16‐723‐cv
Morrone v. The Pension Fund of Local No. One, I.A.T.S.E.
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
August Term 2016
(Argued: February 21, 2017 Decided: August 14, 2017)
Docket No. 16‐723‐cv
VINCENT MORRONE,
Plaintiff‐Appellant,
v.
THE PENSION FUND OF LOCAL NO. ONE, I.A.T.S.E.,
Defendant‐Appellee.*
ON APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK
Before:
KEARSE, HALL, AND CHIN, Circuit Judges.
* The Clerk of Court is respectfully directed to amend the official caption to
conform to the above.
Appeal from a judgment of the United States District Court for the
Southern District of New York (Crotty, J.), entered pursuant to an opinion and
order granting summary judgment dismissing plaintiff‐appellantʹs claim that an
amendment to a pension plan violated the anti‐cutback provisions of the
Employee Retirement Income Security Act, 29 U.S.C. § 1001 et seq.
AFFIRMED.
ROBERT L. LIEBROSS, Law Office of Robert L.
Liebross, New York, New York (Edgar
Pauk, Law Office of Edgar Pauk, Brooklyn,
New York, on the brief), for Plaintiff‐
Appellant.
FRANKLIN K. MOSS (Denis P. Duffey Jr., Nicholas
J. Johnson, on the brief), Spivak Lipton LLP,
New York, New York, for Defendant‐
Appellee.
CHIN, Circuit Judge:
Plaintiff‐appellant Vincent Morrone appeals from a judgment of the
United States District Court for the Southern District of New York (Crotty, J.),
dismissing his claim that an amendment to a pension plan offered by defendant‐
appellee the Pension Fund of Local No. One, I.A.T.S.E. (the ʺPension Fundʺ),
violated the anti‐cutback provisions of the Employee Retirement Income Security
2
Act, 29 U.S.C. § 1001 et seq. (ʺERISAʺ). We conclude that the amendment did not
violate ERISAʹs anti‐cutback rule, and we therefore affirm.
BACKGROUND
The facts are largely undisputed and are summarized here in the
light most favorable to Morrone.
Morrone is a stagehand and a member of Local One of the
International Alliance of Theatrical Stage Employees (the ʺUnionʺ). He
participates in a ʺdefined benefit planʺ (the ʺPlanʺ), see 29 U.S.C. § 1002(35),
offered by the Pension Fund and is thus a ʺparticipantʺ in the parlance of ERISA,
see 29 U.S.C. § 1002(7). From 1970 until 1996, Morrone earned benefits under the
Plan; in 1997, he stopped working Union jobs and therefore stopped earning
benefits; and in 2012, he resumed earning benefits when he returned to Union
work. The principal question presented is whether a 1999 amendment to the
Plan violated ERISAʹs anti‐cutback rule, 29 U.S.C. § 1054(g), which prohibits a
pension fund from reducing or eliminating certain earned benefits.
Among other benefits, the Plan provides participants with a
ʺNormal Pensionʺ ‐‐ a monthly benefit, payable beginning at age sixty‐five. The
Normal Pension is based on two related concepts: pension credits and accrual
3
rates. Under the Plan, a participant accrues a ʺpension creditʺ for each calendar
year in which he earns a minimum threshold amount of income from ʺCovered
Employment,ʺ i.e., qualifying work for an employer who is covered by the
Unionʹs collective bargaining agreements and who contributes to the Plan. 1 The
Planʹs Board of Trustees (the ʺBoardʺ) sets an ʺaccrual rateʺ for each pension
credit, expressed in terms of dollars per month. Not all pension credits are
assigned the same accrual rate. Typically, the Board sets accrual rates for
pension credits earned in more recent years higher than those earned in earlier
years. Furthermore, when the Planʹs investments perform well the Board
occasionally exercises its discretion to raise retroactively the accrual rates for past
years of pension credit. The monthly amount of a participantʹs Normal Pension
is the sum of the products of each pension credit and its corresponding accrual
rate.
To illustrate, take a hypothetical case where a participant earned
pension credits from 1988 until 2013 and then retired. Under the most recent
1 The threshold amounts for the relevant years (in parentheses) are as
follows: $4,000 (1961 through 1977), $6,000 (1978 through 1981), $9,000 (1982 through
1984), $12,000 (1985), $15,000 (1986 through 1992), $18,000 (1993 through 1994), $20,000
(1995 through 2001), $25,000 (2002 through 2004), $30,000 (2005), and $35,000 (2006 and
later).
