CENTRAL LABORERS' PENSION FUND v. HEINZ
Thomas Heinz worked as a construction worker for 20 years, then retired. Upon retirement, he began to receive pension payments from the Central Laborers' Pension Plan. He continued to receive the pension after he took another job as a supervisor in the construction industry. The pension plan had a list of occupations that a recipient could not work in while receiving pension payments, but construction supervisors were not included. After two years, however, Central Laborers' Pension amended the list of prohibited professions to include construction supervisors. As a result, Heinz stopped receiving his pension payment. He and Richard Schmitt, a friend who was in the same situation, filed suit in federal district court. They claimed that the amendment, because it was passed after they had already started receiving the benefits, violated the "anti-cutback" provision of the Employee Retirement Income Security Act (ERISA) of 1974. ERISA states that amendments to a pension plan may not decrease the "accrued benefit of a participant." Because the amendment barred them from receiving payments that they were otherwise eligible for, Heinz and Schmitt claimed that it had reduced their "accrued benefit." Central Laborers' Pension, however, argued that the men were still eligible to receive the same pension, they just could not receive it while working as construction supervisors. Because the value of the plan itself had not been changed, only the stipulations for receiving it, the pension plan managers argued that the amendment did not violate ERISA.
The federal district court sided with the pension plan. A divided Seventh Circuit Court of Appeals panel, however, reversed the decision, writing that "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."
Did Central Laborers' Pension violate the "anti-cutback" provision of the Employee Retirement Income Security Act of 1974 when it added to a list of positions that temporarily disqualified pension holders from receiving their benefits?
Legal provision: Employee Retirement Income Security
Yes. The Court unanimously held that the amendment to the plan had narrowed Heinz's rights to the benefits promised him at the time he retired, and that such a narrowing violated ERISA. Justice David H. Souter, in the Opinion of the Court, wrote, "'[A] participant's benefits cannot be understood without reference to the conditions imposed on receiving those benefits.' ... 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."
Argument of Thomas C. Goldstein
Chief Justice Rehnquist: We'll hear argument now in No. 02-891, the Central Laborers' Pension Fund v. Thomas E. Heinz.
Mr. Goldstein: Thank you, Mr. Chief Justice, and may it please the Court:
This is an ERISA pension case.
The petitioner is a multiemployer pension plan.
The respondent plaintiffs are two plan participants.
Each accrued a pension and took early retirement at age 39, and each claimed a full pension in the form of a life annuity.
At issue in the case is a plan amendment.
It authorizes the suspension of retirees' benefit payments during the time that they choose to go back to work as construction supervisors.
Before the amendment, suspension was triggered only by work as a construction laborer.
The change gives rise to an important, albeit highly technical, question about the relationship between two provisions of ERISA.
The question is: may such an amended employment suspension provision apply to previously accrued benefits
The plan says the answer is yes; the participants say the answer is no.
The expert agencies charged by Congress with administering ERISA have also spoken to the question.
They say that ERISA does authorize such an amendment, and they reached that conclusion by construing the two ERISA provisions in para materia.
Countless pension plans around the Nation, in turn, have relied on the agencies' guidance in shaping their plan amendments for decades, and that is the principal reason that the case is so important.
Justice Souter: In the... in the guidance that is given, does the... has the IRS actually passed on particular amendments?
Mr. Goldstein: It has, not in formal guidance.
The process is that you can...
Justice Souter: How does it do it?
Mr. Goldstein: There... there are a couple of layers of it.
The first is that the IRS publishes guidance ahead of time.
For about 2 decades, there has been something called the LRM, the List of Required Modifications.
It's quoted in... it's quoted in the Government's brief in particular.
And that said to plans, if you're going to adopt a plan or revise a plan, here's what you can do.
Justice Souter: Is this in the manual?
Mr. Goldstein: Then there's a second.
The second step is that more recently they have published what's known as to IRM, the Internal Revenue Manual, and that's guidance for IRS employees.
And then there's a third level, and that is plans can submit their plan provisions and amendments to the IRS for what are known as determination letters on which the IRS signs off.
And so all three of those exist.
Justice Souter: Do we... do we have any indication of how many determination letters have been issued?
Mr. Goldstein: We don't.
I don't think that the IRS was able to come up with a particular number, but they did say that their consistent practice for decades has been to approve this particular...
Justice Ginsburg: Is there anything to document that, that it's been for decades?
I mean, the manual provisions and the rest of... of what you're describing is not... not published.
So where do we get the 2 decades from?
Mr. Goldstein: We get that from, I guess, two sources.
The first is that there is the document... the... the series of documents known as the LRM, the List of Required Modifications, that has guided the plans for a couple of decades, and it does not restrain plans in its... it specifically addresses revisions to plans, amendments, and it doesn't say that you can only apply it a suspension provision to benefit payments that accrue in the future.
Beyond that, when it comes to, you know, what the IRS does day in and day out, we just have their representation.
Justice Souter: Well, do you... does... does the list specifically say that the amendments can... can relate... can, in fact, relate to or in law relate to prior accrued...
Mr. Goldstein: No, it doesn't.
Justice Souter: So, it leaves that question open.
Mr. Goldstein: It... it... literally in its text it does, but as a practical matter it doesn't because, as I was saying to Justice Ginsburg, the LRM's have addressed revisions to plans and to amendments, and they haven't restrained in any way the ability to apply it to previous...
Chief Justice Rehnquist: But that's a pretty negative inference, isn't it?
Mr. Goldstein: It's true, but the... the way these documents work, as I understand them, is that if there's a restriction, something you can't do, they say it expressly.
When you... remember, the default rule under ERISA, of course, is that you are allowed to adopt a plan amendment, and then the... they... they articulate particular restrictions...
Justice Scalia: So I... I think it's pretty explicit when it says that the accrued benefit of a participant under a plan may not be decreased by an amendment of the plan.
And I don't... the trouble I'm having is it just seems to me utterly unrealistic to say that his accrued benefit has not been decreased when he used to be able to work as a... as a supervisor and continued to draw from the plan.
Now he cannot work as a supervisor.
How can you... I mean, certainly if you placed a dollar value on his right to receive money from the plan, you would... you would put a higher price on... on the... the individual who has the right to work as a supervisor and still continue to draw money as opposed to the person who doesn't have that right.
I mean, the... the language just seems to me utterly plain.
Mr. Goldstein: The... Justice Scalia, the reason that the IRS has reached the opposite conclusion for decades is threefold, and I will focus on the text because that's where you focus.
But just to lay them out, it's going to be the text, the purposes of the suspension provision, which is section 203(a)(3)(B), and what will best protect participants' expectations.
You focus rightly on the text.
The... the key is what is a benefit versus what is a suspension of benefit payments.
As I said in the introduction, the plan participants here earned a benefit and that is a life annuity in a service only pension.
So they were able to retire and they got a life annuity that's available to them.
Justice Scalia: It's the dollar amount that they're entitled to which is the benefit.
Mr. Goldstein: It is...
Justice Scalia: But that means you can say, well, you know, they're still entitled to that dollar amount, but they can only get it every other year.
Mr. Goldstein: That would be prohibited.
Justice O'Connor: Would that limitation be okay?
Mr. Goldstein: No, it wouldn't because it would violate the vesting rules.
Let me continue.
