ERISA-Sixth Circuit Holds That Retiree Health Benefits Are Vested And Cannot Be Changed By The Employer

In Moore v. Menasha Corporation, Nos.10-2171/2173 (6th Cir. 2012), the plaintiffs are a group of retired employees, their spouses, and their union, who allege that their former employer, the defendant Menasha Corporation (“Menasha”), violated (among other things) ERISA, the LMRA and the terms of two collective bargaining agreements (“CBA”s) by denying the employees and their spouses lifetime vested healthcare coverage following the employees’ retirement. The district court ruled in the plaintiff’s favor as to the employees, but in the defendant’s favor as to the spouses. Both sides appealed.

Under the CBAs, when an employee retires, the employee and spouse continued to receive healthcare insurance from Menasha through a plan issued by Blue Cross Blue Shield of Michigan. While the retiree was between ages 62 to 65, Menasha paid 80% of the employee’s and spouse’s’ healthcare insurance premium costs. When the retiree turned 65, Menasha assumed 100% of the premium costs. However, in mid-October of 2006, Menasha informed the plaintiffs it would no longer assume 100% of the premium costs at age 65, but would pay only a portion of the costs, according to a schedule that Menasha provided. This suit ensued.

In analyzing the case, the Sixth Circuit Court of Appeals (the “Court”) said that, under ERISA and the LMRA, healthcare coverage is treated as being a purely contractual welfare benefit that an employer typically may alter or even terminate at its will. Nevertheless, the employer is free to limit its ability to alter or rescind healthcare coverage by contract. That is, the employer can promise-in a contract- to vest retirees in the healthcare benefits. Once vested, those benefits cannot be altered or terminated. Further, the Court said that, in deciding whether an employer has offered vested healthcare benefits under a CBA, a court (at least in the Sixth Circuit) will apply ordinary principles of contract interpretation. So long as that (Sixth Circuit) court finds explicit contractual language or extrinsic evidence indicating an intent to vest, that court applies the “Yard-man inference,” which requires a nudge in favor of vesting. Extrinsic evidence is used when the contract language is ambiguous.

Reviewing the CBAs, using extrinsic evidence as appropriate (the extrinsic evidence here included SPDs, statements by HR people, various letters and insurance contracts), and applying the Yard-man inference, the Court concluded that Menasha had provided lifetime vested benefits for employees and their spouses, which Menasha could not alter. Further, the CBAs expressly provided that they (the CBAs) could not be amended, except by the signed, mutual consent of the parties. This provision further precluded Menasha from unilaterally altering the retiree health benefits. As such, the Court entered judgment for the plaintiffs, in favor of the employees and spouses.

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