Opposition Brief — Central Laborers' Pension Fund v. Heinz

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FEB 10 2003

No. 02-891

Jn the Supreme Court of the United States

CENTRAL LABORERS’ PENSION FUND,

Petitioner,

- THOMAS E. HEINZ and RICHARD J. SCHMITT, JR.

Respondents.

On Petition for a Writ of Certiorari to the

United States Court of Appeals for the Seventh Circuit

BRIEF FOR THE RESPONDENTS IN OPPOSITION

GERY R. GASICK CHARLES A. ROTHFELD

Associated Bank Bldg. DAVID M. GOSSETT

Suite 1600 Counsel of Record

411 Hamilton Blvd. Mayer, Brown, Rowe & Maw

Peoria, IL 61602 1909 K Street, NW

(309) 674-0202 Washington, DC 20006

(202) 263-3000

Counsel for Respondents

QUESTION PRESENTED

Under the “anti-cutback” rule contained in_ section

204(g)(1) of the Employee Retirement Income Security Act

of 1974 (“ERISA”), 29 U.S.C. § 1054(g)(1), “[t]he accrued

benefit of a participant under a plan may not be decreased by

an amendment of the plan,” unless that amendment is author-

ized under two sections of ERISA not relevant here. ERISA

section 204(g)(2)(A), added by the Retirement Equity Act of

1984, clarifies that “(flor purposes of” this anti-cutback rule,

“a plan amendment which has the effect of * * * eliminating

or reducing an early retirement benefit or a retirement-type

subsidy * * * with respect to benefits attributable to service

before the amendment shall be treated as reducing accrued

benefits,” and thus is also prohibited.

The question presented is whether, when an ERISA pen-

sion plan is amended to expand the categories of “‘disqualify-

ing” post-retirement employment that “suspend” early

retirement benefits under the plan, it violates ERISA’s anti-

cutback rule to apply that amendment to plan participants

who had already retired, were already receiving benefits, and

were already working in forms of post-retirement employ-

ment that were non-disqualifying under the pnor version of

the plan but were disqualifying under the amendment.

TABLE OF CONTENTS

Page

is ec errceeeememscas I

ee iv

EE l

REASONS FOR DENYING THE PETITION...................... 9

I. THERE IS NO NEED FOR THIS COURT TO

RESOLVE THE PURPORTED CIRCUIT SPLIT

Ee 9

Il. PETITIONER VASTLY OVERSTATES THE

IMPORTANCE OF THIS CASE TO PENSION

iI iaelteiainecedepueecneatibeneseesesenesesecosecceessescesosesceceescoes 13

Ill. THE DECISION BELOW IS PLAINLY

IIIT lati coaenddiabieneticntedeibinndensenencsscenecscssasccovecsecses 15

ine thdindentesirvemdenboapacceneseoseenceneccescvecesecees 20

(III)

TABLE OF AUTHORITIES

Page(s)

CASES

Alcorn Cty. v. U.S. Interstate Supplies, 731 F.2d 1160

le se sosccsnesenesecoesnsesesensenensesesesess 10

Bellas v. CBS, Inc., 221 F.3d 517 (3d Cir. 2000)................ 6

Egelhoff v. Egelhoff, 532 U.S. 141 (2001) ...........cccccccceees 11

Fort Halifax Packing Co. v. Coyne,

ee Oe crenetrcennetrsinieiinninienatnitmnnanaiiie 11,12

Great-West Life & Annuity Ins. Co. v. Knudson,

og A 1

Harms v. Cavenham Forest Indus., Inc.,

984 F.2d 686 (Sth Cir. 1993)... eetecceeeeeeeees 10, 11

Hickey v. Chicago Truck Drivers, Helpers &

Warehouse Workers Union, 980 F.2d 465

SCRE SPIE rxiserperenesensennceisuiciebuianeiniiniicinaisniassiiihiintinita 16

Hughes Aircraft Co. v. Jacobson, 525 U.S. 432

SET sinianasintasnetintacieepenansicosmadenisneensilennmeaniuninnsiasitesidia 5,13

Lockheed Corp. v. Spink, 517 U.S. 882 (1996).............0006: 3

Lucky-Goldstar, Int'l (America), Inc. v. Phibro

Energy Int'l, Ltd., 958 F.2d 58 (Sth Cir. 1992)........... 10

Mertens v. Hewitt Assocs., 508 U.S. 248 (1993) ................ 2

Michael v. Riverside Cement Co. Pension Plan,

es | ae 16

Nachman Corp. v. Pension Benefit Guar.