There are two parts in ERISA, and this is set out in your Alessi opinion in 1981.
You have to accrue a benefit and then you vest in the benefit.
The accrual is when you've earned the benefit.
They earned the benefit.
They earned their pension.
Then they had to vest in it; that is, though they've earned it, they have what Alessi calls a non-forfeitable right to claim it.
And what a suspension provision does it says your benefit still exists.
Their benefit is a life annuity.
There is an available stream of payments.
There's a stream of payments that is available every single month.
That's the accrual rule.
Then you have to vest.
You have to have a right to claim it, and that's what a suspension provision does.
Chief Justice Rehnquist: It's not you that vests.
It's the pension that vests, isn't it?
Mr. Goldstein: It is your claim to it that vests, Mr. Chief Justice.
If I could give you the language...
Chief Justice Rehnquist: Well, I was just questioning your choice of words.
Mr. Goldstein: I apologize.
What I had intended to say is that your claim to it vests.
There is a benefit out there, this life annuity.
And the question is: do you have the right to claim it in any particular month
That's the structure of section 203 versus section 204.
And what a suspension provision does... and let me just pause to say the court of appeals acknowledged, the plaintiffs acknowledged, that when we suspend their benefit payments, we are not decreasing their benefit.
What we're doing is that they have sacrificed their claim to a particular benefit in any given month.
That's why Congress used the different language, suspension of benefit payments versus the actual decrease in the benefit.
Justice Souter: Well, they concede that with respect to the... the decreases that were a term of the plan when it accrued to them.
Mr. Goldstein: Well, they conceded...
Justice Souter: They don't concede anything more, do they?
Mr. Goldstein: No, but the concession is, nonetheless...
Justice Souter: Well, that's no concession.
Mr. Goldstein: Well, it is we think, Justice Souter.
What I think Justice Scalia was focusing on... and I may be mistaken... is that, look, when you withhold that benefit payment, sort of give me a break.
They're not getting the money.
You're decreasing their benefit.
And in the terminology of ERISA, that is actually not correct.
Justice Scalia: No.
That wasn't my point at all.
My... my point, which I took a long time to make, was that the value of your right to money, even though you work as a supervisor, is greater than your right to money which terminates as soon as you begin to work as a supervisor.
It's a less valuable benefit.
Mr. Goldstein: Fair enough.
Justice Scalia: And that comes right within the language.
The accrued benefit may not be decreased by an amendment.
Mr. Goldstein: And here is why it does not.
The real-world value, the sense that, look, this is more desirable.
I would rather have a benefit that has less suspension provisions than one that has more.
For example, hey, it's more likely I'm going to get the money.
That is not a benefit within the meaning of ERISA.
The benefit is the life annuity.
It's a... this is... the... ERISA is, of course, as you've often said, a highly reticulated statute.
There are 3,978 pages of regulations implementing it in about 6-point font.
The terms of art are highly, highly technical, and the benefit is the life annuity.
It's not just the sense that I like it more.
And I can give you an example.
Section 203(c) of ERISA... and, Mr. Chief Justice, that is reproduced in the yellow brief.
I don't think it will be necessary for the Court to track it, but it is at the bottom of 4a and 5a.
This is a... of the yellow brief.
And this is a provision under which plans are authorized to change their vesting schedules.
And so, take an example.
There are two ways you can vest under ERISA.
One if over the course of 7 years in individual steps.
Another is so-called cliff vesting, and that is, you've got your benefit.
You've earned it, but until you've been in service for 5 years, you don't have any legal claim to it notwithstanding that it's out there.
Plans under section 203(c) are allowed to change their vesting rules so that if someone had earned 2 years of vesting credit, the plan can, nonetheless, change to a 5-year cliff vesting provision.
Now, that's all very complicated, but the bottom line is that it makes it less valuable in the real-world sense for the plan participants.
Justice Stevens: Yes, but that... that speaks to the future effect of such an amendment, and it... when you're talking about getting vesting, you can't have a retroactive... you would not already be vested.
Does that mean that if somebody vested after 2 years, they could then adopt an amendment saying henceforth it's got to be 5 years and that applies to somebody who is already vested?
Mr. Goldstein: Unquestionably, yes.
Justice Stevens: Does it really.
Mr. Goldstein: Absolutely, yes, without any... any doubt whatsoever.
Justice Stevens: And what is the authority for that?
Mr. Goldstein: That is section 203(c).
Section 203(c) explains that if you have less than 3 years of service, you are not allowed to object to the change in vesting conditions.
There are rules under ERISA that say that even though you've vested, you can, in effect, be divested.
That's why it is a very strange structure of the...
Justice Scalia: Well, they... they wouldn't need that provision if the principle of law that you're urging upon us existed.
I mean, the... the whole reason, it seems to me, that they had to make that clear in a statutory provision is that without it, you would obviously be decreasing the value of the plan and violating the provision of whatever it is, 1054(g)(1).
Mr. Goldstein: No.
That's why this is in 1053.
There are two sets of restrictions.
That provision that I've just been describing would not... and I don't think there's anybody who really contends it would... violate 1054, what we've been calling 204.
It would violate 1053.
Chief Justice Rehnquist: Which... which part of 1053?
Mr. Goldstein: It would violate the beginning of 1053, Mr. Chief Justice.
Let me take you to 1a of the yellow brief, and the paragraph involved would be 1... excuse me... 1053(a)(2)(A) and (B).
Those are the places...
Chief Justice Rehnquist: Okay.
Read them please.
Mr. Goldstein: Yes, Mr. Chief Justice.
The beginning of (2) says, except as provided in paragraph 4, which is not relevant, a plan satisfies the requirements of this paragraph if it satisfies the requirements of subparagraphs (A) or (B).
And subparagraphs (A) or (B) which I'll read, give you that 5-year cliff vesting option or instead over the course of 7 years.
A plan satisfies the requirements of this subparagraph if an employee who has completed at least 5 years service has a non-forfeitable right to 100 percent of the employee's accrued benefit derived from employer contributions.
And then (B) is the other option, the 7 years.
Now, I have spoken and I've tried to emphasize the difference between a benefit and the suspension of benefit payments, but it is also important to deal with the two other reasons that the Government...
Justice Stevens: Let me just be sure I understand that argument again, Mr. Goldstein.
This says you, in effect, can retroactively require a longer vesting period.
That would mean require a longer period before you acquired an accrued benefit.
Mr. Goldstein: No.
Justice Stevens: That was 20... isn't that right?
Mr. Goldstein: No, Justice Stevens.
You would acquire the accrued benefit under 1054 as it accrued over time.
What you would not do is vest in that benefit, your right to the benefit is not present.
Justice Stevens: So accrued... the term, accrued benefits, applies to benefits that have not yet vested.
Mr. Goldstein: That's exactly right.
Justice Stevens: I see.
Mr. Goldstein: Yes.
Let me just step back.
Justice Stevens: I'm not sure that... I'm not sure I understand that, but anyway, go ahead.
Mr. Goldstein: I apologize.
Let me just step back and explain it then.
There are two things that you have to do in order to be able to collect your benefit under ERISA.
It has to accrue.
You have to earn it under 1054.
Justice O'Connor: Right.
Mr. Goldstein: And you also have to vest in it under 1053.
Justice Scalia, you had intimated a hypothetical.
