On January 25, 1999, the Supreme Court unanimously ruled that an employer did not violate provisions of ERISA when it amended its employee-funded pension plan to provide for an early retirement program and noncontributory benefit structure.Hughes Aircraft Company maintains a retirement pension plan for its employees that, until 1991, required mandatory employee contributions. In 1991, Hughes Aircraft amended its plan to create a new benefit structure, under which existing employees could choose to continue contributing to the pension plan in return for higher benefits, or make no further contributions and receive a lower retirement benefit. New employees were limited to the new, non-contributory benefit structure. At the time Hughes Aircraft amended the plan, it had a large surplus in the pension fund.
Five retired employees filed suit, alleging that Hughes Aircraft had violated ERISA in promulgating the new benefit structure. The district court dismissed the suit for failure to state a claim. The Ninth Circuit reversed, holding that an employer has fiduciary obligations to employees when it amends a pension plan to use an asset surplus that was generated in part by prior employee contributions. The court also held that employees have vested property rights in the surplus generated by the income earned from their contributions, even if that amount is higher than their defined benefits under the plan. The Supreme Court reversed, holding that the Act permitted the changes because changes to the value of the plan's assets did not affect the employees' benefits. Further, the Court held that the employer was not acting as a fiduciary when it amended the plan. Finally, the Court determined that this is not an enfeebled plan requiring termination.
Our amicus brief successfully persuaded the Supreme Court that an adverse ruling in this case would have severely impacted employers and employees participating in defined benefit pension plans that have an employee contribution feature. The NAM convinced the Court that an employer's ability to provide pension benefits to current and future employees should not be compromised. Manufacturers are no longer deterred from amending their defined benefit plans to offer new or enhanced benefits to active employees.