Ca, SED ee FOP ccs rsctectnencermansnmcs ye

Spacek v. Maritime Ass'n, I L A Pension Plan,

134 F.3d 283 (Sth Cir. 1998)..................ccecceeseees passim

TABLE OF AUTHORITIES — continued

Page(s)

United States v. Texas Tech. Univ., 171 F.3d 279

Un UII anscsinescietscanidesdaiesspeinietendaeiacieanemniaesiinainiaiteneemstsincidie 10

Varity Corp. v. Howe, 516 U.S. 489 (1996).............cceeeee 2

STATUTES, RULES AND REGULATIONS

ris UN incnsstnccseshnemnennianiciniatinteiitinsittenatetamenaiananiens 4

Employee Retirement Income Security Act of 1974

(“ERISA”), 29 U.S.C. § 1001 ef seq. .............00000 passim

ERISA § 3, 29 U.S.C. § 10022............2.22000000+s socsesmnoes 2,3

ERISA § 203, 29 U.S.C. § 1053................ 1, 2,3, 17,18

ERISA § 204, 29 U.S.C. § 1054..0.0........ceeeeeeeeee passim

NR BL el 4, 13

ERISA § 4281, 29 U.S.C. § 1441 ..........00cccsecccserceeesseeses 4

Economic Growth and Tax Relief Reconciliation

Act of 2001, Pub. L. No. 107-16, § 645(b)(2),

Sy. RIT ssercsisinhestaieetihinsininnpnnnansuatinanaiiiainninds 12,15

Pub. L. No. 93-406, Tit. I, § 204(g),

STITT ITT coset ncssisiaialdestiiadineetinttalersaasneanmineanemenentmaiettiaae 4

Retirement Equity Act of 1984 (“REA”)

§ 301(a)(2), Pub. L. No. 98-397,

FB BREE, BOB caccccccvccsccscccesscesnsvesccccccsasnscsasees I, 4, 5, 18, 19

pM ea 18

es eR siiriicnncccsenenacinneniiienendsincnnninnans 3, 18

MISCELLANEOUS

120 Cong. Rec. 29,197 (1974)

eee 12

TABLE OF AUTHORITIES -— continued

EBRI, FUNDAMENTALS OF EMPLOYEE

BENEFIT PROGRAMS (3d ed. 1987) ....................000000 2,3

Robert B. Lamb, Early Retirement Benefits and

the Arbitrary and Capricious standard Under

ERISA in Spacek v. Maritime Ass’n,

32 CREIGHTON L. REV. 1721 (1999) ........................24. 11

JOHN H. LANGBEIN & BRUCE A. WOLK, PENSION

& EMPLOYEE BENEFIT LAw (3d ed. 2000)............ 2,3,4

S. REP. No. 98-575, reprinted in

EER OT TN 4

ROBERT L. STERN £7 AL, SUPREME COURT

ETERS Career 12

BRIEF FOR THE RESPONDENTS IN OPPOSITION -

The anti-cutback rule of the Employee Retirement In-

come Security Act of 1974 (“ERISA”), 29 U.S.C. § 1001 er

seq., section 204(g),' prevents a pension fund from promul-

gating an amendment that “has the effect of * * * eliminating

or reducing an early retirement benefit,” if that benefit is “at-

tributable to service before the amendment.” In this litiga-

tion, the Seventh Circuit held that an amendment that

changed the conditions under which a pension fund can “sus-

pend” already-accrued benefits violates this anti-cutback

rule.

The Seventh Circuit’s decision is entirely faithful to the

statute’s language, and is plainly correct. Although — as peti-

tioner stresses at length — it is true that in Spacek v. Maritime

Association, IL A Pension Plan, 134 F.3d 283 (Sth Cir.

1998), the Fifth Circuit held that “suspending” pension bene-

fits is not a form of “reducing” or “eliminating” those bene-

fits, and thus does not violate the anti-cutback rule, the

Spacek decision is in considerable tension with earlier Fifth

Circuit precedent and therefore may not be binding even in

that Circuit. Petitioner’s broad assertions about the impor-

tance of this litigation to pension fund administration like-

wise have no merit. Thus, there is no reason for this Court to

grant review. |

STATEMENT

1. ERISA “is a ‘comprehensive and reticulated statute,

the product of a decade of congressional study of the Na-

tion’s private employee benefit system.’” Great-West Life &

Annuity Ins. Co. v. Knudson, 122 S. Ct. 708, 712 (2002)

' Following convention, throughout this brief we cite by ERISA

section number rather than to ERISA’s codification in the U.S.

Code. The two sections that we mainly discuss - ERISA sections

203 and 204 — are codified at 29 U.S.C. §§ 1053, 1054.

(quoting Mertens v. Hewitt Assocs., 508 U.S. 248, 251

(1993) (quoting Nachman Corp. v. Pension Benefit Guar.

Corp., 446 U.S. 359, 361 (1980))). It is a commonplace that

ERISA does not require an employer to provide its employ-

.ees with any specific benefits. See, e.g., Pet. App. 5a-6a.

ERISA does, however, extensively regulate benefits once

those benefits are provided. Thus, “ERISA protects em-

ployee pensions and other benefits by providing insurance

(for vested pension rights), specifying certain plan character-

istics in detail (such as when and how pensions vest), and by

setting forth certain general fiduciary duties applicable to the

management of both pension and nonpension benefit plans.”

Varity Corp. v. Howe, 516 U.S. 489, 496 (1996) (citations

omitted); see also Pet. App. 6a.

For example, among ERISA section 203’s various re-

quirements for retirement plans are limits on a pension fund’s

discretion in how it may condition the receipt of retirement

benefits based on whether a participant has resumed em-

ployment after initially retiring (and beginning to collect re-

tirement benefits). Where a participant is covered by and

receiving benefits under an ERISA pension fund sponsored

by a single employer, the plan may suspend retirement bene-

fits only if the employee resumes working for the “employer

who maintains the plan under which [the retirement] benefits

were being paid” (ERISA § 203(a)(3)(B)(i)) — in other words,

resumes working for the original employer — and only for the

period during which the participant is so reemployed. J/bid.