Well, look, couldn't the plan just say, hey, we're suspending your benefit payments and wouldn't that violate 1054 because you lessened the value of the benefit.
The answer to that question is no.
You couldn't do it, but... because it would violate 1053.
Someone would have vested in the benefit and you would be divesting them of it.
Let me also take you... because we do contend that we are entitled to...
Justice Breyer: Vesting means...
Justice Stevens: You're going pretty fast for me.
Mr. Goldstein: Sorry.
Justice Stevens: Could I just make sure I understand one thing?
Mr. Goldstein: Yes.
Justice Stevens: You're saying that a delay in the period between the time a benefit accrues and when it vests is not covered by 204(g), but a reduction of a benefit that has already both accrued and vested is... is not covered by it or is... you're saying they're the same.
That's what you're saying...
Mr. Goldstein: Let me...
Justice Stevens: for purposes of...
Chief Justice Rehnquist: Answer the question.
Justice Stevens: Yes.
Mr. Goldstein: No is the... is the short answer and here's the longer answer.
You cannot decrease the benefit even if it has not yet vested.
Let's be perfectly clear.
If I... they have a life annuity and I were to say instead of paying you $1,650 a month, I'm going to pay you $1,400 a month, notwithstanding that they haven't vested in it, it still violates the accrual rule.
But when you come to the question of the suspension of benefit payments, which throughout ERISA is a different concept than a decrease in benefits, when you come to a suspension... that is, your... your claim to the benefit payment each month... I'm taking that away from you... that's covered by 1053.
And our point is that this plan amendment is... and the Government agrees... is authorized by 1053.
I had said that I was also going to go beyond the... move from the text to the purposes underlying the statute and the protection of participants' legitimate expectations.
But before doing that, I do want to point to the regulation, Justice Scalia, that addresses our understanding of what it is to decrease, and we contend that the regulation, which is published after notice and comment, is entitled to Chevron deference.
And it is... is reproduced on page 8a of the yellow brief, and I will just... it's quoted in our brief as well.
And it explains that a decrease in a benefit is something that changes the computation of the benefit.
This does not change the computation of the benefit.
It's not just a rhetorical device.
It is a theme that runs throughout the provisions of ERISA.
Briefly, with respect to the purpose of the statute and plan's expectations, the critical point is that the suspension rule cannot work if it... this is section 203(a)(3)(B), the 1053 provision... cannot work if it does not apply to already accrued benefits.
The point of the statute is to get people to move in and out of the workforce.
And if you are not allowed to apply your suspension provision to existing retirees, you cannot influence them in response to current financial conditions, the shape of the construction labor market, the shape of the current trucking market.
You have to be able to influence their decision whether or not to work or not to work.
Justice Kennedy: Well, that... that as set forth in... in your brief and... and you made it sound like a very significant, very important power, but also you made it, to me, sound like it... it gives almost no effect at all to the anti-cutback provisions.
Mr. Goldstein: It does...
Justice Kennedy: I mean, this... this is a sweeping authority you're arguing for on behalf of the plaintiff.
Oh, the economy is this way and that way.
Mr. Goldstein: Well, I think the critical point is that Congress in section 1053, in 203, carefully limited the power of the plans; that is, it's... the right here is to receive your pension.
That right is completely in the control of the participants.
They can choose not to go back to work or to go back to work.
They will receive their benefits.
In addition, the plan is only allowed to limit the receipt of the benefit payment during periods of reemployment in the same industry, trade, or craft in the same geographic region only if they work more than 40 hours of... a month, and a variety of other restrictions.
And those showed that Congress was cabining the authority of plans so that they didn't unduly restrict the ability of plan participants to go back to work.
But it is, I think, absolutely critical, to return to the point, that 1053(a)(3)(B), the suspension rule, cannot function as Congress intended and that is what the IRS concluded if it does not apply to already accrued benefits.
We could not encourage or discourage the plan participants to go back to work or not to go back to work and thus calibrate the pension payments that are coming into the plan if it did... if our suspension provision did not apply to their benefits.
If I could reserve the remainder of the time.
Argument of John P. Elwood
Chief Justice Rehnquist: Very well, Mr. Goldstein.
Mr. Elwood, we'll hear from you.
Mr. Elwood: Mr. Chief Justice, and may it please the Court:
For at least 20 years, the Internal Revenue Service has consistently approved the amendment of pension plans to add or expand disqualifying employment provisions within the scope of ERISA's suspension rule, and it has permitted those amendments to be applied to existing benefit accruals.
Over the years, literally hundreds of plans have relied on the flexibility that policy afforded in determining whether a plan...
Justice Stevens: Could you address one... one question I have?
The fact that the... the plan doesn't... or the contributors don't lose their tax deduction does not necessarily mean that those... that they otherwise comply with ERISA.
Mr. Elwood: That is... I think that... well, actually I think that because the... the qualification provisions are coextensive with the ERISA provisions, that I think that they rise or fall together.
Justice Stevens: Have we ever said that?
Mr. Elwood: I think that the... the... thing is the language of the... the provisions is substantially identical.
The wording is... is basically exactly the same.
And so I don't know that there has been a... a case on point that says they could be construed differently, but I think there would be an uphill road.
Justice Stevens: The Treasury Department, of course, is interpreting... is interpreting the statute for the purpose of deciding whether... the income tax consequences of contributions basically.
Mr. Elwood: That is correct, but they have been vested under reorganization plan number four with the authority to construe the exact same provisions, the corresponding provisions of title I of ERISA that we're talking about here.
And in... when they issue those regulations, they typically say we're construing both.
We use the code verbiage, but we're construing both.
Justice Stevens: The thing that runs through my mind is I'm not sure they have the same expertise, for example, as if the Department of Labor had to give them the same... same answer to this question.
Mr. Elwood: They have been charged with interpreting these provisions, the same provisions of title I of ERISA, the 204, 203 here as in the corresponding provisions of the code.
And it would be our position that they're just as expert because they're exactly the same the language...
Justice Stevens: But the concern at issue in this case is the ability of people to move in and out of the... out of the trade, which is specifically a Labor Department interest.
The Labor Department would be more interested in ensuring that... that interest is preserved than the Treasury Department would.
Mr. Elwood: In any event, the... the Department of the Treasury has been charged with the responsibility and because it's identical language, we would argue that they're entitled to just as much reference under that as under title I of ERISA...
Justice O'Connor: And the... the Labor Department has not adopted a position on this question...
Mr. Elwood: The Labor Department agrees with this position.
The Labor Department, again under internal executive branch orders, is bound by the IRS determinations in this regard.
Now, if I could get back to...
Justice O'Connor: Now, may I ask you about section 203?
Because the respondent says it governs only normal retirement benefits and not early retirement benefits that are at issue here.
Mr. Elwood: It governs normal benefits and their actuarial equivalents.
So to the extent that early retirement benefits are the actuarial equivalent of normal retirement benefits, just reduced to account for the fact they're received earlier and that they'll be received over a longer period, it applies of its own force.
But again, the... the Department of the Treasury has taken the purposes of 203 into account when it construes all of the remaining provisions.
Justice Souter: May I ask you to... to comment on an argument that Mr. Goldstein just made?
His... his argument was that, at least certainly so far as the construction industry is concerned, unless this kind of retroactive effect could be given, there... the... the various plans could not protect themselves, or at least they... they could not take account of... of labor market conditions.
