Is It Becoming Easier To Find that Retiree Health Benefits Have Vested?

It is a well-established principal of ERISA that health benefits, as opposed to pension benefits, are not required to vest. In the absence of vesting, an employer is normally free, under ERISA, to adopt, modify or terminate health benefits, for any reason and at any time. Thus, an employer could, at any time, require employees or retirees to pay a larger share of the cost of health care coverage. However, health benefits will vest if the employer, or in the case of a union, the parties choose to do so. Historically, the courts have held that vesting obtains if the plan under which the health benefits are offered contains language indicating that the employer or the parties intend that the health benefits vest. For example, language appearing in the plan such as “the retiree health benefits will be provided for life” indicates that the employer is promising to never take the benefits away, and will often lead the court to conclude that the benefits are vested. To find that vesting obtains, relying on a statement by the U.S. Supreme Court in Inter-Modal Rail Employees Ass’n v. Atchison, Topeka, & Santa Fe Ry. Co. 520 U.S. 510 (1997), the courts have required that the plan document have a “clear and express statement” that the benefits vest.

It appears that the Sixth Circuit Court of Appeals may be a little lenient as to what is required for health benefits to vest. In Tackett V. M & G Polymers, USA, LLC, No. 07-4515/4516 (6th Cir. 2009), the court found that the following language in a collective bargaining agreement-which the court treated as being the plan-contained sufficient evidence of the parties’ intention to vest certain retiree health benefits to survive a motion to dismiss the retirees’ claim of vesting:

“Employees who retire on or after January 1, 1996 and who are eligible for and receiving a monthly pension under the 1993 Pension Plan . . .whose full years of attained age and full years of attained continuous service . . . at the time of retirement equals 95 or more points will receive a full Company contribution towards the cost of [health-care] benefits. . . . Employees who have less than 95 points at the time of retirement will receive a reduced Company contribution. The Company contribution will be reduced by 2% for every point less than 95. Employees will be required to pay the balance of the health care contribution, as estimated by the Company annually in advance, for the [health care] benefits . . . . Failure to pay the required medical contribution will result in cancellation of coverage.”

The court analyzed the above language based on its well discussed case, UAW v. Yard-Man, 716 F.2d 1476, 1479 (6th Cir. 1983). In determining the sufficiency of the language, the court said, first, that the mention of a “full Company contribution” suggests that the parties intended the employer to cover the full cost of health-care benefits for those employees meeting the age and term-of-service requirements. The court found find it unlikely that the union would agree to language that ensures its members a “full Company contribution,” if the employer could unilaterally change the level of contribution. Otherwise, the employer could lower the contribution to zero without violating this language, thereby making the promise of a contribution illusory. Second, the court noted that the limiting language, “[e]mployees will be required to pay the balance of the health care contribution,” follows the provision requiring contributions by those retirees who had not attained the requisite seniority points. From the placement of this language, the court inferred that the limiting language did not apply to all retirees, but only to those retirees who had not attained the requisite seniority points. Finally, the court noted that the collective bargaining agreement tied eligibility for the health benefits to pension benefits, which indicates that the parties intended the health benefits to vest upon retirement.

Admittedly, this case only denied a motion to dismiss a claim of vesting, as opposed to providing a final resolution to the issue. The case was remanded back to District Court to resolve the issue. Still, to infer that the parties’ intended the retiree health benefits to vest from the above language, which did not have words such as “for life”, coupled with the fact that on remand the District Court will be able to use extrinsic evidence to determine the parties’ intentions, indicates a lenient approach to determining whether the retiree health benefits have vested. Any ultimate determination that the above language shows a “clear and express” intent to vest the benefits would be very generous.

The Tackett case is here.

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