Defined benefit plan administrators can find the rules dealing with benefit accruals and actuarial adjustment after normal retirement date are complex and confusing. Such complexities are featured in a recent case dealing with defined benefit pension plan provisions applied to a participant who continues working beyond the plan’s normal retirement date. The plan had been amended over the years, but if the participant continued in employment at the time the participant reached normal retirement age the plan provided that no benefit would be paid. Accruals for additional service would also continue and there would be no actuarial adjustment (increase) for the deferral of retirement benefits beyond normal retirement.
The participant in this case continued to work beyond normal retirement and claimed that the lack of an actuarial increase for deferred retirement violated the statutory rules prohibiting cutbacks in accrued benefits and the forfeiture of vested benefits. The participant also argued alternatively that the plan rules otherwise violated the fiduciary obligations of the plan administrator. While the details of this case are further complicated by the fact that the plan covered airline pilots, whose employment beyond age 60 has been the subject of unique statutory rules, the principal lesson of the case is that defined benefit plan provisions applicable to participants working beyond their normal retirement date require special consideration and attention. This is especially true in current circumstances as older workers often work beyond traditional retirement dates. In this case, the court upheld the plan’s rules that suspended benefits until actual retirement while allowing for additional accruals for continued service but no actuarial increase for deferred retirement. For any employer maintaining a defined benefit plan, a careful review of post-normal retirement date rules may be important in dealing with this common situation. (Canada v. American Airlines, Inc. Pilot Retirement Benefit Program, M.D. Tenn. 2010)