It would be useless to.
My question is assume that is so.
ERISA is made for all sorts of plans.
It isn't just made for the construction industry.
Is there any reason to believe that Congress was concerned with the construction industry's labor market problems in... in fixing the... the statue in the way Mr. Goldstein and you say it has been arranged?
Mr. Elwood: I think there is reason to believe that Congress was concerned with the cyclical nature of industries for which market... which are covered typically by multiemployer plans.
Justice Souter: How do we... how do we know that?
In other words, how do we know that this argument is not the tail wagging the dog?
Mr. Elwood: I think two things.
First of all, Congress... several Members of Congress, everyone who spoke to the subject during the debates leading up to the passage of ERISA, indicated that the idea here was to promote industrial stability and to give plans the flexibility, when market conditions warranted, to adopt suspension provisions.
Justice Scalia: Well, but you don't... we don't have to adopt your provision to... to accord that flexibility.
All that's needed is that the plan state, when it is established, that these provisions dealing with where you can work are amendable.
Once it says that, then there's no reduction in the value of... of the benefits that the employee receives.
I mean, it's... it's just very clear from the outset that these things are subject to defeasance.
All we're talking about is a plan that doesn't contain that provision at the outset, and then later decides it wants to change its mind.
Mr. Elwood: Actually, Justice Scalia, it I think explicitly indicates that it contemplates that.
If you look at pages J.A. 46 and 64, there are places there saying that basically if there are material changes in the suspension provisions, that the plan will notify participants of them.
And so between that and the fact that the plan itself specifically states on page 50, J.A. 50, that the plan is amendable...
Justice Scalia: Yes, but that...
Justice Kennedy: Okay.
Chief Justice Rehnquist: You're referring to J.A. 50.
Give us a minute, if you're...
Mr. Elwood: Oh, sure.
Chief Justice Rehnquist: if you're interested in our comprehending what you're saying.
Give us a minute to turn to that page, will you?
Where on page 50 is it?
Mr. Elwood: The... page 50 is just the explanation that the plan is amendable.
Page 46 indicates that... that there can be change in the suspension rules.
It says if benefits have...
Chief Justice Rehnquist: Whereabouts are you reading?
Mr. Elwood: It's under (d)(1), page 46.
Chief Justice Rehnquist: Okay.
Mr. Elwood: (d)(1).
That's the... basically the last sentence in the bottom three lines.
I'll begin earlier than that.
It says, if benefits have been suspended and payment resumed, new notification shall, upon resumption, be given to the participant if there has been any material change in suspension rules, which we take to be an indication that the plan contemplated that such amendments could be made.
Justice Souter, if I could...
Justice Stevens: It doesn't say anything about amendments.
It just says if you had a suspension, you got... you got to give notice.
I don't... I don't see that.
Justice Scalia: Presumably that... that's a suspension provided for in the plan but the plan...
Mr. Elwood: No.
It says if there has been any material change in the suspension rules, which we think to apply to changes in when a suspension can be enacted, not that a suspension will be given in a particular case.
In addition, I just... Mr. Goldstein has already explained a bit why we think the text of ERISA supports this, but I think that its purposes... the purposes of the anti-cutback rule are consistent with this because what Congress was trying to protect in the anti-cutback rule was reduction of retirement income.
And I think that that is broadly satisfied in this case because what this guarantee, as we've explained, is an annuity and a certain face amount that can never be reduced in face amount.
And the only time it is not paid to them is under very narrowly cabined circumstances when they are, by definition, receiving essentially receiving replacement income from the same industry, the same trade or craft in the same geographic area that has funded their pension plan.
And I think under those sort of narrow circumstances, that the... the purposes of the anti-cutback rule are satisfied.
In addition, I would like to get back to a point that Justice Souter raised.
Justice Kennedy: What... what would happen if there were a... a suspension if you were working in any other industry?
Suppose the plan adopted that?
Mr. Elwood: I think that a plan could adopt a suspension rule with respect to future plan accruals for any reemployment, but it is the Government's position that because what Congress is trying to control here was... was basically to give plans the flexibility so that their... their participants would not have to compete or, rather, have to subsidize their competitors...
Justice Kennedy: But what is... what is the provision of the statute which is... which... on which you rest to make that distinction...
Mr. Elwood: That...
Justice Kennedy: as to whether it's very important for the construction industry?
Suppose some plan said it's for any industry.
Mr. Elwood: It's for section 203(a)(3)(B), or 1053(a)(3)(B), which is set forth at the yellow brief on page... I think it's 1a to 2a.
And there it is just... it just identifies the circumstances under which Congress has authorized the suspension rule, which we read to be able to be applied to existing benefit accruals.
And it limits it to application in the case of a multiemployer plan, which we've said tend to be industries of more cyclical swings, to cases where it's employment in the same industry, in the same trade or craft, and in the same geographic area covered by the plan.
Justice Scalia: If this is so central to your case, how come it only shows up in your... in the reply brief?
Mr. Elwood: No.
It's cited from the outset.
It's just... it's only reproduced in the reply brief.
But the... but the very same provision is very central to the argument set forth in both the petitioner's brief and the Government's.
Justice Souter: You... you've been dying to respond to something I raised.
Let me give you the chance to do it.
Unidentified Justice: [Laughter]
Mr. Elwood: Okay.
I appreciate that.
But I just wanted to clarify one thing about what the notice of required modifications says because the notice of required modifications basically sets out model plan language, and the model plan language in this case that existed began... first appeared in 1984 said explicitly it may be added to existing plans.
And the plan language itself doesn't contain any language that would carve our existing accruals, so that by definition it would apply to existing accruals.
And I think that if the Treasury had intended it to apply only to future benefit accruals, it would have contained language.
And in fact, there are other provisions that specifically set out that kind of limiting language so it can only be applied to future accruals.
So I'd say that.
It's not... I... I think it's a... a reasonable negative inference that can be drawn from that.
It's not going out on a limb too much.
Justice Ginsburg: Mr. Elwood, you...
Chief Justice Rehnquist: Thank you, Mr. Elwood.
Mr. Elwood: Thank you.
Argument of David M. Gossett
Chief Justice Rehnquist: Mr. Gossett, it's your turn.
Mr. Gossett: Mr. Chief Justice, and may it please the Court:
The Central Laborers' Pension Fund promised Tom Heinz and Rick Schmitt that after they accepted an early retirement package, they would be entitled to work in specific jobs without sacrificing their pension plans.
It is a foundational principle of ERISA that participants are entitled to rely on plan promises such as this one.
By reneging on this promise and changing the rules after the fact, the plan violated section 204(g) of ERISA and decreased the value of participants' plan, as Justice Scalia...
Justice Souter: Let's assume I... I agree with you on that.
The... there's... there's another reliance problem here and... and that, I take it, is the... is the reliance upon a contrary view taken by the IRS.
And the... the... your... your colleagues on the other side say that if we see it your way, there's an enormous number of plans out there who are suddenly going to find themselves unqualified or disqualified, whatever the term is.
Is... is there a way to avoid that if... if you are correct on the law, but they are correct about the... the practice?
Mr. Gossett: Yes, Justice Souter.
Justice Breyer: What part are we... how does that...
