Pensions

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Introduction

On May 18, 2009, the Internal Revenue Service (the “IRS”) issued new proposed regulations that allow plan sponsors of Internal Revenue Code (“Code”) Section 401(k) or 403(b) safe harbor plans to reduce or suspend non-elective contributions mid-year if they are experiencing a “substantial business hardship.” Prior to the proposed regulations, a plan sponsor could suspend non-elective contributions under a safe harbor plan only by terminating the plan. The proposed regulations apply to both traditional safe harbor plans and those that qualify as “qualified automatic contribution arrangements” (QACAs), a type of automatic enrollment plan introduced under the Pension Protection Act of 2006 for plan years beginning in or after 2008. The proposed regulations mirror current regulations that allow sponsors of plans with safe harbor matching contributions to reduce or suspend such contributions mid-year.

Plan sponsors may rely on the proposed regulations immediately (i.e., effective for amendments adopted after May 18, 2009) pending issuance of final regulations. If the final regulations are more restrictive than the proposed regulations, the final regulations will only apply prospectively.

In a 7-2 decision, the United States Supreme Court has held that AT&T did not violate the Pregnancy Discrimination Act (“PDA”) when it based its calculation of employees’ pensions in part on a pre- PDA accrual rule that treated pregnancy leave less favorably than other forms of disability leave. AT&T Corp v. Hulteen, No. 07-543 (May 18, 2009). The Court’s decision reversed the Ninth Circuit and confirmed the presumption that discrimination statutes will not be applied retroactively.

Background

Plaintiffs were Noreen Hulteen and three other AT&T employees who had taken pregnancy leave before April 29, 1979, the effective date of the PDA. At the time they took leave, AT&T based employee pension benefits on a seniority system (i.e., a system based on length of service) that provided less service credit for pregnancy leaves than it did for other forms of temporary disability leave. When the PDA took effect, AT&T changed its system and began to provide full service credit for pregnancy leaves. It did not, however, retroactively adjust the accrued service credits of Plaintiffs or any other employees who previously had taken pregnancy leave. Therefore, when those employees retired, they received an overall pension amount that was less than it would have been if AT&T had afforded full service credit to their pre-PDA pregnancy leaves.

Plaintiffs and their union filed suit against AT&T in the Northern District of California alleging discrimination on the basis of sex and pregnancy in violation of Title VII of the Civil Rights Act of 1964, as amended by the PDA. Plaintiffs argued that it was unlawful for AT&T, in the present day, to apply a seniority-based pension system that incorporated antiquated pre-PDA accrual rules that had differentiated on the basis of pregnancy. Doing so, Plaintiffs contended, carried forward the old service credit differential so as to produce a disparate effect in the amount of the pension benefits of employees who had taken pre-PDA pregnancy leave. The district court agreed, holding that AT&T had engaged in unlawful pregnancy discrimination, and the Ninth Circuit, en banc, affirmed. Because the Ninth Circuit’s decision directly conflicted with rulings from other circuits, the Supreme Court granted certiorari to resolve the circuit split.

Los Angeles County Professional Peace Officers’ Ass’n v. County of Los Angeles, 115 Cal. App. 4th 866 (2004)

William Kupper and Bennie Layne worked as investigators for the Los Angeles County District Attorney’s Office before becoming temporarily disabled after being injured on the job. Kupper and Layne both retired after their disabilities became permanent. Under the applicable County ordinances, DA investigators could accumulate up…