The Third Circuit held that a plan administrator’s plan interpretation requiring an actuarial reduction of certain employees’ pension benefits conflicted with the plan’s terms.  As such, its decision to reduce participants’ benefits violated ERISA section 502(a)(1)(B), and also violated ERISA’s prohibition against cutbacks of accrued benefits. 

Plaintiff John Cottillion left employment with United Refining Company prior to age 65, the plan’s normal retirement age.  The plan administrator had been interpreting the plan terms to provide for an unreduced pension benefit commencing before age 65.  In connection with certain plan restatements, a provision was added to the plan to provide for actuarially reduced benefits for those who commenced benefits prior to normal retirement age.  The plan’s actuaries subsequently informed the plan administrator that paying unreduced pensions jeopardized the plan’s tax qualified status.  The plan administrator thus informed individuals who had already retired that they could commence benefits, but at an actuarially reduced amount.  It also notified those individuals who already were in pay status that their benefits would be reduced to account for an actuarial reduction going forward and recoup excess payments already made to them.

The Third Circuit, affirming the district court’s decision, held that the plain terms of the pre-amended plan document provided for an unreduced pension.  The Court thus found that the plan administrator’s new interpretation was not entitled to deference and, accordingly, the class members were entitled to unreduced benefits.  The Court also determined that the new plan interpretation, even in the absence of a formal plan amendment, was an impermissible cutback of accrued benefits in violation of ERISA section 204(g).

The case is Cottillion v. United Ref. Co., 2015 WL 1219640 (3d Cir. Mar. 18, 2015).