Mr. Gossett: Under Internal Revenue Code section 7805(b), the IRS has the right to say that any amendment before the date of this... of this Court's decision in this case wouldn't lead to a disqualification of... of the plan.
Justice Breyer: Oh, I don't think they could because you have an answer there to question 6 which says that if you put in your original plan a provision that would say the employer can change the definition of who's working in his same company over time, as labor circumstances call for it, that that gives the employer discretion, and you can't do it because giving them that discretion would itself count as a reduction.
Now, that's well established.
The whole point of this... so you tell me how they could write a plan to do what you think they should be able to do.
And of course, they should.
That's the whole point of this part of 203.
Mr. Gossett: No, Justice Breyer.
The... the part... the... the point of 203 is not to allow plans to change the rules over time...
Justice Breyer: The whole point of 203, as I understand it, is that it was something put in there by the Teamsters or possibly the crafts unions so that when you get your... your early retirement benefit and you're out there, don't come back to my plant.
Why not my plant?
Because when you do, you will work for a low wage and that will depress the wages of other workers.
Now, I'm not going to say absolutely never.
I'm not going to say always.
It's going to depend on labor conditions, and that's why if that purpose is not what that part of 203 is there for, you can explain why it is there.
But if I'm right about why it's there, your interpretation not only disrupts 20 years of... of how this has been administered, but also makes it unworkable.
Mr. Gossett: That's not why it's there, Justice Breyer.
Justice Breyer: Why is it there?
Mr. Gossett: Section... section 203(a)(3)(B), for starters, only applies to normal retirement benefits.
Under section 203(a) of ERISA, normal retirement benefits are... cannot be forfeited.
But for section 203(a)(3)(B), there would be no situation in which a plan could suspend benefit payments.
So 203(a)(3)(B) specifies... it delimits the limited circumstances in which...
Justice Breyer: Put a little footnote here that I may not agree with your statement, but go ahead.
Mr. Gossett: Okay.
I... footnote noted.
But the point of 203(a)(3)(B) is to say that you can only limit plans... suspensions in two certain circumstances.
The... if you look at the legislative history of 203(a)(3)(B), though, it discusses how... how employers shouldn't be required to subsidize competitors.
They shouldn't be required to... union employers should not have former union workers going in for work for non-union competitors at lower wages because they're also receiving a pension benefit.
That's what's rife throughout the legislative of ERISA.
But there's nothing in that... that purpose which requires a plan to be able to change the rules, which is what they want.
Justice Breyer: That... that would be an odd purpose.
Now, wait, you're saying that the purpose of this... I have a... a plant where I make trousers and some of my workers have retired early.
And you're saying the purpose of this provision is to make sure that my worker who's retired early doesn't go work for Justice Ginsburg's plant, the trousers, some other plant.
Now, that would be very odd to have that purpose served by the language which I think says by... that... that in the case of a plan other than by an employer who maintains the plan... that is, it's talking about going back to the same plant, isn't it?
Justice Scalia: Am I wrong?
Mr. Gossett: Well, in... there... there are...
Justice Breyer: They're... they're talking about going back to my plant, isn't it?
Mr. Gossett: In the context of a single employer plan, which is...
Justice Scalia: That's... am I right about that?
Justice Breyer: It's talking about going back to my plant, not Justice Ginsburg's plant.
Mr. Gossett: Sorry.
In the single employer plan, it only limit... it's only to prevent double... true double dipping.
What double dipping is, is where you accrued benefits while also receiving benefits from the same plan.
Justice Breyer: I thought that...
Mr. Gossett: That's all you can...
Justice Breyer: if I've retired early and I'm an expert trouser maker, I could go back to work for Justice Ginsburg's plant and nobody would care as far as this provision is concerned.
Mr. Gossett: If your pension fund was a single...
Justice Souter: Yes.
Justice Kennedy: It's my... my...
Mr. Gossett: employer pension fund.
It was not a multiemployer.
Justice Scalia: All right.
Mr. Gossett: But in the multiemployer context, it's... it's only about cross-subsidization.
But the bottom line is that in either of those cases, there's no reason why the pension fund... why the... the fund should be allowed to change the rules.
Justice Breyer: The reason is supposedly... what they say is the reason we want to change the rules is because labor conditions change and whereas in this year where the plant... where the economy is booming, I don't really have a problem, at least my workers don't, with retirees coming back and depressing their wages.
Justice Scalia: Well, it wouldn't be changing the rules, would it, if you said at the beginning these rules can be changed?
Isn't that all your saying, that... that the employer can do it so long as when the plan is established, it is made clear that the rules can be changed?
Mr. Gossett: Not exactly.
Justice Scalia: Then... then you're not changing the rules when you change the rules, so to speak.
Justice Ginsburg: I... I thought your brief was... was candid, Mr. Gossett, and you said you couldn't... you could not do what Justice Scalia just suggested.
You couldn't say up front in the plan, we can amend it anytime back and forth the way we like.
I thought you said quite clearly in your brief that that wouldn't work.
Mr. Gossett: Yes, Justice Ginsburg.
I... I agree completely.
The... the point is that there's no difference between a plan provision that says we can change the suspension rules at any point and reduce them versus a plan provision that says we can reduce your benefit from $1,600 a month to $1,400 a month at any point if we so choose.
Justice Breyer: And the only...
Mr. Gossett: Both of those would... sorry.
Justice Breyer: I want to get the answer to Justice Scalia's before you lose that.
Mr. Gossett: This is...
Justice Breyer: Now, I thought that what he was suggesting was not possible because of the reason of the answer to question 6.
Am I right or wrong?
Mr. Gossett: The answer to question 6 in the... in the regulations is a subsidiary answer.
I think it's by far the less important answer.
Justice Breyer: No, but I want to know first if I'm right or wrong.
Mr. Gossett: Yes.
That is an answer is that it cannot be...
Justice Breyer: I am right.
Mr. Gossett: discretionary on the... to the plan to cut back... to do something because of plan funding.
But the more fundamental answer is that if that were the case, every plan could include a provision that said in just these words, any benefit that we've promised you in this plan can be reduced at a future date at our discretion.
And if a plan could say that and still be valid under ERISA, the anti-cutback rule would be meaningless.
Every plan would... could say that.
So ERISA was passed specifically because historically plans were pulling back benefits, relying on the common law rule that a pension is simply a gratuity.
And the anti-cutback rule is the primary provision in ERISA that was designed to say, no, when a... a participant is promised something, that promise has to be kept.
Chief Justice Rehnquist: Yes, but if... if your hypothesis is that even when it says they're promised nothing, in other words, that they... it can be changed retroactively... you're... you're saying that that is a promise that's not kept?
Mr. Gossett: That is a promise that is kept on the most technical level, of course.
If I'm promised nothing and I'm given nothing, I... I...
Justice Scalia: You can't complain.
Mr. Gossett: one simply can't complain.
But the... the whole goal of ERISA is to require employers to say we're going to... to say we're going to give you this and... and keep their... their word to that.
Justice Scalia: I thought it was 203 that... that provided that guarantee.
I thought it was 203 that prevents you from going too far in what you say you can change.
Mr. Gossett: It is both 203 and 204, Justice Scalia.
Justice Scalia: I don't see how 204 does it.
Mr. Gossett: The... the... Mr. Goldstein tries to differentiate 203 and 204 and argue that they're completely distinct beasts, the one not affecting the other.
