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Protection for Early Retirement Benefits

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New Rule Will Preserve Reemployment Rights

Under a final regulation issued by the Treasury Department, a change in pension plan rules limiting reemployment rights of certain early retirees will not affect pension benefits earned before the rule change.

The final regulation interprets a United States Supreme Court case, Central Laborers’ Pension Fund v. Heinz that involved construction workers who took early retirement at a time when their plan said that they could return to work in supervisory jobs and continue to receive their pensions. After they retired and while they were working in supervisory jobs their pension plans’ rules were changed to require suspension of their benefits if they continued to work. The construction workers sued, and in June 2004, the Supreme Court issued a decision saying that since they had earned their early retirement pensions before the rules were changed, their benefits could not be suspended.

Several issues were left open by the Supreme Court’s decision. One had to do with the rights of workers who had retired before the date of the Court’s decision. Another issue related to the rights of employees who had not retired at the time their plans changed the rules.

In May 2005, the Treasury Department announced in a revenue procedure bulletin that as long as pension plans were modified to preserve the reemployment rights of people working after June 2004, their legality would not be challenged by the Internal Revenue Service under the federal tax laws. The announcement, in the form of a revenue procedure, left it up to retirees to decide whether to go to court to challenge the legality of changes in suspension rules that occurred before June 2004 under the federal pension laws.

On August 9, 2006 the Treasury issued the final regulation clarifying that the Heinz case ruling applies to already retired individuals as well as any portion of a special early retirement benefit that a current worker has earned as of the date a plan was changed.  The new rule took effect on August 9, 2006.

On October 5, 2006 a federal appeals court took the Heinz case even further.  The U.S. Court of Appeals for the Second Circuit in Swede v. Rochester Carpenters Pension Fund ruled that the plan must pay benefits retroactive to the date the benefits were suspended, even if that occurred years before the Heinz case was decided.  Although the Swede ruling currently only holds precedent in New York and Connecticut, other courts around the country could adopt the ruling.

Read the Heinz decision
Read the revenue procedure bulletin
Read the final regulation
Read the Swede decision

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