Court Upholds Pension Reductions Under MPRA, No Taking Found

The MPRA amended the Employee Retirement Income Security Act (ERISA) to align its definition of insolvency to the definition in the Bankruptcy Code. ERISA’s anti-cutback rule prohibits employers from amending plans in a way that eliminates or reduces accrued benefits but includes an insolvency exception. In King, the New York State Teamsters Conference Pension & Retirement Fund, a private multiemployer defined benefit plan, incorporated the insolvency exception and expressly warned that, in the event of the plan’s termination, including due to insolvency, participants could expect to receive benefits “only to the extent [the Plan was] funded as of [the] date of termination.”

After the enactment of the MPRA and resulting change to the definition of insolvency, the plan trustees determined that the plan would become insolvent in the future if it continued to make benefit payment at the current levels. Thus, the trustees filed an application with the US Department of Treasury under MPRA to reduce the benefits of retirees in order to preserve the long-term viability of the plan, which was approved. Plan beneficiaries then filed a class action against the federal government alleging that the MPRA, as applied to them, amounted to an uncompensated physical taking under the Fifth Amendment because the amended plan allegedly favored future beneficiaries over current beneficiaries by transferring the plaintiffs’ property interests in the plan for the benefit of other participants. The Court of Federal Claims ultimately granted summary judgment for the government, and the Federal Circuit affirmed.

The case provides important guidance for plan sponsors, fiduciaries, and employers regarding the scope of ERISA protections and the government’s authority to modify pension benefit obligations in the face of plan insolvency.

Key ERISA Issues Addressed

Nature of Pension Rights Under ERISA

The court reaffirmed that participants in defined benefit pension plans have contractual rights to receive promised benefits but do not possess specific, identifiable property interests in the underlying plan assets such that the government is liable for a taking for any reduction. While the right to receive benefits is “nonforfeitable” under ERISA, this does not immunize such rights from legislative modification.

Anti-Cutback Rule and Exceptions

ERISA’s anti-cutback rule generally prohibits reductions in accrued benefits. However, the statute has always included exceptions, such as for plan insolvency. The MPRA expanded these exceptions, allowing benefit suspensions for plans in “critical and declining” status to prevent insolvency, subject to Department of Treasury approval and participant voting.

Physical vs. Regulatory Takings

The court distinguished between physical takings (where the government appropriates property) and regulatory takings (where government action affects the value or use of property). The MPRA’s benefit reductions were found to be regulatory, not physical, in nature. Applying the test from Penn Central Transportation Co. v. City of New York, 438 U.S. 104 (1978), the court found there was no regulatory taking because:

• The economic impact, while significant, did not deprive participants of all value.

• Participants’ expectations were tempered by the heavily regulated nature of pension plans and the history of legislative intervention.

• The character of the government action — protecting plan solvency and the broader pension system — served a substantial public purpose.

Implications for Plan Sponsors and Fiduciaries

This decision confirms that the government may authorize reductions in multiemployer pension benefits under ERISA in response to plan insolvency risks, without triggering takings liability. Plan sponsors and fiduciaries should continue to monitor legislative developments and regulatory guidance, and ensure compliance with MPRA procedures when considering benefit reductions.