That's simply not the case.
As the IRS has said in its regulations, anything that indirectly decreases a benefit is equally violative of 204(g).
And it's easy to come up with... with plan provisions that, quote, forfeit a benefit rather than decrease the benefit, but which obviously reduced the value you get.
I mean, the most obvious example would be a... an amendment that says, each month we're going to flip a coin and decide whether or not you get a check this month.
That benefit would be...
Justice Breyer: My... my true question... it isn't... it isn't... I think there's no easy answer to this case.
And I agree with you that in ordinary English, we'd call this a reduction.
But there is in 203(g)... or, you know, the 203 part we're talking about... there is an obvious purpose to do something that is not consistent with the normal ERISA purposes.
It's right there and it's done for labor reasons.
And you can interpret it either way.
So given the either-way possibility, in my own mind this is where I am.
I'm telling you truthfully.
Mr. Gossett: Thank you.
Justice Breyer: either-way possibility.
Well, they've had this for 20 years.
They have regs that are consistent with it.
People have lived with it.
Go with the administration.
I mean, that's... all right?
So that's... that's where I... that's what I... that's how I'm thinking about it, and I'd like to hear your response to that.
Mr. Gossett: Okay.
I have several responses to that because it's obviously a critical point.
The... the first response is that although the IRS and Mr. Goldstein have told us that this is a longstanding Government position, the only thing they can actually point to that states that position is the Internal Revenue Manual that dates to 2001.
The List of Required Modifications, the LRM, not the IRM, which does go back quite some time earlier, specifically says that it is designed to aid people in drafting or redrafting plans and that the provisions included therein could be useful in some plans, it could be violative in other plans.
So that's not authority by which someone can actually look at an IRS publication and say, this is what we have... the IRS allows.
They say that they've issued letters... determinations that they have allowed these in the past, but those are not due deference under... certainly not under Chevron, probably not even under Skidmore.
Those are sort of individual case determinations and they have put none of these in the record.
And in any event, under section... code section 7805, the IRS says that those can be wrong, and if they're wrong, all it means is the plan can't be disqualified for having done something wrong.
There's... there are no tax implications.
The plan can still owe damages to someone who in fact was hurt by the amendment, but that is itself a small cost in this case.
Mr. Goldstein is engaged... and more to the point, his amici is engaging in hyperbole by saying this is going to bankrupt plans.
In the joint appendix at page 80, the plan... the plan's actuary tells us that exactly seven people's benefits were cut off as a result... suspended as a result of this amendment.
That's out of 5,300 active pensioners, according to the plan's web site at the moment.
We're talking less than two-tenths of 1 percent of people were, in fact, cut... suspended because of...
Justice Ginsburg: But it's not... if your... if your position prevails, then I take it the only way an employer can protect himself against hard times is to say for this class of early retirees, no employment.
Any employment will result in suspension of benefits, and to say for the ones... normal retirees are the ones who are restricted only with respect to the same trade, to make the rule as restrictive as possible.
I think that your... your interpretation forces the employer who wants to protect against hard times to take that view.
Is that not so?
Mr. Gossett: I... I disagree, Justice Ginsburg.
The... from the... the employer's setting up a plan, the essentials of a plan, all they care about is how much money a plan is going to cost them.
And it's a... it's a design decision whether or not you'd rather have a benefit of, say, $2,000 a month with a narrow... a narrower suspension rule or $1,990 a month with a wider suspension rule.
Both of those plans cost the employer the same amount of money.
There's no... the... the details of the number, of course, are... are questions for actuaries.
But the... the design question is one that can be made completely independent of this.
Is it's how important is it to the employer whether people go back to work in other jobs, how important is it to the employees that they can work in specific jobs.
The... while a change in the plan might save the... the plan money, the initial design decision about how restrictive the rules should be isn't a financial question in the... in the slightest.
And in fact, the fact that the change in the plan... the... in the suspension rule, the amendment here saved the plan money, is in fact I think the best evidence of all that the amendment violates the anti-cutback rule.
The anti-cutback rule prevents, quote, a decrease...
Justice Breyer: You're... you're back to the word reduction where I agree with you.
But I would have thought that this... this provision here in 203 really reflects a tension within the union.
The union wants to get benefits for its early retirees, and that argues for going back.
But the union also wants to reflect... or protect the wages of the people who are already there.
And that means that if there is a recession, what we want to do is stop too many people from going back because that might have a depressing effect on the workers who are there.
Now, I put that again because that... that was how I began to understand what was going on in this provision and I want you to be able to say, no, you're wrong.
That isn't what's going on.
Mr. Gossett: What's going on is that... Justice Breyer, is that plans... that... that unions and the employers want to prevent cross-subsidization.
But there's... while it is certainly the case that, at least according to this plan and its amici, they have started to rely on this purported right to deal with changing market conditions, they have no authority for doing so.
The only thing they can point to is one floor statement by Representative Dent after that provision of ERISA, in fact, had been enacted, saying that there might be some change in market conditions which would affect things.
Employers can deal with changing market conditions in the traditional ways.
They can pay more or less money.
And in any event, the thing missing in that approach to 203 is the foundational principle that ERISA is designed to protect participants.
It's not designed to protect plans.
It's designed to protect the participants in the plans.
That's why it... that's why the vesting and accrual rules are very explicit.
And in fact, turning very briefly to the vesting rules, Mr....
Chief Justice Rehnquist: It's certainly designed to protect plans in some respects, the preemption, that sort of thing.
Mr. Gossett: Yes, that's true, but that's largely an indirect way of protecting the plan... the plans and more indirectly the... the participants and more indirectly the participants and more indirectly the Federal fisc because, of course, plans are... are insured by the Pension Benefit Guaranty Board.
Justice Souter: Am I right about this, that... that the... that there is a specific provision in there for the... for the protection of the plans?
I forget what it is, but isn't there a provision that if the plan gets in financial straits, then in fact there... there can... can be an amendment that might otherwise might be allowed, an amendment that would... would save the plan money?
Is that correct?
Or save the employer money so he can continue to contribute to the plan.
Is that correct?
Mr. Gossett: With the... yes, Justice Souter.
With the... with the consent of the Secretary of Labor, with the disclosure...
Justice Souter: Okay.
Mr. Gossett: to the Secretary of Labor and consent, you can pass an amendment in a plan that...
Justice Souter: And that would... that would...
Mr. Gossett: reduces benefits.
Justice Souter: be... that would be a redundancy on... on the argument that your... your colleagues on the other side make then I take it.
On their position, that wouldn't be necessary.
Mr. Gossett: Yes.
Justice Scalia: Yes.
Justice Stevens: Mr. Gossett, would you just make sure I understand one thing correctly?
It's been asked two or three times, but I want to be sure I'm right on it.
The amendment that... the plan provision that Justice Scalia hypothesized which authorized this sort of change... you agree that if you prevail, that kind of plan provision would be impermissible.
Mr. Gossett: I don't think this Court needs to reach the question because the plan in this case doesn't, in fact, include that provision.
Justice Scalia: No, I understand that.
Mr. Gossett: But I think that that plan provision would not be permissible.
Justice Stevens: Yes, I think that's right.
It's still is the same... it doesn't affect your argument, so I just wanted to be sure about that.
Mr. Gossett: Yes, yes, I agree with that.
I... I want to...
