Reese v. CNH America LLC, Nos. 08-1234/1302/1912 (6th Cir. 2009) is the latest federal appellate court case dealing with whether and to what extent an employer may eliminate or modify retiree health care benefits. The case was brought by a group of former employees and their spouses who sought, among other things, a declaration that they are entitled to lifetime health care benefits from the employer. The case ultimately found its way to the Sixth Circuit Court of Appeals. There, the Court found that a collective bargaining agreement (the “CBA”) granted retirees health care benefits for life. However, the Court was unable to determine the scope of those benefits, and remanded the case to the district court to make that determination.
In analyzing the case, the Court said that, while ERISA heavily regulates a promise to provide lifetime pension benefits to retirees, a promise to provide lifetime health care benefits to retirees is regulated solely by contract. The promise of health care benefits is reviewed by the Court differently, depending on whether or not the promise stems from a CBA. If the health care benefits were not collectively bargained, the Court requires a clear statement in the plan document that lifetime coverage was intended in order to conclude that the employer meant to promise health care benefits for life. By contrast, where-as here-the health care benefits stem from a CBA, the Court will apply ordinary principles of contract interpretation to determine whether those benefits are to be provided for life.
In this case, the CBA, as in effect during 1998, stated that an employee who retires under the company hourly pension plan after 7/1/94, or his or her surviving spouse if eligible to receive a pension under that plan, is eligible for health care benefits, and no contributions are required to receive these benefits. The Court concluded that this language indicates an intention to create health care benefits for life. It ties entitlement to the health care benefits to retirement and to eligibility for a pension, and it does not contain a specific clause which limits the duration of the benefits. The Court noted that the governing SPDs warn that an amendment or termination of the company’s benefit plans may affect a retiree’s health care coverage. This warning may be treated as a reservation of rights, which prevents the health care benefits from being lifetime benefits, so that the employer may terminate or change the health care benefits at any time. However, the Court further noted that the SPDs also contained language indicating that the governing CBAs represent the full commitment of the employer as to benefits, and that the CBAs will govern in the case of any discrepancy between the CBAs and the SPDs. Thus, notwithstanding the reservation of rights clause in the SPDs, these other statements in the SPDs prevent the employer from having a unilateral right to terminate or change the health care benefits. Based on the foregoing, the Court concluded that the retirees’ health care benefits are lifetime benefits.
But exactly what health care benefits were promised? The Court could not tell. The Court found that the CBA and related documents did not say anything about subsequent modifications to the health care benefits, and the provisions of the CBA, extrinsic evidence provided by the parties and common sense suggests that the parties contemplated reasonable modifications. As such, the Court ruled as follows. The plaintiffs are entitled to health care benefits for their lives. But this does not mean that that these benefits must be maintained precisely at the level provided by the CBA in effect in 1998. The employer cannot terminate all health care benefits for the retirees, but it may reasonably alter them. Subject to this guidance, the case is remanded to the district court to decide how and in what circumstances the employer may alter the retiree’s health care benefits.