In the case of participants in a “multiemployer plan,” retire-

> ERISA section 3(37) defines a multiemployer plan as a plan

“maintained pursuant to one or more collective bargaining agree-

ments” between a union or unions and employers, “to which more

than one employer is required to contribute.” Multiemployer plans

“are common in industries with many small companies, each too

smal] to justify an individual plan. They are also found in indus-

tries where, because of seasonal or irregular employment and high

labor mobility, few workers would qualify under an individual

ment benefits may be suspended only if the participant re-

sumes work in a job “in the same industry, in the same trade

or craft, and the same geographic area covered by the plan, as

when such benefits commenced,” and again only during the

period in which the participant is engaged in this disqualify-

ing employment. ERISA § 203(a)(3)(B)(ii).°

2. As this Court has repeatedly explained, “when

Congress enacted ERISA it ‘wanted to ... make sure that ifa

worker has been promised a defined pension benefit upon

retirement — and if he has fulfilled whatever conditions are

required to obtain a vested benefit — he actualiy will receive

it.”” Lockheed Corp. v. Spink, 517 U.S. 882, 887 (1996)

(quoting Nachman, 446 U.S. at 375). Thus, ERISA provides,

for example, a host of funding and vesting rules to protect

participants’ promised benefits. See page 2, supra; Pet. App.

6a. But the most direct protection of workers’ reasonable

company’s plan (if one were established).” JOHN H. LANGBEIN &

BRUCE A. WOLK, PENSION & EMPLOYEE BENEFIT LAW 62-63 (3d

ed. 2000) (quoting EBRI, FUNDAMENTALS OF EMPLOYEE BENEFIT

PROGRAMS 55-59 (3d ed. 1987)).

Although a plan is required to abide by section 203’s suspen-

sion rules in the case of “normal” retirement benefits — that is, re-

tirement benefits available to an employee who has reached the

normal retirement age, either as defined in the plan or under ER-

ISA’s default “normal” retirement age of 65 (see ERISA § 3(24)) —

these rules do not apply to “early” retirement benefits. Thus, the

Department of Labor’s regulations implementing section 203 spec-

ify that “[a] plan may provide for the suspension of pension bene-

fits which commence prior to the attainment of normal retirement

age * * * for any reemployment and without regard to the provi-

sions of section 203(a)(3)(B) and this regulation to the extent (but

only to the extent) that suspension of such benefits does not affect

a retiree’s entitlement to normal retirement benefits payable after

attainment of normal retirement age, or the actuarial equivalent

thereof.” 29 C.F.R. § 2530.203-3(a).

reliance interests is the “anti-cutback” rule contained in

ERISA section 204(g).

As originally enacted, section 204(g) provided that, with

narrow exceptions, “(t]he accrued benefit of a participant un-

der a plan may not be decreased by an amendment of the

plan.” Pub. L. No. 93-406, Tit. I, § 204(g), 88 Stat. 858

(emphasis added).* Because of the way accrued benefits

were defined under ERISA, this provision “did not prevent

the reduction of a plan’s alternative schedule of benefits for

workers who retired early.” JOHN H. LANGBEIN & BRUCE A.

WOLK, PENSION & EMPLOYEE BENEFIT LAW 164 (3d ed.

2000). Congress legislatively cured this omission in 1984,

by amending ERISA section 204(g). The existing general

rule was renumbered as section 204(g)(1), and a new subsec-

tion 204(g)(2) was added, which provided that:

For purposes of paragraph (1), a plan amendment

which has the effect of -

(A) eliminating or reducing an early retire-

ment benefit or a retirement-type subsidy (as

defined in regulations)

* * *

with respect to benefits attributable to service before

the amendment shail 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

* Reductions in benefits were allowed “with the consent of the

Secretary of Labor, in the event of a substantial business hardship,

(sec. 412(c)(8) of the [Internal Revenue] Code [and the parallel

section 302 of ERISA]) or [under] the rules permitting a reduction

of benefits in the case of certain multiemployer plans (sec. 4281 of

ERISA).” S. REP. No. 98-575, at 30, reprinted in 1984

U.S.C.C.A.N. 2547, 2576.

the amendment) the preamendment conditions for

the subsidy.

Retirement Equity Act of 1984 (“REA”) § 301(a)(2), Pub. L.

No. 98-397, 98 Stat. 1451 (emphasis added).

3. The Central Laborers’ Pension Fund (“the Fund”) is a

multiemployer pension fund whose participants are mainly

construction workers in central Illinois. The Fund is a

“qualified” pension plan governed by ERISA. Participants

are entitled to a variety of retirement benefits under the Fund;

in particular, the Fund offers a traditional retirement pension

(available to participants aged 65 or older), as well as two

distinct forms of early-retirement benefits. All three are “de-

fined benefit” plans.°

Eligibility for the first of the two types of early-

retirement benefits is tied to a combination of the partici-

pant’s age and the time period during which he or she con-

tributed to the Fund. For example, since October 1, 1993, a

participant has been eligible to retire at age 53 if at that age

he has earned five “pension credits” under the Plan (see Plan

§ 3.5(a)°), which are accrued based on the number of years

> A “defined benefit” retirement plan “is one where the em-

ployee, upon retirement, is entitled to a fixed periodic payment.”

Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, 439 (1999) (cita-

tion and internal quotation marks omitted). “‘[T]he employer typi-

cally bears the entire investment risk” in a defined benefit plan.

Ibid. Defined benefit plans contrast with “defined contribution

plans,” which are “one[s] where employees and employers may

contribute to the plan, and the employee receives whatever level of

benefits the amount contributed on his behalf will provide.” Jbid.

(citation and internal quotation marks omitted).

® The Fund filed the “Restated Plan Rules and Regulations,” as

restated effective October 1, 1994 (herein referred to as the

“Plan”) — along with amendments thereto — in the district court as

Appendix I to its February 7, 2000, Motion for Summary Judg-

ment.

that the participant has worked for employers who participate

in the Fund and the number of hours the participant worked

for these employers in each of those years.

The other form of early-retirement benefit, which the .

Fund calls a “Service-Only Pension,” depends only on the

number of years of “vesting service” or the number of “pen-

sion credits” that the participant has accrued. Participants

may retire and receive their “service-only” pension once they

have accumulated 30 “pension credits,” regardless of their

age at the time of retirement. The pension a participant re-

ceives each month under the “service-only” program is the

same amount as he would receive each month under the nor-

mal retirement plan. See Pet. App. 4a. Thus, because statis-

tically an early retiree is expected to receive his pension for a

longer period than someone retiring at the “normal” age, the

“service-only” pension is a “retirement-type subsidy” as that

term is used in ERISA. See Bellas v. CBS, Inc., 221 F.3d

$17, 525 (3d Cir. 2000).

4. Thomas E. Heinz and Richard J. Schmitt, Jr., are each

participants in the Fund. Pet. App. 4a. As of 1996, each had

accrued at least 30 “pension credits,” and thus had met all of

the conditions to retire and to receive his “service-only” pen-

sion. Both did so. Jbid. Under the terms of the Fund when

Messrs. Heinz and Schmitt retired, the service-only pension

was to be suspended if a participant worked in specified

“disqualifying employment.” Although working as a union

The formula for determining the number of pension credits a

participant obtains in any given year has changed over time, and

the details are irrelevant. But as an example, a participant could

receive up to 2 pension credits during 1995, depending on the

number of creditable hours that he worked during that calendar

year. Participants working more than 2000 creditable hours re-

ceived 2.0 pension credits; those working between 1900 and 1999

creditable hours received 1.9 pension credits, and so on. See Plan

§ 4.1(a)(1).

Or non-union construction worker was disqualifying under

the plan as it then existed (see ibid.), it is uncontroverted that

working as a supervisor in the construction industry was not

“disqualifying employment.” See Pet. 4; Pet. App. 5a. After

retiring as construction workers, both respondents began

working as supervisors in the construction industry, while —

as the plan allowed — collecting their early-retirement pen-

sions.

Two years after respondents retired, the Fund amended

the terms of the plan to expand the definition of disqualifying

employment for purposes of early-retirement benefits. Under

this 1998 amendment, the Fund would suspend early retire-

ment benefits for work “in any capacity in the construction

industry (either as a union or non-union construction

worker). See Pet. App. 5a. Although this amendment fo-

cused on “construction worker(s],” the Fund interpreted the

amendment to prchibit employment even in a supervisory

capacity in the construction industry. The plan also con-

strued the amendment to apply to participants who had al-

ready qualified for early-retirement benefits prior to the

amendment. Because Messrs. Heinz and Schmitt continued

to work as supervisors in the construction industry, the Fund

suspended their early retirement pension benefits.

5. After exhausting intra-Fund avenues for review of the

decision to suspend their benefits, Messrs. Heinz & Schmitt

brought suit in the Central District of Illinois. They claimed

that the retroactive application of the 1998 Amendment to

suspend their benefits violated the plain terms of the anti-

cutback rule in ERISA section 204(g), which precludes

amendments that “ha[ve] the effect of eliminating or reduc-

ing an early retirement benefit.” In the alternative, they ar-

gued that the Fund acted arbitrarily and capriciously in

interpreting the 1998 amendment to render their employment

disqualifying, because the amendment by its terms is limited

to employment as a (union or non-union) “construction

worker,” rather than as a supervisor in the construction in-

dustry.

6. On cross-motions for judgment on the pleadings, the

district court ruled in the Fund’s favor. See Pet. App. 33a-

45a. The Seventh Circuit reversed. See Pet. App. 3a-3la.

Accoruing to the court of appeals,

plaintiffs’ loss of the option of working as construc-

tion supervisors was a reduction of their early re-

tirement benefits within the meaning of [section

204(g)(2)]. A participant’s benefits cannot be un-

derstood without reference to the conditions im-

posed on receiving those benefits, and an

amendment placing materially greater restrictions

on the receipt of the benefit “reduces” the benefit

just as surely as a decrease in the size of the

monthly benefit payment.