Justice Scalia: Because of what?
Just tell me the provision that you think precludes it.
Mr. Gossett: I think that it is on the narrow... on the narrow end... it's a technical level... it's precluded under the IRS's own regulations which point out that you can't have... you can't change conditions in a way that violates missions.
But... but on the more fundamental level, it violates...
Chief Justice Rehnquist: I want the statutory provision.
Justice Scalia: I want the statutory provision that makes that no good.
Justice Breyer: 204(g).
Mr. Gossett: 204(g).
Justice Kennedy: Yes.
Mr. Gossett: 204(g)(1) which says you can't decrease benefits.
And while one can come up with a technical reason... reading of that said that your provision would not violate 204(g)(1), it would read 204(g)(1)... 204(g) out of ERISA because...
Justice Ginsburg: And this is what we were discussing before and you spell this out in your brief, and you were very candid in saying Justice Scalia's solution wouldn't work.
Mr. Gossett: Yes, Justice Ginsburg.
I... I want... I wanted to turn quickly to... to 203(c), the... the amendment provision in the vesting statute that Mr. Goldstein talked about.
There are a couple of things to note about that.
The first and foremost is probably that it shows that 203(a)(1)(B), the... the suspension rule that we're talking about, talks about a plan providing for something.
In 203(c), they talk about a plan amending the rules.
If they had wanted to talk about an amendment in 203(a)(1)(B), they could have.
They... they talked about terms amending things elsewhere in the same provision.
But more fundamentally, Mr. Goldstein is simply wrong that a plan can retroactively de-vest a participant of benefits that had previously vested.
Under 203(c)(1)(A), which is on page 4a of the yellow brief, it... it explains that a plan amendment shall not... shall be treated as not satisfying 203 if the... if the amended amount is less than such a non-forfeitable percentage commuted... computed under the plan without regard to such amendment.
So, for example, if a plan participant had earned 20 percent of their... had a non-forfeitable interest in 20 percent of their accrued benefit and the plan switched from a progression to a... a cliff vesting, where you got everything in 5 years, they could do that, but they couldn't remove your 20 percent.
They could say you don't vest in anything more until the 5-year period, but they couldn't say you lose the 20 percent vested that you already have.
Justice Breyer: I think that they... that the... (c) being there shows no more than, that the words, shall provide, which is the beginning of 203, do not mean shall provide in the original plan.
They must mean shall provide in the original plan or through permissible amendments because if they meant the original plan only, there would be no safety.
Mr. Gossett: The term provide is not in 203(a)(1)(A) and (B), which are the...
Justice Breyer: It says at the very beginning, (A), each pension plan shall provide that.
And as some of... reading some of what you've written, it's as if you think those words mean in the original plan, and... and I think they point to (c) to say it can't mean that.
Mr. Gossett: Justice Breyer, the amendment of a plan is authorized under ERISA section 402(b)(3).
402(b)(3) is the provision of ERISA that says any plan must include a provision that allows amendments.
The amendments that are authorized under 402(b)(3) are then limited by the anti-cutback rule, by the provisions of... of 203, by everything else in ERISA.
The... these specific limitations on amendments, though, are fully... are all read in para materia.
Each... each limitation on amendments applies to every amendment and there's no provision in 203 that says these amendments are allowed.
Justice Breyer: We're back to the circle.
I mean, the... you're quite right.
Every time it talks about the amendments or otherwise, it uses some word like you can't reduce, and the ordinary... it would have been simpler if they had amended that word reduced, wherever it appears, with the same exception they have here in 203.
Then you'd lose definitely and you'd admit it.
On the other hand, they didn't put those words in and that gives the strength to your argument.
But on the other hand, they say, well, yes, that if in fact they didn't mean to read it in, they're really going to reduce the effectiveness of that same kind of thing over in 203, you see, because they just have it for the forfeitability.
They don't have it for the reduction.
Really, please, that doesn't make much sense.
So that's why, you know, I can't get a firm answer out of the language.
Mr. Gossett: I think that the text of the statute is pretty clearly on my side.
The only thing that Mr. Goldstein can point to is this created purpose and supposed longstanding practice of plans to be allowed to change rules retroactively in light of changing market conditions.
But though the plans have been doing that, it's the text of the statute that controls and...
Justice O'Connor: But you do acknowledge that plans have been making these changes and the IRS has been accepting them for purposes of the employer's tax deductions.
Mr. Gossett: I know, Justice...
Justice Kennedy: Is that right?
Mr. Gossett: I know, Justice O'Connor, that they did so in this case.
Beyond that, all we have are statements in the IRS's brief and in the National Coordinating Committee's brief, but they're not actually...
Justice O'Connor: Now, section 203 refers to normal retirement plans.
You take the position that it doesn't cover early retirement.
Mr. Gossett: Section 203(a)(3)(B) doesn't apply to the subsidized portion of early retirement benefits.
The... the... that's obvious because it is an exception to 203(a) which says that your normal retirement is non-forfeitable.
And the Government has taken this position as well.
This is not something that we created.
In the regulation... this is in 29 C.F.R. 2530.203.
The Government explains that a plan can provide that early retirement benefits are suspended for any reason... for any reemployment because 203(a)(3)(B) is defining the universe of possible suspension rules for normal retirement benefits, but it doesn't... doesn't limit the universe of suspension rules for early retirement benefits.
And in fact, in September... on the same amendment that applied to Messrs. Heinz and Schmitt, that... in that same amendment, the plan provided that for benefits accrued after September 30th, 1998, but only sort of prospective benefits, not retroactive benefits, any post-retirement reemployment would lead to those benefits being suspended.
They... and... and this actually follows from the... again, from the IRS's own position.
In the Internal Revenue Manual, the IRS says you can have a provision saying that any work is... is suspensive, but you can only do that prospectively because applying the... such a changed rule retroactively would decrease their benefits.
But to the extent that you can have a rule that says any work is suspensive, that means that 203(a)(3)(B) isn't... just isn't applicable here.
It's not what determines whether or not someone... the rules that a plan can have for early retirement benefits.
A plan can have a...
Justice Ginsburg: Was that distinction made in the Seventh Circuit between the early retirement benefits with regard to the application of 203(a)?
Mr. Gossett: Sorry.
Justice Ginsburg: Was that... was that an argument that you presented to the Seventh Circuit distinguishing the early retirements benefits from normal retirement benefits for 203(a) purposes?
I thought it was... that it was acknowledged in the Seventh Circuit that 203(a) applied to the early retirement benefits as well as the normal... normal retirement benefits.
Mr. Gossett: 203(a) applies to early retirement benefits to the extent that they are the actuarial equivalent, the net present... the financial equivalent of normal retirement benefits, but not to the subsidized portion of... of them.
So... so I think the answer is yes, we did say that in... in the lower court, but I'm not 100 percent sure, Justice Ginsburg.
The... one other point I wanted to... to go over.
Though the plan argues that 204(g) doesn't apply to this change... they say that the change only applies to a reduction in the value of a life annuity... that's not the statutory term.
The... the statutory definition of an accrued benefit, which is in ERISA section 323, is the individual's accrued benefit determined under the plan.
It's whatever the plan promises to the participant that is protected by the plan.
