ERISA-Seventh Circuit Rules That Employer May Amend Its Health Care Plan To Require Retirees To Pay The Entire Cost of Their Health Care Coverage; Decision Influenced By CIGNA Corp. v. Amara

In Sullivan v. CUNA Mutual Insurance Society, No. 10-1558 (7th Cir. 2011), the defendant CUNA Mutual Insurance Society (“CUNA Mutual”) had been maintaining a health care plan for its retirees (the “Plan”). CUNA Mutual had paid a portion of the cost of the health care coverage under the Plan for each retiree. Further, beginning in 1982, CUNA Mutual gave retirees credit toward their share of the cost of coverage under the Plan, if they had any unused sick-leave balances. CUNA Mutual calculated how much each retiree’s unused sick-leave days would be worth at his or her daily wage. A retiree who had been covered by a collective bargaining agreement while at work (a “Union Retiree”) could choose between taking that sum in cash or applying it toward the cost of his or her health care coverage under the Plan. Any other retiree did not have this option, and that retiree’s sick-leave balances would automatically be applied toward the cost of his or her health care coverage under the Plan.

At the end of 2008, CUNA Mutual amended the Plan, so that it stopped paying any portion of the cost of retiree health care coverage, and stopped providing the credit toward the cost of coverage by applying unused sick-leave balances. One exception-under the amendment, each Union Retiree was automatically treated as having taken his or her unused sick leave in cash, and then investing that money in an account to be administered by the Plan. A Union Retiree’s account balance was applied to pay 100% of the cost of his or her health care coverage under the Plan (until the account is exhausted). A class of retirees then filed this suit under ERISA. The class representatives were four retired executives who never had an option to take their sick-leave balances in cash, plus one Union Retiree. The district court granted summary judgment to CUNA Mutual, and the plaintiffs appealed. The issue for the Seventh Circuit Court of Appeals (the “Court”): did ERISA prevent CUNA Mutual from amending the Plan in the manner described above?

In analyzing the case, the Court noted that the Plan is a welfare benefit plan. As a general matter, benefits under a welfare benefit plan do not vest, so that the employer is free to reduce or terminate those benefits as it pleases. As an exception, an employer may create vested welfare benefits-which the employer may not change-by contract. In this case, the Plan does not promise vested benefits, and contains a clause reserving the employer’s right to modify or eliminate the benefit. For example, the 1995 version of the Plan provides: “The Employer expects the Plan to be permanent, but since future conditions affecting the employer cannot be anticipated or foreseen, the Employer must necessarily and does hereby reserve the rights to amend, modify or terminate the Plan . . . at any time by action of its Board.” Language of this kind permits amendments.

The Court noted that, in this case, much of the communications to employees pertaining to the Plan (e.g., enrollment forms) did not contain any reservation of rights clause permitting the employer to change the Plan. However, the Court said that this omission would matter only if an employer must show, not only that the right to amend had been reserved, but also that this reservation was known to all workers. The Court said that this is not the employer’s burden. As the Supreme Court itself has said in CIGNA Corp. v. Amara, 131 S.Ct. 1866 (2011), a summary plan description about some feature of a pension plan does not override language in the plan itself, and even if a summary plan description contradicts the full plan, the terms of the full plan continue to govern participants’ entitlements. Similarly, other employee communications cannot be used to change the terms of the pension plan. As such, the Court concluded that ERISA does not prevent CUNA Mutual from making the Plan amendments in question, and affirmed the district court’s grant of summary judgment.

Note the influence of CIGNA Corp. v. Amara. We expect to see a lot of this in future cases involving ERISA.

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