ERISA-Sixth Circuit Rules (Again) That Retiree Healthcare Benefits Have Vested, Although Reasonable Changes By Employer Are Permitted

In Reese v. CNH America LLC, Nos. 11-1359, 11-1857, 11-1969 (6th Cir. 2012), the Sixth Circuit Court of Appeals (the “Court”) faced an unusual situation. Three years ago, the Court had remanded this dispute to the district court for fact finding necessary to determine whether CNH America’s proposed modifications to its retiree healthcare benefits are reasonable. However, the district court did not reach the reasonableness question, and did not create a factual record that would permit the Court to answer the question on its own. As a result, the Court remanded the case back to the district court for further proceedings.

In its earlier opinion, the Court had considered two questions: did CNH in a 1998 collective bargaining agreement ( the “CBA”) agree to provide healthcare benefits to retirees and their spouses for life? And, if so, does the scope of this promise permit CNH to alter these benefits in the future? In answering the first question, the Court had determined that the CBA did not allow the company to terminate the benefits since eligibility for lifetime healthcare benefits had vested. As to the second question, the Court had determined that the scope of the vesting commitment in the context of healthcare benefits, as opposed to pension benefits, did not mean that CNH could make no changes to the healthcare benefits provided to retirees. The parties to the CBA had to contemplate change. To illustrate, the 1998 CBA itself modified retiree healthcare to increase a retiree’s payment for using an out-of-plan doctor. The Court had concluded, as to the second question, that CNH could make reasonable change to the retiree healthcare benefits.

But what changes are “reasonable”? The Court had listed, in its earlier opinion, three considerations: Does the modified plan provide benefits “reasonably commensurate” with the old plan? Are the proposed changes “reasonable in light of changes in health care”? And are the benefits “roughly consistent with the kinds of benefits provided to current employees”? It then remanded the case to the district court to take evidence and to decide whether CNH’s proposed modifications were reasonable. As said above, the district court never made this decision.

This time, in remanding the case back to the district court, the Court said that the district court should weigh the above three considerations, and added that the district court should take evidence on at least the following questions:

• What is the average annual total out-of-pocket cost to retirees for their healthcare under the old plan (i.e., the pre-modified plan)? What is the equivalent figure for the new plan (i.e., the modified plan)?
• What is the average per-beneficiary cost to CNH under the old plan? What is the equivalent figure for the new plan?
• What premiums, deductibles and copayments must retirees pay under the old plan? What about under the new plan?
• What difference (if any) is there between the quality of care available under the old and new plans?
• What difference (if any) is there between the new plan and the plans CNH makes available to current employees and people retiring today?
• How does the new plan compare to plans available to retirees and workers at companies similar to CNH and with demographically similar employees?

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