A recent Ninth Circuit decision addressing retirement and in-service distribution rules provides an important reminder to plan fiduciaries of defined benefit pension to apply such rules in compliance with both the plan's terms and applicable law. See Meakin v. California Field Ironworkers Pension Trust, No. 18-15216, 2019 WL 2375194 (9th Cir. June 5, 2019) (unpublished).

The defined benefit plan at issue in this case (the "Plan"), like many such plans, provided that a participant must have retired to be eligible for a pension benefit. Under the Plan, a pensioner was considered "retired" only if he "withdr[ew] completely and refrain[ed] from any employment or activity in the building and construction industry." However, the Plan also provided for a limited exemption, which allowed a pensioner to continue employment in certain job positions while commencing receipt of a pension benefit. To receive the exemption, a pensioner was required to submit a retiree work application to the Plan Trustees for approval.

Plaintiff Robert Meakin stopped working in his then current position with his employer in 2008, but continued working for the same employer in a different position. Meakin applied for a retirement benefit, and the Trustees determined that the Plan's exemption, as referenced above, applied. Meakin thus began receiving his pension benefit while continuing to work for his employer, albeit in his new position.

Several years later, the Trustees commenced a review of the Plan's retirement and suspension of benefits rules in light of IRS guidelines that had been issued prohibiting in-service distributions. Those guidelines provided that a pension plan can provide for payment of benefits only after retirement, and thus that a pension plan could not pay benefits to an individual who did not retire. The Trustees then used the IRS's voluntary compliance program to adopt administrative procedures that stopped distributions to participants who never actually retired.

The Trustees subsequently sent Meakin a notice informing him that he would stop receiving his pension beginning in April 2014 based on the Plan's interpretation of its rule regarding retirement. After exhausting the Plan's administrative appeals process, Meakin filed suit in district court claiming that the Trustees' discontinuation of his benefits, pursuant to their new interpretations of the Plan's in-service distribution rules, was unlawful because (1) it constituted an impermissible cutback of an accrued benefit under Central Laborers' Pension Fund v. Heinz, 541 U.S. 739 (2004); and (2) equitable estoppel should bar the Trustees from applying the new interpretation to him.

The district court granted the Fund's motion for summary judgment because it concluded that the Trustees did not abuse their discretion by "reinterpreting" the Plan to require participants to experience an actual separation from employment in order to be eligible for an early retirement pension.

On appeal, the Ninth Circuit held that the Trustees' new interpretation based on the IRS guidelines was not unreasonable or an abuse of discretion because the Trustees were granted discretion in interpreting plan provisions and thus were not bound to their original interpretation. In so holding, the Court rejected Meakin's reliance on Central Laborers' Pension Fund v. Heinz. In Heinz, the Supreme Court held that ERISA prohibits a plan amendment from expanding the categories of post-retirement employment that trigger suspension of the payment of already accrued early retirement benefits. According to the Court, unlike in Heinz, the Plan here was not imposing an additional condition for receipt of post-retirement benefits, but rather was reinterpreting an existing provision addressing the requirements for retirement, as defined by the Plan.

The Court also rejected Meakin's equitable estoppel theory because he did not establish the "extraordinary circumstances" necessary for such relief. Additionally, the Court determined that any relief requiring the Trustees to continue paying Meakin's pension would impermissibly contradict the written terms of the Plan.

Proskauer's Perspective

Trustees and administrators of defined benefit pension plans should carefully review any rules and practices that may permit payment of benefits to participants who have not retired under the written terms of the plan in order to ensure that they are in compliance with in-service distribution rules under the Internal Revenue Code. Additionally, if claims for benefits are brought by participants, trustees and fiduciaries are well-advised to administratively adjudicate participants' claims according to the plan document and record the reasoning of their decisions, so that they may be afforded deference should a litigation arise.

Ninth Circuit Enforces Pension Fund's New Interpretation Of Plan In-Service Distribution Rules

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