Opinion ID: 626080
Heading Depth: 2
Heading Rank: 5

Heading: Pension Plan Integration with Social Security Benefits

Text: The Delta Plan benefit formula uses a Social Security offset to calculate a participant's pension benefit. ERISA expressly permits this type of offset, under a calculation practice known as integration. See Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 514, 101 S.Ct. 1895, 1902, 68 L.Ed.2d 402 (1981). Integration discounts or offsets a participant's pension benefit with certain types of non-plan benefits, such as Social Security. 29 U.S.C. § 1056(b) (allowing plan to decrease plan benefits as long as the participant is not receiving benefits under the plan and does not otherwise have nonforfeitable rights to benefits); see also 26 U.S.C. § 401( l )(3)(B) (providing permissible offset formulas); Holliday v. Xerox Corp., 732 F.2d 548, 551 (6th Cir.1984) ([ERISA] itself establishes that it is permissible for a pension plan to provide for the offset of social security benefits.). Because an employer funds half of an employee's Social Security benefits, integration is viewed as appropriate, despite its reduction of pension benefits. See 26 C.F.R. § 1.401-3(e)(2)(i)(C). Indeed, Congress recognized that the integration of Social Security benefits would reduce a participant's ultimate pension benefit, but nonetheless permitted the practice. See Alessi, 451 U.S. at 515, 101 S.Ct. at 1902; see also 29 U.S.C. § 1056(b). A congressional report notes ERISA's codification of then-current integration practice, as follows: Protection is given to retired individuals and individuals who are separated from the service of the employer against reductions in private plan benefits when social security benefit levels increase. In general, under present integration procedures, social security benefits attributable to employer contributions are treated as though they were part of the private plan. As a result when the level of social security benefits increases, some integrated plans have reduced the amount of the retirement benefits that they provide for covered employees. Present law under administrative practice provides that qualified plans may not use increases in social security benefit levels to reduce the benefits that they pay where the employees concerned are retired and are already receiving integrated plan benefits. The bill codifies this treatment for retired persons. It also extends the prohibition against reducing plan benefits where social security benefit levels are increased to cases where the individuals concerned are separated from service prior to retirement and have deferred nonforfeitable rights to plan benefits. This provision is effective for increases in social security benefits which take place after the date of enactment or on the date of the first receipt of plan benefits or the date of separation from service (whichever is applicable) if that date is later. These changes do not affect the ability of plans to use the integration procedures to reduce the benefits that they pay to individuals who are currently covered when social security benefits are liberalized. H.R.Rep. No. 93-807 (1974), reprinted in 1974 U.S.C.C.A.N. 4670, 4695-96. Prior to 1986, a pension plan could use as much as 83.33% of a participant's Social Security benefit as an offset against his accrued pension benefit. Rev. Rul. 71-446, 1971-2 C.B. 187. However, in 1986 Congress passed the Tax Reform Act of 1986, Pub.L. No. 99-514, 100 Stat.2085 (codified as amended in scattered sections of 26 U.S.C.), which reduced the permissible offset percentage. Tax Reform Act, § 1111. Now, any offset must comply with the complex rules set forth in the Internal Revenue Code. 26 U.S.C. § 401( l )(3)(B). There is no claim here that Delta's Amendment violates these IRS or other rules. The only issue is whether it violates the anti-cutback rule.