Pet. App. 9a. The court rejected the Fund’s attempt to dis-

tinguish between suspensions of benefits and other reduc-

tions. As the court explained,

{a]lthough witi: a suspension the interruption in

benefit payments is temporary, the retiree never re-

covers the payments lest during the employment pe-

riod. The amendme:it thus “eliminates” monthly

benefit payments for participants who take certain

jobs after retiremen’ and “reduces” the participant's

total early retiremen: benefits by an amount deter-

mined by how long the disqualifying work contin-

ues. Plaintiffs lost a valuable night they had earned

before the amendment - the nght to continue to

work in the industry while receiving monthly bene-

fit payments — and that loss was permanent.

Pet. App. 10a.

The court considered the Fifth Circuit’s decision in

Spacek v. Maritime Association, IL A Pension Plan, 134

eT ee eee Oe ae eee ie ee

en Oe RE ee Sree ieee

F.3d 283 (Sth Cir. 1998), on which the district court had re-

lied, but found it unconvincing. Pet. App. 1la-22a. In par-

ticular, the court disputed the notion that its decision would

render the word “suspension” redundant elsewhere in ERISA

(Pet. App. 12a-15a), explained that an offhand comment by

Representative Clay in the final House debates over REA

was ambiguous at best and in any event due little weight

(Pet. App. 16a-17a), and found a Treasury Regulation relied

on by Spacek to be irrelevant to the interpretation of the ap-

propriate scope of the anti-cutback rule (Pet. App. 18a-20a).

Having ruled for respondents on statutory grounds, the court

did not reach respondents’ alternative, arbitrary-and-

capricious, argument. See Pet. App. 23a. Judge Cudahy dis-

sented. See Pet. App. 24a-3 1a.

REASONS FOR DENYING THE PETITION

This litigation does not warrant the Court’s review. Al-

though petitioner stresses that the decision below conflicts

with the Fifth Circuit’s decision in Spacek, that is insufficient

to justify certiorari. It is doubtful whether Spacek would in

fact be binding even in the Fifth Circuit, and in any event

only two courts of appeals have analyzed the question pre-

sented. Moreover, petitioner’s attempt to portray this litiga-

tion as being of great importance to pension plans is

completely overblown. Finally, the Seventh Circuit’s deci-

sion is entirely consistent with both the language and the

purpose of the anti-cutback rule, and is plainly correct.

I. THERE IS NO NEED FOR THIS COURT TO RE-

SOLVE THE PURPORTED CIRCUIT SPLIT AT

THIS TIME.

Petitioner stresses that ERISA should be interpreted con-

sistently nationwide, and asserts that “the conflict between

the Fifth and Seventh Circuits with regard to the anti-cutback

rule will result in exactly the kind of balkanization of pension

rules which ERISA was designed to prevent” (Pet. 7). How-

ever, there may very well not be a circuit split for this Court

to resolve. Although the Spacek court held that an amend-

ment that led to the “suspension” of early retirement benefits

was not barred by the anti-cutback rule (see 134 F.3d at 288-

291), the court seems to have based that decision in some

part on a fundamental misunderstanding of the status of

early-retirement benefits under the anti-cutback rule. In the

process, the court failed to follow earlier Fifth Circuit prece-

dent on the status of early-retirement benefits. But in the

Fifth Circuit, “[w]here two panel decisions conflict, the prior

decision constitutes the binding precedent.” United States v.

Texas Tech. Univ., 171 F.3d 279, 286 n.9 (Sth Cir. 1999)

(emphasis added); see also Lucky-Goldstar, Int'l (America),

Inc. v. Phibro Energy Int'l, Lid., 958 F.2d 58, 60 (Sth Cir.

1992) (“[uJnder the law of [the Fifth] circuit,” where two

panel decisions conflict “the earlier panel opinion controls”’)

(citing Alcorn Cty. v. U.S. Interstate Supplies, 731 F.2d

1160, 1166 (Sth Cir. 1984)). No petition for rehearing was

filed in Spacek, and neither the Fifth Circuit itself nor any

district court within the Fifth Circuit has relied on the rele-

vant portion of that case. Thus, it is unclear whether Spacek

in fact describes the law even in the Fifth Circuit.

As petitioners have repeatedly admitted® - and as the

Seventh Circuit held in this case (Pet. App. 18a-19a) — early

retirement benefits are treated as accrued benefits for pur-

poses of section 204(g). In 1993, the Fifth Circuit also ex-

pressly held that early retirement benefits are “accrued

benefits” under the anti-cutback rule. See Harms v. Caven-

See, e.g., Seventh Circuit Brief and Argument of Defendant-

Appellee Central Laborers’ Pension Fund, at 8 (Nov. 30, 2000)

(“The Fund, as it did before the District Court, agrees that early

retirement benefits have accrued status.”); Answer § 16 (“ad-

mit[ting] the factual allegations of Paragraph 16 of Plaintiffs’

Complaint,” which alleged that “(t]he monthly retirement benefits

received by Plaintiffs prior to the 1998 Amendment are accrued

benefits”).

ham Forest Indus., Inc., 984 F.2d 686, 691-692 (Sth Cir.