Justice Scalia: You... you say that 204(g) prevents the plan at the outset from rendering itself amendable, but if you agreed with them that 204(g) does not prevent the later amendment, it would also be true that 204(g) does not prevent the employer from the outset at saying that the retirement benefits are amendable.
Isn't that right?
Mr. Gossett: Justice Scalia, it allows an... you can make an amendment...
Justice Scalia: I was making the point earlier that even if we find for you, the employer would... would have a way of... of solving the problem, which is simply at the outset to set forth.
Now, it's very difficult for them to respond to that argument when they say that 204(g) does not stop... does... does not prevent a later change in the plan.
How could it possibly prevent a later change but... not prevent a later change, but prevent a change at the outset and announce that you're going to make a change?
Mr. Gossett: Well, it clearly prevents the later change, which is what is at issue here.
I think it also prevents the earlier change because I think any other reading of the anti-cutback rule reads it out of the statute, but I don't think the Court needs to address that question in this case.
Justice Stevens: But another way of putting Justice Scalia's point is if they're right, it's surprising that they didn't make the point clearer in their plans because it would have been legal to do so.
Mr. Gossett: I don't think... they didn't make this argument below, to the best of my knowledge.
They made this argument that...
Justice Stevens: But I mean if their basic theory of the 204(g) is correct, then all the plans could have solved this problem by saying so expressly so nobody would have been fooled as your clients were.
They could have said in the plan itself, we retain the right to do this.
They say it's just there by statute, but the plan is somewhat ambiguous, and they could have said so expressly if they're right and you're wrong.
Mr. Gossett: Yes.
Justice Stevens: They couldn't have done it if you're right and they're wrong.
Mr. Gossett: That's exactly right, Justice Stevens.
But of course, they didn't.
The... the main provision on amendments in the plan, which is the provision at page 50 of the joint appendix, says that no amendment can decrease the accrued value.
They elsewhere in the plan talk about notifying participants of changes to the plan and discussed that there could be a change, but that change... that doesn't say that there can be a retroactive change.
There could have been a prospective change that loosened the rules.
There could also have been a prospective change that applied to newly accrued benefits because by the terms of that provision, the...
Rebuttal of Thomas C. Goldstein
Chief Justice Rehnquist: Thank you, Mr.... thank you, Mr. Gossett.
Mr. Goldstein, you have 2 minutes remaining.
Mr. Goldstein: Thank you, Mr. Chief Justice, and may it please the Court:
I have four points.
The first deals what kind of promises we can make to participants that they can enforce.
The promise can only go in one direction.
That is, if we promise them we will not change the suspension rules, if they... trustees put that provision in and the employees and the participants rely on it, we... that... to... to change that would violate the plan and they would have a right under 502 to enforce it.
But, Justice Scalia, there is no way that there's a middle ground under which the plans flag for the participants, hey, this is open to a change because 204(g)... if they win, they'll win under 204(g).
204(g) is categorical.
You can't reduce benefits even if you say you're going to.
It's just no way you can do it.
And therefore, the only middle ground is under our provision.
If participants and the trustees want a plan provision, making it a concrete promise, we won't change the rules.
If that's in the plan, it would be enforceable against us.
But it isn't.
Justice Stevens: No, but your plan could have made clear what you say the law otherwise authorizes.
Mr. Goldstein: It could have, although I would say that the provisions cited by the Assistant to the Solicitor General talks about telling a person who is in retirement about a material change in the suspension rules, and that's... that's pretty clear to my mind.
But it's true.
It could have gone... we could have been even more clear, but this is a right, a statutory right, that we have.
Justice O'Connor, Justice Ginsburg, what does 203 cover?
It covers a normal retirement benefit, and usually what we think of as an early retirement benefit, that is, the unsubsidized portion of an... of a early retirement benefit.
The third is it is... Justice Breyer is absolutely right about the purpose of this provision.
We want to be able to adjust to current labor conditions.
And Justice Souter, the statute recognizes that.
203(a) has a special rule for multiemployer plans.
They cover things like construction and labor where the markets change a lot, and they have a much narrower provision in 203 for single employer plans.
But ultimately, I think that this is fairly characterized as ambiguous.
The agency here has an enormous amount of experience in balancing the purposes of these different statutes and knowing what's different between a decrease and a suspension.
Chief Justice Rehnquist: Thank you, Mr. Goldstein.
The case is submitted.
Argument of Speaker
Mr. Speaker: The opinion of the Court in No. 02-891, Central Laborers' Pension Fund versus Heinz will be announced by Justice Souter.
Argument of Justice Souter
Mr. Souter: This case comes to us on writ of certiorari to the United Sates Court of Appeals for the Seventh Circuit.
The Employee Retirement Security Act known as ERISA was intended to protect employees’ justified expectations of receiving the benefits their employers promise them.
To that end, ERISA’s anti-cutback rule prohibits any amendment of an employee pension plan that would reduce a plan participant’s accrued pension benefits.
Respondents Heinz and Schmitt are retired construction workers covered by a multi employer pension plan that is administered by the petitioner, Central Laborers' Pension Fund.
When Heinz and Schmitt retired, the terms of their pension plan allowed them to receive pension benefits and still take post-employment work as construction supervisors, as they did.
In 1998 however, the plan was amended to prohibit supervisory work and Heinz and Schmitt’s pension benefits were suspended when they refused to quit their jobs.
The question is whether ERISA’s anti-cutback rule prohibits applying the 1998 plan amendments to Heinz and Schmitt.
We must decide, in other words, whether the plan reduced already accrued benefits when it expanded the categories of post-retirement employment that triggers suspension of those benefits.
In an opinion filed with the Clerk today, we hold that the amendment did reduce accrued benefits and accordingly we affirm the Seventh Circuit.
As a matter of commonsense, a participant’s benefits cannot be understood without reference to the conditions imposed on receiving those benefits.
An amendment placing materially greater restrictions on the receipt of the benefits therefore reduces the benefit just as surely as a decrease in the size of the monthly pension benefits.
Heinz and Schmitt worked in accrued pension benefits under a plan with terms allowing them to supplement retirement income by working as construction supervisors and they were being reasonable if they relied on those terms in planning their retirement.
The 1998 amendment undercut any such reliance paying retirement income only if the respondents accepted a substantial curtailment of their opportunity to do the kind of work they knew.
We simply do not see how, in any practical sense, this change of terms could not be viewed as shrinking the value of the respondents’ pension rights and reducing the benefits that they had already earned.
Our reading is confirmed by an internal revenue service regulation that it adopts justice reading of ERISA’s anti-cutback rule.
The regulation allows employers to modify the pension packages they are offering to their employees so long as any changes applies solely to the portion of an employee’s retirement benefits earned his compensation for future employment.
The IRS regulations treats such a plan modification very differently however when an employer attempts to add new conditions to the receipt of benefits already accrued.
The rule in that case is categorical, “the addition of objective conditions with respect to a pension benefit that is already accrued violates the anti-cutback rule.”
So far as the IRS regulations are concerned, the any anti-cutback provision flatly prohibits plans from attaching new conditions to benefits that an employee has already earned.
The fact that the Internal Revenue Service has taken different positions and less formal settings is not relevant here.
Speaking in its authoritative voice, the IRS has long since approved the interpretation of the ani-cutback rule that we adopt today.
Justice Breyer has filed a concurring opinion in which the Chief Justice and Justices O’Connor and Ginsburg joined.