4
version of the Plan, pension credits earned from 1961 to 1990 have an accrual rate
of $75 per month and pension credits earned from 1991 to 2014 have an accrual
rate of $100 per month. Accordingly, upon retirement, such a hypothetical
participantʹs monthly benefit would be $2,525 ‐‐ comprised of three pension
credits (for Covered Employment from 1988 to 1990) at $75 per month plus
twenty‐three pension credits (for Covered Employment from 1991 to and
including 2013) at $100 per month.
The example presumes that the participant is entitled to current
accrual rates for all of the pension credits that he earned from 1988 to 2013. This
is because in the hypothetical the participant left Covered Employment just once
(upon retirement) and, under the terms of the Plan, unless an exception applies, a
participant is entitled to the accrual rates ʺin effect at the time [he] ultimately
separates from Covered Employment.ʺ J. App. 413. Morrone calls this feature of
the Plan a ʺliving pension.ʺ Appellantʹs Br. at 4.
Of course, stagehands like Morrone often leave and then later return
to Covered Employment. This practice led to the possibility that a participant
could leave Covered Employment, wait until the Board retroactively increased
accrual rates, and then return to Covered Employment for just a year to qualify
5
for the higher rates. And so the Plan included rules governing how a participant
could bridge a hiatus in Covered Employment and reactivate his living pension.
The crux of the partiesʹ dispute here is whether Morrone may do so under the
rule in effect when he first left Covered Employment in 1996 or whether he must
satisfy a stricter rule under a 1999 amendment to the Plan. The two rules are
discussed, in turn.
Before 1994, the Plan contained the so‐called ʺParity Rule.ʺ That rule
provided as follows:
If a Participant does not earn [pension credit] based
upon Covered Employment in two or more consecutive
calendar years (the ʺhiatus periodʺ) and thereafter
retires without having resumed work in Covered
Employment and earning at least as many years of
[pension credit] after such resumption as the number of
consecutive years in such hiatus period, the amount of
benefit to which such Participant will be entitled will be
based upon the monthly benefit accrual rate in force
immediately prior to the start of such hiatus period but
subject to the minimum pension benefit amount in force
on the effective date of the award.
J. App. 285. Simply put, under the Parity Rule a worker with a break in Covered
Employment of two or more years in length could bridge that gap and reactivate
his living pension as to pension credits earned before the break by working in
Covered Employment for at least as many years after the break as the length of
6
the break itself. For example, a worker who takes a three‐year hiatus could
reactivate the living pension by returning to Covered Employment for three
years. A worker who, like Morrone, takes a fifteen‐year hiatus would have to
return to Covered Employment for fifteen years to reactivate the living pension.
In 1994, the Plan was amended to include the so‐called ʺFive Year
Rule.ʺ That rule provided as follows:
A Participant who returns to Covered Employment
[after a hiatus] and earns at least five consecutive years
of [pension credit] shall be entitled to a pension amount
determined under the terms of the Plan and benefit
levels in effect at the time the Participant ultimately
separates from Covered Employment.
J. App. 413. Under the Five Year Rule, a worker who takes a three‐year hiatus
must return to Covered Employment for five years to reactivate the living
pension for pension credits earned pre‐hiatus. Likewise, a worker who, like
Morrone, takes a fifteen‐year hiatus must return to Covered Employment for just
five years to do so (as opposed to fifteen years under the Parity Rule).
As noted, Morrone accrued pension credits under the Plan from
1970 until 1996 and then went on a fifteen‐year hiatus. When Morrone left
Covered Employment in 1996, the operative version of the Plan contained the
Five Year Rule; the accrual rate for the pension credits earned from 1970 to 1990
7
was $50 per month; and the accrual rate for the pension credits earned from 1991
to 1996 was $70 per month. By amendment dated January 1, 1999 (the ʺ1999
Amendmentʺ), the Plan removed the Five Year Rule and reinstated the Parity
Rule.
