Impairment of accrued benefits when integrating local plan into state

[Everett Moreland]

Do you know of any court decisions on whether a contract retroactively integrating a local government retirement plan into a state retirement system can reduce or impair the benefits of current employees under the local plan? Our state statute governing integration states that benefits of retired employees may not be reduced or impaired in the integration, creating an implication that benefits of current employees may be reduced and impaired.

[Guest RAM]

I got disconnected . . . I don't know what transmitted. Quickly: You're under state law (altho pre-ERISA 401(a)(7) might be relevant). Court cases depend on your state. Mant state's have laws regarding "impairment of contract" by legislative act; some have applied those concepts to employee retirement benefits and concepts of "forfeitability" and whether benefits can be lost or "impaired" through some action (such as merger or termination). Incidentally, pre-ERISA 401(a)(7) says "benefits accrued to the date of termination ...,TO THE EXTENT FUNDED, are nonforfeitable." Since a gov't plan isn't subject to 412, nor 411(d), yes, employess can lose out if state law doesn't protect them! (I think . . . this is a slippery issue . . . I'd love to see other comments)

[Guest CVCalhoun]

I would agree with RAM that it is most likely to be state, rather than federal, law which presents an issue. In particular, courts in about two thirds of the states have held nonimpairment of contracts provisions in either the federal or state constitution prevent cutbacks of even future benefit accruals (much less past accruals) for existing employees. Since a constitutional provision would outweigh a statutory provision, you would want to make sure that your state is not one of the ones which has made such a constitutional interpretation.