Section 415 of the IRS Code was passed in 1974 to keep top executives and wealthy professionals from receiving lavish pensions.

But like the passage of some other laws, there were unintended consequences. This portion of the tax code had evolved over the last 26 years to the point where it has kept multi-employer plans from paying higher pensions to unionized construction workers - even if a plan was in excellent financial condition.

That all changed last Memorial Day weekend. With the huge tax cut package that was adopted, Congress also passed Section 415 pension reform, which especially helps early retirees not to take a financial penalty. The AFL-CIO Building Trades Department has been pushing for this reform legislation for years.

"This is a great victory for everyone in the building trades who worked so hard for many years," said Building Trades Department President Edward C. Sullivan. "It shows what you can do when you use people power on both sides of the aisle (in Congress)."

According to the Building Trades Department, Section 415 allowed a pension plan to pay an annual pension of no more than $130,000 for someone retiring at age 65. But the limit dropped sharply for early retirees, defined by law as retirement at any age before being fully eligible for full Social Security benefits (age 66 or 67).

In real terms, that meant that someone retiring at age 50 could receive no more than about $41,000 annually in pension benefits; for workers born in 1955 or later, that amount dropped to about $38,500.

Even more workers have pensions cut under the provision of Section 415, which held that the annual pension could not be more than the worker's average pay under the plan over the three highest-paid consecutive years. If a worker's highest-earning years weren't consecutive - common in the boom-and-bust construction industry - the threshold was lowered. The package of the Section 415 pension changes:

• Allows higher early and normal retirement dollar limits. The new limit allows up to $160,000 per year to be paid for eligible retirees at age 62, and $96,000 at age 55. (The changes in the law only allow the higher payment limits - pension plans still have to operate in a fiscally responsible manner).
• Eliminates the "100 percent of pay limit" for multi-employer pensions. Now in line with government plans, multi-employer plans will be able to pay participants their full pensions - up to the applicable dollar limits - even if the amount is more than their high three-year average pay.
• Helps the long-term finances of apprentices. Under the old law, no more than 25 percent of workers' current pay could be credited each year to the workers' account in a defined contribution plan, creating a problem for apprentices in some trades that have generous annuity fund contributions. This is solved by the new law, which increases the defined contribution 415 limit to 100 percent of pay.

The law takes effect Jan. 1, 2002.

"The immediate effect of the law will depend on how each fund is set up," said George Buhalis, president of Benesys, which acts as fund administrator for numerous Michigan union pension plans.

He said workers who participate in pension plans that don't reduce benefits for early retirees will be particularly aided by the new rules.

"Generally, the people who are really going to benefit are the apprentices and those who are 15 or 20 years away from retirement. Unlike the 1960s, they're already starting with a high contribution rate, and work has been good over the last few years, so those factors, along with the removal of the Section 415 limits, are going to help a lot of people."