ERISA-Sixth Circuit Holds That Cap Limits Retiree Health Care Contributions

In Wood v. Detroit Diesel Corporation, No. 09-1252 (6th Cir. 2010), the defendant, Detroit Diesel Corporation (“Detroit Diesel”), and the union representing its workers entered into a series of agreements, starting in January 1993 (and outside of the collective bargaining agreements or “CBAs”), purporting to establish caps on Detroit Diesel’s contributions to the workers’ retiree health care benefits. These caps applied to workers who retired between 1993and 2004. Both Detroit Diesel and the union intended that these agreements would reduce Detroit Diesel’s balance sheet liability after an accounting rule change in late 1992 required–for the first time–that Detroit Diesel account for retiree health care costs on an accrual basis. The agreements included duration clauses, under which a cap would remain at the specified amount until the expiration of the related CBA. Detroit Diesel and the union did not renew the agreements capping the retiree health care contributions for the 1993-2004 retirees in later bargaining cycles, instead implementing a new retiree health care program for post-2004 retirees.

The matter in dispute was whether the caps on retiree health care contributions in the agreements continue to apply to 1993-2004 retirees, even after the close of the years covered by the agreements, and after the related CBAs expire . The Court interpreted the agreements to provide for lifetime, capped health care contributions, saying that this interpretation:

–is the most sensible reading of those agreements, as the agreements specifically limited Detroit Diesel’s contribution toward retiree health care benefits without providing for an expiration date for the limitation;

–is consistent with Detroit Diesel’s accounting obligations; and

–is consistent with prior case law, under which the duration clauses appearing in the agreements, which fail to include a specific expiration date for the caps, support the conclusion that the caps continue even after the after the close of the years covered by the agreements, and after the related CBAs expire.

The Court concluded that the agreed caps on the retiree health care contributions therefore continue to apply to 1993-2004 retirees.

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