Morrone returned to Covered Employment in 2012, and, by then, the
Board had raised accrual rates for pension credits earned from 1970 to 1990 to
$75 per month and for pension credits earned since 1990 to $100 per month. On
January 14, 2013, Morrone wrote the Plan director to request an estimate of the
monthly benefits he would receive should he retire in 2017. After a protracted
back and forth with the director not relevant to this appeal, the estimate Morrone
received applied the Parity Rule: Pension credits that he earned from 1970 to
1990 were assigned a $50 per month accrual rate (the rate in effect in 1996, when
he began his hiatus); those earned from 1991 to 1996 were valued at $70 per
month (also the 1996 rate); and those earned since 2012 were valued at $100 per
month (the current rate), for a total monthly benefit of $1,770.2 The director
determined that because Morrone had taken a fifteen‐year hiatus and would
have returned to Covered Employment for only six years as of 2017, he was not
2 The estimate presumed Morrone would earn pension credits through the
year 2014, rather than 2017.
8
entitled to the current accrual rate for the pension credits he earned before his
hiatus.
Morrone filed an appeal with the Board, seeking current accrual
rates for all of his pension credits and not just those he earned since returning to
Covered Employment in 2012. The difference is indeed material. Applying the
Five Year Rule would give Morrone an extra $705 per month or $8,460 per year
above the estimate provided by the Plan director. The Board denied Morroneʹs
appeal and his subsequent request to reconsider.
On October 14, 2014, having exhausted his administrative remedies,
Morrone filed this action below against the Pension Fund, seeking declaratory
relief to clarify his rights to future pension benefits under ERISA. See 29 U.S.C.
§ 1132(a)(1)(B) (providing that a civil action may be brought by a participant ʺto
clarify his rights to future benefits under the terms of the planʺ). Specifically,
Morrone alleged that the 1999 Amendment reinstating the Parity Rule was an
illegal reduction of accrued benefits or retirement‐type subsidies under ERISAʹs
ʺanti‐cutback rule.ʺ 29 U.S.C. § 1054(g).
The parties filed cross‐motions for summary judgment on April 24,
2015. On February 10, 2016, the district court granted the Pension Fundʹs motion
9
and denied Morroneʹs motion. It concluded that ʺthe 1999 [A]mendment did not
reduce ʹa retirement‐type subsidy . . . with respect to benefits attributable to
service before the amendment,ʹʺ as prohibited by 29 U.S.C. § 1054(g), ʺbecause
the benefits Morrone contests are attributable to service after the amendment.ʺ
Morrone v. Pension Fund of Local No. 1, I.A.T.S.E., No. 14 Civ. 8197, 2016 WL
554844, at *2 (S.D.N.Y. Feb. 10, 2016). Moreover, the district court held that the
1999 Amendment also did not decrease an ʺaccrued benefitʺ because it merely
ʺmodified the conditions under which Morrone could accrue additional benefits
in the future; it did not modify the benefits Morrone had already accrued in the
past.ʺ Id. Accordingly, the district court entered judgment in favor of the
Pension Fund.
This appeal followed.
DISCUSSION
The questions presented are whether, by removing the Five Year
Rule and reinstating the Parity Rule, the 1999 Amendment impermissibly
reduced (1) an ʺaccrued benefitʺ or (2) a ʺretirement‐type subsidy,ʺ in violation of
ERISAʹs anti‐cutback provision. 29 U.S.C. § 1054(g).
10
I. Applicable
A e Law
A.
A Stand
dard of Re
eview
We review de n
novo the district courrtʹs summaary judgmeent ruling,
ʺconstru
uing the ev
vidence in the light m
most favorrable to thee non‐mov
ving party and
drawing all reaso
onable inferrences in [[his] favor..ʺ Mihalik v. Credit A
Agricole
Cheuvreeux N. Am., Inc., 715 F
F.3d 102, 1
108 (2d Cirr. 2013); accord Fallin v.
Common
nwealth Ind
dus., Inc., 6
695 F.3d 51
12, 516 (6th
h Cir. 20122) (reviewin
ng de novo the
district courtʹs enttry of sum
mmary judg
gment on g hat a plan amendmen
grounds th nt
did not violate ER
RISAʹs antii‐cutback rrule). A m
movant is en
ntitled to ssummary
judgmeent if ʺtheree is no gen
nuine dispu
ute as to an
ny materiaal fact and
d the movaant is
entitled
d to judgment as a matter of law
w.ʺ Fed. R
R. Civ. P. 56(a).
B.
