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High court: Pension can't be cut post-retirement

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Associated Press / June 8, 2004

WASHINGTON -- The Supreme Court ruled yesterday that employers cannot cut back on pensions for some people who retire early from one job and then go to work somewhere else.

Federal law protects against cutbacks in benefits that take effect after a worker has retired, the court said in a unanimous ruling in favor of two Illinois construction workers. The two men were eligible for full retirement benefits when they retired in 1996 at age 39. Thomas Heinz and Richard Schmitt Jr. were told they could draw retirement benefits so long as they did not take on certain jobs in the same industry.

Both men took new jobs as construction supervisors, jobs that at the time still allowed the men to collect pension benefits alongside their new paychecks. But the Central Laborers' Pension Fund changed the rules in 1998 and told the men that they could not draw a pension while working in any construction industry job.

''Heinz worked and accrued retirement benefits under a plan with terms allowing him to supplement retirement income by certain employment, and he was being reasonable if he relied on those terms in planning his retirement," Justice David H. Souter wrote for the court.

By changing the rules retroactively, the pension fund would force Heinz to forgo work opportunities he had banked on, the justices said. ''We simply do not see how, in any practical sense, this change of terms could not be viewed as shrinking the value of Heinz's pension rights and reducing his promised benefits."

Early retirement is a popular option for millions of private-sector workers, as well as military, law enforcement, and other government employees. Many are eligible for pension benefits after 20 years or so.

Those benefits typically come with some strings, however, such as the requirement at issue in this case. Employers say they need to protect against ''double-dipping," when retired employees collect a pension meant to secure their retirement but go on working in a job similar or identical to the one they left.

In other action, the court also agreed to consider whether people facing bankruptcy can prevent certain retirement savings from being used to pay their debts. Bankruptcy law protects payments from a person's pensions and annuities, but does not mention Individual Retirement Accounts, which are at issue in a case involving an Arkansas couple.

The case will be argued at the Supreme Court in the term which begins next fall.

Richard and Betty Jo Rousey have already lost in a federal appeals court, which said that Congress could easily change the law if it wanted to protect IRAs. The Rouseys have about $55,000 in two accounts, money that was rolled over from pensions and 401(k) plans at their previous employer, Northrop Grumman.

The 8th US Circuit Court of Appeals had held that because the Rouseys could withdraw money, the IRAs were like ''readily accessible savings accounts."

Their attorney, Thomas Goldstein, told justices the case is important because of the popularity of IRAs and the large numbers of people who file for bankruptcy protection. About a third of American households have a traditional IRA, which ''typically represents an enormous investment in one's future," he said.

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