Amending to remove COLAs

[Guest erepper]

I was always under the impression (and verified by a number of actuaries) that COLAs cannot be amended out of a plan for benefits that have already been accrued. I have a plan with a COLA that is terminating and they are purchasing annuities. The carrier said they have an attorney that said that this plan amendment would be permitted. Does anybody out there have experience with this?

[Andy the Actuary]

I was always under the impression (and verified by a number of actuaries) that COLAs cannot be amended out of a plan for benefits that have already been accrued. I have a plan with a COLA that is terminating and they are purchasing annuities. The carrier said they have an attorney that said that this plan amendment would be permitted. Does anybody out there have experience with this?

Sounds as if it is SOGOTP time: Request the insurance company to issue a letter that the Plan can be amended to eliminate COLAs. Then, (if the insurance company does) you will know it is coming from the insurance company and is not hearsay. Then, find another insurance company.

In Hickey v Chicago Truck Drivers et al. (1992), the 7th-circuit court held that the elimination of a cola provision violated the anti-cutback requirements of 411(d)(6). [from Q8:55 DB Answer Book, fourth addtion.] There may be "gray book" guidance as well.

[david rigby]

There may be "gray book" guidance as well.

Indeed there is. See Q&A 2006-32.