
regulations treat such conditions very differently, however, when
they turn up as part of an amendment adding new conditions to the
receipt of benefits already accrued. The rule in that case is
categorical: “[t]he addition of … objective conditions with respect
to a section 411(d)(6) protected benefit that has already accrued
violates section 411(d)(6). Also, the addition of conditions
(whether or not objective) or any change to existing conditions
with respect to section 411(d)(6) protected benefits that results
in any further restriction violates section 411(d)(6).” §1.41(d)–4,
A–7. So far as the IRS regulations are concerned, then, the
anti-cutback provision flatly prohibits plans from attaching new
conditions to benefits that an employee has already
earned.
The IRS has, however, told two
stories. The Plan points to a provision of the Internal Revenue
Manual that supports its position: “[a]n amendment that reduces IRC
411(d)(6) protected benefits on account of [a plan’s disqualifying
employment provision] does not violate IRC 411(d)(6).” Internal
Revenue Manual 4.72.14.3.5.3(7) (May 4, 2001), available at
http//www.irs.ustreas.gov/ irm/part4/ch49s18.html. And the United
States as amicus curiae says that the IRS has routinely
approved amendments to plan definitions of disqualifying
employment, even when they apply retroactively to accrued benefits.
But neither an unreasoned statement in the manual nor allegedly
longstanding agency practice can trump a formal regulation with the
procedural history necessary to take on the force of law. See
generally Note, Taxpayers’ Bill of Rights Act: Taxpayers’ Remedy or
Political Placebo?, 86 Mich. L. Rev. 1787, 1799–1801 (1988)
(discussing legal status of the Internal Revenue Manual). Speaking
in its most authoritative voice, the IRS has long since approved
the interpretation of §204(g) that we adopt today.[Footnote 4]
III
In criticizing the
Seventh Circuit’s reading of §204(g), the Plan and the United
States rely heavily on an entirely separate section of ERISA
§203(a)(3)(B), 29 U. S. C. §1053(a)(3)(B). Here they claim to
find specific authorization to amend suspension provisions
retroactively, in terms specific enough to trump any general
prohibition imposed by §204(g). Section 203(a)(3)(B) provides
that
“[a] right to an accrued benefit
derived from employer contributions shall not be treated as
forfeitable solely because the plan provides that the payment of
benefits is suspended for such period as [beneficiaries like
respondents are] employed . . . in the same industry, in the same
trade or craft, and the same geographic area covered by the plan,
as when such benefits commenced.” 29 U. S. C.
§1053(a)(3)(B).
The Plan’s arguments notwithstanding,
§203(a)(3)(B) is irrelevant to the question before us, for at least
two reasons.
First, as a technical matter,
§203(a) addresses the entirely different question of benefit
forfeitures. This is a distinct concept: §204(g) belongs to the
section of ERISA that sets forth requirements for benefit accrual
(the rate at which an employee earns benefits to put in his pension
account), see 29 U. S. C. §1054, whereas §203(a)(3)(b) is in
the section that regulates vesting (the process by which an
employee’s already-accrued pension account becomes irrevocably his
property), see 29 U. S. C. §1053. See generally Nachman
Corp., 446 U. S., at 366, n. 10 (“Section 203(a) is a central
provision in ERISA. It requires generally that a plan treat an
employee’s benefits, to the extent that they have vested by virtue
of his having fulfilled age and length of service requirements no
greater than those specified in §203(a)(2), as not subject to
forfeiture”). To be sure, the concepts overlap in practical effect,
and a single act by a plan might raise both vesting and accrual
concerns. But it would be a non sequitur to conclude that, because
an amendment does not constitute a prohibited forfeiture under
§203, it must not be a prohibited reduction under §204. Just
because §203(a)(3)(B) failed to forbid it would not mean that
§204(g) allowed it.