B ERIS
SAʹs Anti‐C
Cutback R
Rule
ERISA was ena
acted ʺto en
nsure that employeees will not be left em
mpty‐
handed
d once emp
ployers hav
ve guarantteed them certain beenefits.ʺ Loockheed Corrp. v.
Spink, 5
517 U.S. 882
2, 887 (199
96). Its purrpose is to ʺmak[e] sure that if a worker has
been prromised a d nefit upon rretirementt ‐‐ and if h
defined peension ben he has
fulfilled
d whateverr condition
ns are requ
uired to ob
btain a vestted benefitt ‐‐ he actu
ually
will receive it.ʺ N
Nachman Coorp. v. Penssion Benefitt Guar. Corrp., 446 U.S
S. 359, 375
11
(1980). The statuteʹs so‐called ʺanti‐cutback ruleʺ is ʺcrucialʺ to this purpose.
Cen. Laborersʹ Pension Fund v. Heinz, 541 U.S. 739, 744 (2004). In fact, Congress
amended the rule with the Retirement Equity Act of 1984 to clarify that it
protects accrued benefits, as well as early retirement benefits, retirement‐type
subsidies, and optional forms of benefits. See id. at 744; 29 U.S.C. § 1054(g)(1)‐(2).
As amended, the anti‐cutback rule provides as follows:
(g) Decrease of accrued benefits through amendment of
plan
(1) The accrued benefit of a participant under a plan
may not be decreased by an amendment of the plan
[except in certain circumstances not present here].
(2) For purposes of paragraph (1), a plan amendment
which has the effect of ‐‐
(A) eliminating or reducing an early retirement
benefit or a retirement‐type subsidy (as defined in
regulations), or
(B) eliminating an optional form of benefit,
with respect to benefits attributable to service before
the amendment shall be treated as reducing accrued
benefits. In the case of a retirement‐type subsidy, the
preceding sentence shall apply only with respect to a
participant who satisfies (either before or after the
amendment) the preamendment conditions for the
subsidy.
29 U.S.C. § 1054(g)(1)‐(2). Examining the statuteʹs text reveals that the anti‐
cutback rule has two important features.
12
First, the rule principally protects those benefits that a participant
has earned, rather than those that he might earn in the future. See Heinz, 541 U.S.
at 747 (ʺSo far as the IRS regulations [that interpret § 1054(g)] are concerned . . .
the anti‐cutback provision flatly prohibits plans from attaching new conditions to
benefits that an employee has already earned.ʺ (emphasis added)). This is because,
except for ʺthe case of a retirement‐type subsidyʺ (which we will discuss below),
the plain text of the statute prohibits only an amendment which (1) decreases an
ʺaccrued benefitʺ or (2) ʺeliminat[es] or reduc[es] an early retirement benefit . . . or
. . . an optional form of benefit . . . with respect to benefits attributable to service
before the amendment.ʺ 29 U.S.C. § 1054(g)(1)‐(2) (emphases added). Accordingly,
save changes that impact retirement‐type subsidies, ʺemployers 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.ʺ Heinz, 541 U.S.
at 747 (emphasis added).
Second, the rule privileges substance over form. See id. at 744‐45.
Again, the plain text of the statute focuses on ʺthe effect ofʺ a plan amendment,
i.e., whether it decreases, eliminates, or reduces benefits or subsidies. 29 U.S.C.
§ 1054(g)(2) (emphasis added). This focus on the ʺeffectʺ of plan amendments
13
means that a court must consider whether, ʺin any practical sense, [the] change of
terms could [] be viewed as shrinking the value of [a participantʹs] pension rights
and reducing his promised benefits.ʺ Heinz, 541 U.S. at 745. For example, in
Central Laborersʹ Pension Fund v. Heinz, the Supreme Court rejected any formal
distinction between, on the one hand, ʺplacing materially greater restrictions on
the receipt of [a] benefit,ʺ and on the other, ʺa decrease in the size of the monthly
benefit paymentʺ itself because, ʺas a matter of common sense, a participantʹs
benefits cannot be understood without reference to the conditions imposed on
receiving those benefits.ʺ Id. at 744 (alteration and internal quotation marks
omitted). At bottom, ʺ[t]he real question is whether . . . at the moment the new
[amendment] is imposed, the accrued benefit [or retirement‐type subsidy]
becomes less valuable.ʺ Id. at 746.