1993). Despite Harms, the Spacek court refused to acknow!l-

edge that early retirement benefits are accrued benefits for

purposes of section 204(g). See 134 F.3d at 291 (“early re-

tirement benefits * * * may or may not be fully accrued”)

(emphasis added). But if early-retirement benefits are treated

as accrued benefits for purposes of the anti-cutback rule — as

the Harms court held and as the Seventh Circuit held in this

case — then suspending those benefits “reduces” the total

amount of accrued benefits, and thus violates the anti-

cutback rule. See Robert B. Lamb, Early Retirement Benefits

and the Arbitrary and Capricious Standard Under ERISA in

Spacek v. Maritime Ass’n, 32 CREIGHTON L. REV. 1721,

1748-1749 (1999) (“Harms would support Spacek’s argu-

ment that [section 204(g)] shields him from subsequent

amendments.”); see also Pet. App. 18a-19a.

Because it is the earlier case, future panels in the Fifth

Circuit are obligated to follow Harms rather than Spacek. But

since Harms suggests that Spacek was wrong as a matter of

circuit precedent, the conflict petitioner identifies may not

exist. Not even district courts in the Fifth Circuit are bound

by Spacek to the extent Spacek conflicts with earlier circuit

precedent. Given the serious possibility that future courts in

the Fifth Circuit may not consider Spacek to be binding, this

Court’s attention to the supposed split of authority is not nec-

essary. The question whether amendments that expand the

scope of the suspension of early retirement benefits violate

the anti-cutback rule can always be addressed in the future,

after it becomes evident that the courts of appeals are in fact

divided on the issue.

In any event, the case law petitioners cite to stress the

need to prevent the “balkanization” of ERISA law — Fort

Halifax Packing Co. v. Coyne, 482 U.S. 1 (1987), and Egel-

hoff v. Egelhoff, 532 U.S. 141 (2001) — involves the disrup-

tion that might arise were states allowed to pass their own

employee benefit laws that were inconsistent with ERISA.

As the Court explained in Fort Halifax, ERISA’s preemption

provision was designed to “‘eliminat[e]} the threat of conflict-

ing and inconsistent State and local regulation.’ Fort Hali-

fax, 482 U.S. at 9 (quoting 120 Cong. Rec. 29,197 (1974)

(statement of Rep. Dent)) (emphasis added).

Unlike instances where states have passed laws address-

ing subjects governed by ERISA ~ where, unless the courts

intervene, plans will be, and will remain, subject to inconsis-

tent rules — the difference in interpretation of the anti-cutback

rule between the Fifth and Seventh Circuits, even if it exists,

is of much less moment. In particular, only two courts of

appeals have analyzed the question presented here. Allowing

other courts to consider the issue, in a variety of distinct fac-

tual situations, might lead the lower courts to resolve the pur-

ported circuit split. And if not, the additional attention of

these courts to the question would assist this Court were it

eventually to consider the issue. See ROBERT L. STERN £7

4L., SUPREME COURT PRACTICE 229-230 (8th ed. 2002). ER-

ISA covers an immense vanety of pension plans; this Court

would be well advised to wait until lower courts have con-

fronted the applicability of the anti-cutback rule to plan

amendments that purport to “suspend” benefits in a wider

vanety of factual scenanos before addressing the issue.

Finally, Congress recently amended section 204(g) to au-

thonze amendments that reduce benefits — but only if those

amendments met specific conditions. In particular, Congress

ordered the Secretary of the Treasury to issue regulations al-

lowing plans to promulgate amendments that “reduce[{] or

eliuminate[]} benefits or subsidies which create significant bur-

dens or complexities for the plan and plan participants, unless

such amendment adversely affects the rights of any partici-

pant in a more than de minimis manner.” Economic Growth

and Tax Rehef Reconciliation Act of 2001, Pub. L. No. 107-

lo, § O45¢bM 2), LLS Stat. 125-126 (2001) (emphasis added).

Neither the Fifth nor the Seventh Circuit has analyzed this

amendment, and in particular the Fifth Circuit has not had the

opportunity to determine whether it undermines that court's

previous interpretation of the anti-cutback rule. Granting

certiorari before the Fifth Circuit has the opportunity to con-

sider whether this statutory amendment alters its analysis

would be premature.

Il. PETITIONER VASTLY OVERSTATES THE IM-

PORTANCE OF THIS CASE TO PENSION

PLANS.

Petitioner errs in portraying (at Pet. 8-11) this litigation

as being one with far-reaching consequences to pension

funds nationwide. Much of petitioner's argument for the im-

portance of this case relies on hypothetical instances where

“the financial integnty” of a plan might be at msk were a

plan's administrators not able to amend the plan. See Pet. 8,

_10. The problem with this argument is that there already ex-

ists a “substantial business hardship” exception to the anti-

cutback rule, which authonzes pension funds — with the per-

mission of the Secretary of Labor - to amend a plan to reduce

accrued benefits to protect a fund’s financial integrity. See

ERISA § 302(c\8).” This escape hatch exists specifically for

those instances where a pension fund might not otherwise be

able to fulfill its obligations. But except for such extreme

instances, the very choice to create a defined-benefit plan

rather than a defined-contnbution plan entails the conscious

decision that the plan (and the employers who fund it) may

be subjected to additional financial burdens if some predic-

tion — for example, expected rates of return of the fund's in-

vestments in the market or, as in this case, the number of

employees who will chuose to accept early retirement — tums

out to be wrong. See Hughes Aircraft, 525 U.S. at 439. That

* In this case petitioner did not seek to amend its plan under the

“substantial business hardship” rules. See Pet. App. 7a.

such predictions at times turn out to be incorrect is a neces-

sary fact of life, rather than a cause for concern.'”

