Lawsuit Filed Challenging Benefit Cuts to Multiemployer Plans

Participants in a multiemployer pension plan that received permission from the Treasury Department to reduce member benefits have filed a lawsuit challenging whether the government can indeed authorize a private pension plan’s trustees to cut vested benefits.

In a lawsuit that appears to be the first to challenge benefit cuts under the Multiemployer Pension Reform Act of 2014 (MPRA), the plaintiffs say, if the government allows benefits to be cut, it must pay compensation to participants who are “prevented from accessing their own financial property.” The plaintiffs are seeking class action status to represent all similarly situated multiemployer plan participants.

According to the complaint, “Empowering a private party—Plaintiffs; pension fund—to cut these payments on an indefinite (and, in reality, permanent) basis is akin to authorizing a trust to refuse to distribute sums to its beneficiaries or entitling an insurance plan to refuse to pay meritorious claims.”

The complaint notes that the Employee Retirement Income Security Act (ERISA) expressly prohibits a plan from reducing vested pension benefits: Until and unless a pension fund is broke, a retiree’s monthly payment may not be reduced. The plaintiffs also allege the government enacted the MPRA for the benefit of the Pension Benefit Guaranty Corporation (PBGC).

According to the complaint, the plaintiffs intend to show that the government’s actions reflect a constitutional violation because, among other reasons:

• The pension was vested, making it property to which they were entitled;
• The government interfered with plaintiffs’ access to their own property;
• The effect on plaintiffs’ property was substantial;
• The government interfered with the plaintiffs’ investment-backed expectation by altering retroactively the legal status of the pension rights the plaintiffs worked decades to acquire; and
• The burden is inconsistent with the plaintiffs’ past experience—given that such changes were illegal for most or all of the 30-year period during which they worked to earn their pension, yet the cuts apply retroactively to retirees rather than merely prospectively to active workers.

Plaintiffs are members of the New York State Teamsters Conference Pension & Retirement Fund, and, under the MPRA, they had their vested pension benefits cut beginning last October 1. The complaint says, for nearly all of the plaintiffs, the cut was massive: a 29% reduction each month for the rest of their lives.

“This case will need to either bless the government’s ability to take away from retirement workers’ vested, funded pensions for which a government-run entity receives insurance premiums or, alternatively, confirm what courts have long observed: that the government, if it wishes to alter the terms of a vested pension plan, must provide fair compensation,” the complaint says.