II. Application
With these principles in mind, we turn to Morroneʹs arguments on
appeal that the 1999 Amendment violated the anti‐cutback rule. We consider
whether the 1999 Amendment decreased, first, Morroneʹs accrued benefits, and,
second, a retirement‐type subsidy.
14
A. Accrued Benefits
Morrone argues that the 1999 Amendment impermissibly reduced
his accrued benefits. First, he contends that applying the Parity Rule instead of
the Five Year Rule plainly decreased his accrued benefits because it reduced the
accrual rates for the pension credits he earned from 1970 to 1996. Second, he
avers that the ʺrightʺ to reactivate the living pension feature under the Five Year
Rule is itself a benefit that he accrued by working in Covered Employment from
1994 to 1996, when the Five Year Rule was in effect. Both of these arguments fail.
Morroneʹs first argument is inconsistent with the Supreme Courtʹs
instruction in Heinz that, ʺ[i]n a given case,ʺ a court must evaluate the effect of a
plan amendment ʺat the moment the new condition is imposed.ʺ 541 U.S. at 746.
As noted above, Morrone accrued pension credits by earning the requisite
amount of income from Covered Employment in each year from 1970 to 1996. It
is therefore undisputed that, in 1999, when the Plan was amended, he was
entitled to receive pension benefits based on his service from 1970 to 1996 ‐‐ those
pension credits were unquestionably an ʺaccruedʺ portion of Morroneʹs benefit.
The parties dispute what accrual rates Morrone was entitled to receive for these
15
accrued pension credits. Under Morroneʹs interpretation,3 the terms of the Plan
before the 1999 Amendment provided that the ʺpension to which a Participant is
entitled shall be determined under the terms of the Plan and [the accrual rates] in
effect at the time the Participant separates from Covered Employment,ʺ i.e., in
1996, unless he satisfies the Five Year Rule, in which case he ʺshall be entitled to
. . . [the accrual rates] in effect at the time [he] ultimately separates from Covered
Employment,ʺ i.e., in 2017. J. App. 413 (Article II, Section 16).
Morrone separated from Covered Employment in 1996. In 1999,
when the Plan was amended, Morrone had neither returned to Covered
Employment, nor had he earned at least five consecutive years of pension credit
thereafter. As a result, he was entitled to the accrual rates in effect in 1996, when
he separated from Covered Employment and began his fifteen‐year hiatus. In
other words, in 1999, even under the version of the Plan that Morrone prefers ‐‐
the one containing the Five Year Rule ‐‐ Morrone had earned only the accrual
rates in effect in 1996. Thus, in accordance with Heinz, the 1999 Amendment did
not violate the anti‐cutback rule because Morroneʹs ʺaccrued benefit [did not]
3 The Pension Fund offers a conflicting interpretation of the preamendment
version of the Plan, arguing that, even if the Five Year Rule applies, it does not benefit
Morrone. But we need not reach this argument because, as we shall see, even if
Morroneʹs interpretation is correct, there was no reduction of his accrued benefits.
16
become[] less valuableʺ ʺat the moment the [1999 Amendment was] imposed.ʺ
541 U.S. at 746. Indeed, Morrone will receive exactly the benefits he was entitled
to receive under the pre‐1999 Amendment‐version of the Plan, namely, the
accrual rates in effect in 1996 for the pension credits he earned from 1970 to 1996.
Morroneʹs second argument is that the ʺrightʺ to reactivate his living
pension under the Five Year Rule is itself a benefit that he accrued by working in
Covered Employment from 1994 to 1996. This argument is belied by the text of
the statute. As is relevant to this appeal, ERISA provides that ʺ[t]he term
ʹaccrued benefitʹ means . . . in the case of a defined benefit plan, the individualʹs
accrued benefit [1] determined under the plan and . . . [2] expressed in the form
of an annual benefit commencing at normal retirement age.ʺ 29 U.S.C.
§ 1002(23)(A). Morrone fails to show how his purported ʺrightʺ under the Five
Year Rule satisfies either prong of this definition.