Petitioner also claims that the supposedly “irreconcilable

rulings of Spacek and Heinz” will wreak havoc on the ad-

ministration of large plans, with “[t}he administrator of such

a fund fac({ing] the daunting task of properly applying” the

rules of each of these cases. Pet. 9. According to petitioner,

“htigation would seem to be inevitable regardless of how the

administrator attempts to apply these conflicting decisions to

[a nationwide} plan.” /bid. But there is nothing irreconcil-

able about administering a plan subject to both of these deci-

sions, Spacek in no way requires a plan to “suspend” accrued

benefits. Thus, those few pension funds that might be di-

rectly subjected to litigation in both the Fifth and Seventh

Circuits should not rely on Spacek — assuming, as we dis-

cussed above (at page 10-11), that Spacek is even controlling

in the Fifth Circuit. Although these plans might prefer peti-

tioner’s rule, it belies reason to imply that nor promulgating

an amendment that would be authonzed under Spacek but not

acceptable in the Seventh Circuit would somehow require

inconsistent plan administration, or subject such a plan to

ligation.

Finally, petitioner (at Pet. 10-11) seeks to portray this

litigation as important by focusing on the Seventh Circuit’s

explanation that “an amendment placing materially greater

restrictions on the receipt of the benefit ‘reduces’ the benefit

In any event, an amendment expanding limitations on post-

retirement reemployment is unlikely to protect the financial well

being of a pension plan, because under such an amendment par-

ticipants are still enutled to retire and collect thew pensions. Ev a

under the amended version of the plan at issue in this litigation,

Messrs. Heinz and Schmitt are entitled to receive their pensions —

“yeopardiz[ing}” “the financial integnty” of the Fund (Pet. 8) -

merely by choosing to stop working altogether, or even simply by

going to work in an unrelated industry.

> A)

just as surely as a decrease in the size of the monthly benefit

payment.” Pet. App. 9a. According to petitioner, “[t}he po-

tential disparate interpretation of ‘materiality’ among circuits

fundamentally threatens the integral uniformity of ERISA.”

Pet. 10-11. But the key word in that sentence is “potential.”

There are no disparate interpretations of what constitutes a

“materially greater restriction” for this Court to review.

Rather, petitioner has focused on a portion of the Seventh

Circuit's explanation for why amendments that expand the

criteria for suspending benefits violate the anti-cutback rule.

Until and unless that explanation has itself been shown to

cause any problem in the administration of ERISA, this

Court should instead focus on what the Seventh Circuit in

fact decided: amendments that expand when pension benefits

may be “suspended” violate the anti-cutback rule. That deci-

sion is not the broad “‘anti-amendment’ rule” (Pet. 10) about

which petitioner complains. |

lll. THE DECISION BELOW IS PLAINLY CORRECT

Review in this case is also unnecessary because the Sev-

enth Circuit’s decision is based on the only plausibly defen-

sible interpretation of the anti-cutback rule. If there were any

doubt about the correctness of the decision below, a simple

hypothetical should eliminate it entirely: Under petitioner's

approach, a plan would be entitled to promulgate an amend-

ment “suspending” a// early retirement benefits for 18

months, without violating the anti-cutback rule. Nothing in

'' The recent amendment to section 204(g) discussed above (at

page 12, supra), also helps demonstrate that the Seventh Circuit's

decision will not wreak havoc on ERISA plans. Rather, the Sev-

enth Circuit’s supposed “materiality” standard (Pet. 10), which

petitioner portrays as an “‘anti-amendment’ rule” (ibid), 1s quite

similar to Congress's authorization for plan amendments only to

the extent that they cause no more than a “de minimis” reduction

in a participant's benefits. See Pub. L. No. 107-16, § 645(b)(2),

115 Stat. 125-126 (2001).

petitioner's analysis depends on a “suspension” being related

to post-retirement employment or, for that matter, there exist-

ing any conditions whatsoever limiting whose benefits are

suspended. Rather, according to petitioner, so long as the

dollar amount of the (theoretically available) monthly benefit

check is not “reduced,” and as long as a plan does not

“eliminate” early-retirement benefits entirely, then plans may

be amended willy-nilly to “suspend” benefits.

As this example demonstrates — and as the Seventh Cir-

cuit concluded — there is nothing magical about the term

“suspension” of benefits. The “suspension” of benefits is

merely one manner by which an amendment might reduce or

eliminate those benefits — and thus be barred by the anti-

cutback rule. Any orm of reduction of early-retirement

benefits - whether called the suspension of benefits (as it was

here), or the “offset” of benefits (as in Michael v. Riverside

Cement Co. Pension Plan, 266 F.3d 1023, 1027-1028 (9th

Cir. 2001)), or the removal of a “cost of living adjustment”

(as in Hickey v. Chicago Truck Drivers, Helpers & Ware-

house Workers Union, 980 F.2d 465 (7th Cir. 1992)) — vio-

lates the anti-cutback rule. See Pet. App. 9a.

