Jump to content

Removal of an annual COLA from a DB governmental plan


Guest hnbc
 Share

Recommended Posts

In general no. Your only entitled to the benefit you had accrued at the time of termination or retirment. Any increase in the pension after is begins would depend on plan.

Plan "could" allow COLA increases - but doesn't have to.

Would have to see plan language to see if they can take back the COLA given so far.

Point is - ERISA will only protect the benefit accrued at termination or retirement.

JanetM CPA, MBA

Link to comment
Share on other sites

...but then ERISA generally does not impact governmental plans. Such plans are specifically exempt from IRC 411, as amended by ERISA, providing it complies with pre-ERISA sections 401(a)(4) and 401(a)(7).

So it might be appropriate to look at:

- the plan,

- state (or local) law.

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

Link to comment
Share on other sites

Thanks for your responses. In this situation, the sponsor does not intend to reduce any accrued benefit, rather remove the COLA on a prospective basis only. Do you feel any group of participants would have grounds to sue the employer if it was removed prospectively? Thanks!

Link to comment
Share on other sites

Only if there is contractual obligaton ( e.g. union agreement) which will be violated by not continuing the COLA. Absent a contractual provison an emplyer is free to eliminate any benefit on a prospective basis the same as reducing salary or eliminating jobs because pension plans are a condition of employment

mjb

Link to comment
Share on other sites

I assume from your post that the employer wants to take away previously granted COLAs and not grant future COLAs, both as to current retirees.

I agree with mbozek that the issue is whether the employer contractually agreed to pay the COLAs (unless you are in a state where courts apply constitutional restrictions on reducing retirement benefits that go beyond those agreed to by the employer). My sense is it wouldn't take much for a state court to find a contractual agreement to pay the COLAs. State courts often go beyond the technicalities of protecting the "accrued benefit" as defined in ERISA and protect the reasonable expectations of the employees. If an employee retired at a time when the plan document included an automatic COLA provision, it might be tough to convince a court that the COLA can be taken away.

Link to comment
Share on other sites

Guest tlandin

In New York, the public retirement systems are subject to a constitutional guarantee that would not allow diminishment of future accruals. This is why we have a tiered system - the only way to reduce benefits is to create a new tier for new members. Existing members future accruals cannot be reduced. There are many other governmental systems that have similar constraints.

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
 Share

×
×
  • Create New...