As to the first prong, the Supreme Court has noted that ERISA
ʺrather circularly defines ʹaccrued benefitʹ as ʹthe individualʹs accrued benefit
determined under the plan.ʹʺ Heinz, 541 U.S. at 744 (quoting 29 U.S.C.
§ 1002(23)(A)). Faced with this circularity in Heinz, the Supreme Court examined
the terms of the plan before it to determine if a benefit was impermissibly
17
reduced in violation of the anti‐cutback rule. See id. at 744‐45. Likewise, the
Sixth Circuit has ʺpostulated that rather than give a comprehensive definition of
ʹaccrued benefits,ʹ Congress chose to leave the responsibility of delineating the
bounds of the term to ʹthe employer and the employee through the agreed‐upon
terms of the plan document.ʹʺ Deschamps v. Bridgestone Ams., Inc. Salaried Emps.
Ret. Plan, 840 F.3d 267, 279‐80 (6th Cir. 2016) (quoting Thornton v. Graphic
Commcʹns Conf. of the Intʹl Bhd. of Teamsters Supplemental Ret. & Disability Fund,
566 F.3d 597, 608 (6th Cir. 2009)). In light of this delegation of responsibility, the
Sixth Circuit reasoned that it should ʺlook to the terms of the Plan in ascertaining
which, if any, benefits . . . accrued prior to the [challenged] amendment.ʺ Id. at
280. Accordingly, we do the same.
Here, the version of the Plan in effect before the 1999 Amendment
does not define the term ʺaccrued benefit.ʺ But it does provide that the ʺterm
ʹPension Creditʹ shall mean the years of [pension credit] for service in Covered
Employment which are accumulated and maintained for Employees in
accordance with the provisions of Article III of this Pension Plan.ʺ J. App. 395.
Article III, in turn, articulates the rules governing the accrual of pension credits,
vesting rights, breaks in service, and other events that impact a participantʹs
18
status under the Plan, including hiatuses from Covered Employment. Moreover,
as noted previously, the Plan states that a participantʹs monthly Normal Pension
benefit is the sum of the products of each pension credit and its corresponding
accrual rate. None of these provisions, however, supports Morroneʹs contention
that the ability to qualify for current accrual rates under the Five Year Rule or the
Parity Rule constitutes a ʺbenefitʺ that he accrues under the Plan. Rather, we
agree with the district court that the Five Year Rule and the Parity Rule are
ʺconditions under which Morrone could accrue additional benefits in the futureʺ;
they are not ʺaccrued benefitsʺ themselves. Morrone, 2016 WL 554844, at *2.
As to the second prong, the statute defines ʺaccrued benefitʺ in part
as one capable of being ʺexpressed in the form of an annual benefit commencing
at normal retirement age.ʺ 29 U.S.C. § 1002(23)(A). Indeed, ERISAʹs benefit
accrual requirements provide that an ʺaccrued benefit under a defined benefit
plan must be valued in terms of the annuity that it will yield at normal
retirement age.ʺ Esden v. Bank of Boston, 229 F.3d 154, 163 (2d Cir. 2000)
(construing 29 U.S.C. § 1054(c)(3)). Morrone has made no attempt to show that
his ʺrightʺ to reactivate his living pension under the Five Year Rule or the Parity
Rule is capable of being valued in that way. And we are doubtful that he could
19
make such a showing, which would require speculative assumptions about, inter
alia, the likelihood that the Board would raise accrual rates in the future, the
amount of any such increase, the years of pension credit to which the increases
would redound, and the likelihood that any given participant would accrue the
requisite years of pension credit after his hiatus. In other words, we reject
Morroneʹs contention ʺthat we should take a broad view of accrued benefits that
would include a right to have his benefit calculated as ifʺ the Five Year Rule were
still in effect. Arndt v. Sec. Bank S.S.B. Emps.ʹ Pension Plan, 182 F.3d 538, 541 (7th
Cir. 1999) (rejecting a similar argument with respect to disability benefits).
For these reasons, we conclude that, even if the Plan conferred on
participants a ʺrightʺ to reactivate the ʺliving pensionʺ feature after a hiatus in
Covered Employment, such right does not constitute an ʺaccrued benefitʺ as that
term is defined in ERISA. 29 U.S.C. § 1002(23)(A). Accordingly, the 1999
Amendment did not violate § 1054(g)(1) of the anti‐cutback rule.