Not only is there no textual support for excluding “sus-

pensions” of benefits from the scope of the anti-cutback rule,

but doing so would go against the very reason that rule ex-

ists, which is to protect “justified expectations and entitle-

ments” under a plan. Michael, 266 F.3d at 1027. Here, a

plan member similar to respondents could have decided in

1997 that he was able to retire, based on a calculation that he

would be entitled to $1500 a month in benefits and could

earn $1000 in non-disqualifying post-retirement employ-

ment. According to petitioner, the anti-cutback rule does not

prevent a plan from changing the rules in the year 2000, such

that this plan member would suddenly have to live on $1500

a month rather than $2500.'° That is absurd, and finds no

support in the anti-cutback rule.

In this case, Messrs. Heinz and Schmitz’s retirement

benefits were significantly reduced; when they retired, they

understood their retirement benefits to be a specified amount

each month so long as they did not engage in certain forms of

post-retirement employment. Thus, each could make finan-

cial calculations about whether to reture based on ‘he amount

of retirement benefits he would receive and the amount he

expected to be able to earn in non-disqualifying post-

retirement alternative employment. By promulgating an

amendment that forced respondents to choose either their

monthly pension check or whatever money they could earn

in what had been non-disqualifying alternative employment,

the Fund has greatly reduced respondents’ pension benefits.

Nothing in the Petition undermines this straightforward

analysis. The Fund stresses (at Pet. 12) that the term “reduc-

tion” is used in conjunction with the term “suspension” else-

where in ERISA, and argues that reductions therefore cannot

include suspensions. But the Fund does not even attempt to

refute the Seventh Circuit’s explanation (at Pet. App. 12a-

14a) that elsewhere in ERISA the comparison is in fact be-

tween “amendments that reduce benefits, on the one hand,

and suspension of benefit payments, on the other.” Pet. App.

13a (emphasis supplied). It is clear that the mere suspension

of benefit payments, if authorized, does not violate the anti-

cutback rule. Thus, under section 203, a pension plan could

be drafted that provides for the suspension of early retirement

benefits if a participant accepts any form of post-retirement

employment. See pages 2-3 and note 3, supra. And, were

Messrs. Heinz and Schmitt to accept employment as con-

'? In this example, a rational retiree would stop working (and lose

that $1000 in income) rather than give up his $1500 in pension

benefits.

struction workers, under the terms of their plan — ws it existed

when they qualified for early retirement — their benefits could

similarly be suspended without violating the anti-cutback

rule. But section 203 does not trump section 204; an

amendment that expands the forms of post-retirement em-

ployment that authorize the plan to suspend benefits reduces

those benefits, and violates the anti-cutback rule.

Representative Clay’s floor comments (see Pet. 13-14)

also do not support excluding amendments that expand the

availability of suspensions from the anti-cutback rule.

Rather — pace petitioner — those comments in fact have no

bearing on the question. Representative Clay merely

stressed — entirely correctly — that REA did not alter section

203’s distinction between what forms of suspensions may be

promulgated for “normal” retirement benefits as compared to

early-retirement benefits. Compare note 3, supra. Neither of

these forms of benefit suspension themselves violate the anti-

cutback rule — but that doesn’t mean that an amendment ex-

panding the forms of post-retirement employment that result

in benefits suspension would not violate the anti-cutback

rule. See Pet. App. 16a n.11; 20a.

Finally, the regulations cited by the Fund (at Pet. 14) also

have no bearing on the question presented by this case. The

first of these, 29 C.F.R. § 2530.203-3(a), merely reiterates

that a pension plan is authorized to suspend benefits when a

participant accepts specified post-retirement employment

without violating ERISA. But that is uncontroverted (see

Pet. App. 20a-21a; note 3, supra), and is a separate question

from whether a plan may change the rules for suspending

benefit payments without violating the anti-cutback rule.

Similarly (as the Seventh Circuit explained in detail, see Pet.

App. 18a-20a), the second of these regulations, 26 C.F.R.

§ 1.411(c)-1(f)(1) — which predates REA’s clarification that

reductions of early retirement benefits shall “‘be treated as

reducing accrued benefits’” (Pet. App. 18a (quoting ERISA

§ 204(g)(2) (emphasis supplied)) — clarifies only that already

authorized suspensions do not violate the anti-cutback rule:

An interpretation of this regulation that allowed a plan to

change the rules on suspensions is not only textually unwar-

ranted but would also violate REA (see Pet. App. 18a-19a),

and therefore should be rejected.

* * * * *

The Seventh Circuit’s interpretation of the anti-cutback

rule is the only one that makes any plausible sense. Given

the obvious correctness of the decision below, the uncertainty

about whether there is a circuit split on the question pre-

sented, and the minimal importance the ruling in this case

will have to pension plans generally — because plan adminis-

trators can always amend a plan under the “substantial busi-

ness hardship” rules if there is any serious risk to the

financial integrity of a plan — this Court’s review is not war-

ranted.

CONCLUSION

The petition for a writ of certiorari should be denied.

Respectfully submitted.