A union was formed through the merger of four former local unions. After the merger, the local unions’ employee benefits plans and related pension plans and funds also merged. The post-merger pension plan retained certain provisions from the pre-merger plans regarding banked hours. “Banked hours” are hours of service worked in covered employment or otherwise accrued by plan participants within a given year in excess of the minimum number of hours required to earn a full year of service for pension credit under the applicable plan. Those hours can be banked for a variety of uses, including filling in of hours of service for years in which the participant falls short of the minimum required for a full year of credit. The provisions contained in the various pre-merger plan documents had different accrual, use, and value of banked hours. The post-merger plan document eliminated those variations and chose to use each banked hour provision from among the most generous benefit terms from the earlier provisions. As a result, a number of plan participants, the plaintiffs among them, retrospectively received increased levels of banked hour pension credits and increased pension benefit levels immediately after the merger.
The post-merger plan subsequently experienced funding deficiencies, which led to the enactment of an amendment that reduced plan participants’ retrospective banked hour pension benefits for hours accumulated prior to the merger back to the lower levels promised under plan participants’ respective pre-merger plan document. The plaintiffs sued, alleging that the implementation of the amendment conflicts with ERISA’s “anti-cutback” rule. The district court granted the plaintiffs’ motion for summary judgment and held that the plaintiffs’ pre-merger banked hour benefits constituted “accrued benefits” under ERISA that could not be decreased by plan amendment. The plan trustees appealed.
On appeal, the U.S. Court of Appeals for the First Circuit affirmed the decision of the district court. The Trustees’ core argument was that the plaintiffs did not “earn” these retrospective benefits by working; the retrospective benefits were a gratuity resulting from a prior merger of benefit plans. The First Circuit disagreed, concluding that the focus of the anti-cutback rule is not on whether benefits are earned, but on whether benefits have accrued. And once an individual continues employment in exchange for promised benefits, those promised benefits are protected from cutback even if the benefits were conferred retroactively. Bonneau v. Plumbers & Pipefitters Local 51 Pension Trust Fund (1st Cir. 2013)