B. Retirement‐Type Subsidy
Morrone next argues that the higher accrual rates he seeks constitute
a ʺretirement‐type subsidyʺ and, consequently, he should be permitted to satisfy
ʺthe preamendment conditions for the subsidy,ʺ 29 U.S.C. § 1054(g)(2), by
20
earning five pension credits under the Five Year Rule rather than the fifteen
required by the Parity Rule. We are not persuaded.
The anti‐cutback rule protects retirement‐type subsidies ʺonly with
respect to a participant who satisfies (either before or after the amendment) the
preamendment conditions for the subsidy.ʺ Id. We have read this ʺprovision as
straightforwardly applying to participants . . . who qualified for the subsidy
before the [challenged] amendment or who could do so afterwardsʺ under the
terms of the plan before the amendment. Alcantara v. Bakery & Confectionery
Union & Indus. Intʹl Pension Fund Pension Plan, 751 F.3d 71, 77 (2d Cir. 2014).
Furthermore, because ʺan amendment placing materially greater restrictions on
the receipt of [a] benefit reduces the benefit just as surely as a decrease in the size
of the monthly benefit payment,ʺ Heinz, 541 U.S. at 744 (internal quotation marks
omitted), the Plan may not lawfully apply the Parity Rule in place of the Five
Year Rule if the higher accrual rates that Morrone seeks constitute a ʺretirement‐
type subsidy,ʺ see 29 U.S.C. § 1054(g)(2). We conclude they do not.
ERISA does not define ʺretirement‐type subsidy.ʺ Instead, Congress
delegated authority to the Treasury Department to define the term. See 29 U.S.C.
§ 1054(g)(2) (prohibiting ʺa plan amendment which has the effect of . . .
21
eliminating or reducing . . . a retirement‐type subsidy (as defined in regulations)ʺ
(emphasis added)); Bellas v. CBS, Inc., 221 F.3d 517, 524 (3d Cir. 2000) (ʺCongress
contemplated that the Treasury Department would promulgate regulations
setting forth the definition of retirement‐type subsidy.ʺ). The Treasury
Department did not exercise that authority until 2005 when, acting through the
Internal Revenue Service (ʺIRSʺ), it promulgated regulations defining
ʺretirement‐type subsidy.ʺ See Section 411(d)(6) Protected Benefits, 70 Fed. Reg.
47,109 (Aug. 12, 2005). By their terms, those IRS regulations apply to plan
amendments adopted on or after August 12, 2005 and thus do not apply to the
1999 Amendment. See 26 C.F.R. § 1.411(d)–3(j) (2016). Nonetheless, both
Morrone and the Pension Fund rely on the regulations as persuasive authority
and therefore we consider them here. The regulations define ʺretirement‐type
subsidyʺ as follows:
The term retirement‐type subsidy means the excess, if any,
of the actuarial present value of a retirement‐type
benefit over the actuarial present value of the accrued
benefit commencing at normal retirement age or at
actual commencement date, if later, with both such
actuarial present values determined as of the date the
retirement‐type benefit commences. Examples of
retirement‐type subsidies include a subsidized early
retirement benefit and a subsidized qualified joint and
survivor annuity.
22
26 C.F.R. § 1.411(d)–3(g)(6)(iv) (first emphasis in original and second emphasis
added).
A fundamental concept encompassed by this definition is that a
retirement‐type subsidy is an amount in addition to or in excess of a participantʹs
normal retirement benefit. In that regard, the regulation accords with the
ordinary meaning of the word ʺsubsidyʺ as used in this context, i.e., ʺa payment
of an amount in excess of the usual charge for a service.ʺ Websterʹs Third New
International Dictionary of the English Language Unabridged 2279 (1968) (emphasis
added). It also comports with relevant legislative history. In describing the
scope of 29 U.S.C. § 1054(g)(2), the Senate Report on the bill that would become
the Retirement Equity Act of 1984 makes clear that a ʺbenefit subsidyʺ is ʺthe
excess of the value of a benefit over the actuarial equivalent of the normal
retirement benefit.ʺ S. Rep. No. 98‐575, at 28 (1984) (emphasis added). Decisions
of our sister circuits are also in accord. For example, the Third Circuit has
ʺdefined a retirement‐type subsidy to be the excess in value of a benefit over the
actuarial equivalent of the normal retirement benefit.ʺ Bellas, 221 F.3d at 525
(emphasis added). In sum, the ordinary meaning of the word ʺsubsidy,ʺ the
legislative history, existing case law, and IRS regulations lead us to conclude that
23
an essential characteristic of a retirement‐type subsidy is that it is an amount in
excess of a participantʹs normal retirement benefit. Accordingly, if the higher
accrual rates that Morrone seeks are not in excess of or in addition to his normal
retirement benefit, then they are not a ʺretirement‐type subsidyʺ protected by
§ 1054(g)(2) of the anti‐cutback rule.