Second, read most simply and in
context, §203(a)(3)(B) is a statement about the terms that can be
offered to plan participants up front and enforced without
amounting to forfeiture, not as an authorization to adopt
retroactive amendments. Section 203(a), 29 U. S. C. §1053(a),
reads that “[e]ach pension plan shall provide that an employee’s
right to his normal retirement benefit is nonforfeitable upon the
attainment of normal retirement age.” This is a global directive
that regulates the substantive content of pension plans; it adds a
mandatory term to all retirement packages that a company might
offer. Section 203(a)(3)(B), in turn, is nothing more than an
explanation of this substantive requirement. Congress wanted to
allow employers to condition future benefits on a plan
participant’s agreement not to accept certain kinds of
postretirement employment, see n. 1, supra, and it
recognized that a plan provision to this effect might be seen as
rendering vested benefits improperly forfeitable. Accordingly,
adding §203(a)(3)(B) made it clear that such suspension provisions
were permissible in narrow circumstances. But critically for
present purposes, §203(a)(3)(B) speaks only to the permissible
substantive scope of existing ERISA plans, not to the procedural
permissibility of plan amendments. The fact that ERISA allows plans
to include a suspension provision going to benefits not yet accrued
has no logical bearing on the analysis of how ERISA treats the
imposition of such a condition on (implicitly) bargained-for
benefits that have accrued already.[Footnote 5] Section 203(a)(3)(B) is no help to the
Plan.[Footnote 6]
* * *
The judgment of the
Seventh Circuit is affirmed.
Footnote 1
This suspension provision was
adopted on the authority of ERISA §203(a)(3)(B), 29 U. S. C.
§1053(a)(3)(B). In authorizing such suspensions, Congress seems to
have been motivated at least in part by a desire “to protect
participants against their pension plan being used, in effect, to
subsidize low-wage employers who hire plan retirees to compete
with, and undercut the wages and working conditions of employees
covered by the plan.” 120 Cong. Rec. 29930 (1974) (statement of
Sen. Williams regarding §203(a)(3)(B)). That explains why ERISA
permits multiemployer plans to suspend a retiree’s benefits only if
he accepts work “in the same industry, in the same trade or craft,
and the same geographic area covered by the plan.” 29 U. S. C.
§1053(a)(3)(B)(ii).
Footnote 2
ERISA §204(g) allows the
reduction of accrued benefits by amendment in cases where a plan
faces “substantial business hardship,” 29 U. S. C.
§1082(c)(8), and in cases involving terminated multiemployer plans,
§1441.
Footnote 3
“A plan shall be treated as not
satisfying the requirements of this section if the accrued benefit
of a participant is decreased by an amendment of the plan, other
than an amendment described in section 412(c)(8) [of this Code], or
[29 U. S. C. §1441].” 26 U. S. C. §411(d)(6)(A); see also
§411(d)(6)(B) (clarifying that the anti-cutback rule applies to
early retirement benefits). Cf. n. 2, supra, and
accompanying text (detailing ERISA §204(g)).
Footnote 4
Nothing we hold today requires
the IRS to revisit the tax-exempt status in past years of plans
that were amended in reliance on the agency’s representations in
its manual by expanding the categories of work that would trigger
suspension of benefit payments as to already-accrued benefits. The
Internal Revenue Code gives the Commissioner discretion to decline
to apply decisions of this Court retroactively. 26 U. S. C.
§7805(b)(8) (“The Secretary may prescribe the extent, if any, to
which any ruling (including any judicial decision or any
administrative determination other than by regulation) relating to
the internal revenue laws shall be applied without retroactive
effect”). This would doubtless be an appropriate occasion for
exercise of that discretion.
Footnote 5
This is not to say that
§203(a)(3)(B) does not authorize some amendments. Plans are free to
add new suspension provisions under §203(a)(3)(B), so long as the
new provisions apply only to the benefits that will be associated
with future employment. The point is that this section regulates
the contents of the bargain that can be struck between employer and
employees as part of the complete benefits package for future
employment.
Footnote 6
For analogous reasons, the Plan’s
reliance on 26 CFR §1.411(c)–1(f) (2003) is unavailing. That
section provides that, for the purpose of allocating accrued
benefits between employer and employee contributions, “[n]o
adjustment to an accrued benefit is required on account of any
suspension of benefits if such suspension is permitted under
section 203(a)(3)(B).” We read this provision as simply
establishing that the actual suspension of benefit payments
pursuant to an existing suspension provision does not affect the
actuarial value of a beneficiary’s total benefits package for the
purpose of allocation calculations, since the suspension provision
has already been accounted for in the initial valuation. Cf.
n. 3, supra. Far from helping the Plan, this
regulation tends to support our larger proposition that it is the
addition of a suspension condition, not the actual suspension of a
benefit, that reduces an employee’s accrued benefit.
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