Turning to the text of the Plan, we conclude that, even under
Morroneʹs preferred interpretation, the higher accrual rates that he seeks would
constitute his normal retirement benefit and not an amount in excess of it.
Therefore, those higher accrual rates are not a retirement‐type subsidy. To recap,
Article II, Section 16, entitled ʺApplication of Benefit Increases,ʺ provides that
ʺ[t]he pension to which a Participant is entitled shall be determined under the
terms of the Plan and benefit levels in effect at the time the Participant separates
from Covered Employment.ʺ J. App. 413. Article III, Section 11, entitled
ʺProtracted Absence of Participant from Covered Employment,ʺ contains the
Parity Rule: A worker with a hiatus in Covered Employment of two or more
years in length is entitled to ʺthe monthly benefit accrual rate in force
immediately prior to the start ofʺ the hiatus, unless he returns to Covered
Employment for at least as many years as the length of the hiatus itself. J. App.
24
431. Morrone argues, however, that the Five Year Rule is a ʺpreamendment
conditionʺ to his receipt of the higher accrual rates in effect when he plans to
retire in 2017, and thus he should be permitted to qualify for those higher rates
under the Five Year Rule in accordance with 29 U.S.C. § 1054(g)(2).
Morrone is correct that the accrual rates he seeks via application of
the Five Year Rule are greater than those he is entitled to receive under the Parity
Rule. But those higher accrual rates are not an amount in excess of his normal
retirement benefit. Under the terms of the Plan, they would constitute his normal
retirement benefit if he satisfied the Planʹs conditions for receiving them. That is
because, regardless of whether the Five Year Rule or the Parity Rule applies, the
Plan states that ʺthe monthly amount of [Morroneʹs] Normal Pension will be
determined byʺ calculating the sum of the products of each pension credit he
earned and its corresponding accrual rate, as determined in accordance with the
text of the Plan. J. App. 401; see also 29 U.S.C. § 1002(22) (defining ʺnormal
retirement benefit,ʺ in relevant part, as ʺthe benefit under the plan commencing
at normal retirement ageʺ). Accordingly, the 1999 Amendment did not place
greater restrictions on the receipt of a retirement‐type subsidy. Instead, it merely
changed the conditions under which Morrone could earn a larger normal
25
retirement benefit in the future. Thus, the 1999 Amendment is not prohibited by
§ 1054(g)(2) of the anti‐cutback rule because it does not reduce a retirement‐type
subsidy.
* * *
Congress enacted robust protections for pensioners by expanding
the anti‐cutback rule in 1984. The rule specifically protects pensionersʹ accrued
benefits, early retirement benefits, retirement‐type subsidies, and optional forms
of benefits. But, contrary to Morroneʹs arguments on appeal, the anti‐cutback
rule does not command that a pensionerʹs benefits be determined under the
version of the plan that is most generous to him. Employers remain ʺperfectly
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.ʺ Heinz,
541 U.S. at 747. That is exactly what happened in this case.
CONCLUSION
To summarize, we conclude that the 1999 Amendment did not
decrease Morroneʹs accrued benefits. Moreover, the higher benefit accrual rates
that Morrone demands are not a ʺretirement‐type subsidyʺ ‐‐ rather, they would
constitute his normal retirement benefit if he satisfied the conditions to receiving
26
them, namely, the Parity Rule. Accordingly, we conclude that the 1999
Amendment did not violate ERISAʹs anti‐cutback rule, 29 U.S.C. § 1054(g). We
have considered Morroneʹs remaining arguments and conclude they are without
merit.
We therefore AFFIRM.
27