ERISA-Third Circuit Rules That Retiree Health Benefits Vest Even Though Summary Plan Descriptions Contain Reservation of Rights Clauses

In In Re: Unisys Corporation Retiree Medical Benefits ERISA Litigation, Nos. 07-3369, 08-3025 and 08-3545 (3rd Cir. 2009), the plaintiffs were fourteen individuals who retired from employment with the Unisys Corporation (“Unisys”) between 1987 and 1989. Unisys had been providing retiree medical coverage, at no cost to retirees aged 65 and older, under its retiree medical benefits plans. The summary plan descriptions (“SPDs”) for those plans contained a “reservation of rights clause”, under which Unisys retained the right to amend or terminate the plans and the underlying benefits at any time. In 1992, after the plaintiffs had retired, Unisys announced the elimination of those retiree medical benefits plans and the implementation of a new medical benefits plan, effective January 1, 1993. Under the new plan, retirees had to pay an increasing portion of the cost of their coverage until January 1, 1996, at which time they had to pay the entire such cost. In reaction to the change, the plaintiffs filed this lawsuit, alleging that Unisys had breached its fiduciary duty to the plaintiffs under ERISA since, when counseling the plaintiffs as to whether they should retire, Unisys had (1) incorrectly told the plaintiffs that that their retiree medical benefits were vested and could not change, despite the reservation of rights clauses and (2) failed to adequately advise the plaintiffs about the reservation of rights clauses.

The specific ERISA fiduciary duty in question is that the fiduciary may not materially mislead plan participants. To establish a claim against a defendant based on a breach of this duty, the plan participants, as plaintiffs, must show that: (1) the defendant was acting in a fiduciary capacity, (2) the defendant made affirmative misrepresentations, or failed to adequately disclose information, to the plaintiffs, (3) the misrepresentation or failure to disclose was material and (4) the plaintiffs detrimentally relied on the misrepresentation or failure to disclose.

In focusing on the second element, the Court noted that Unisys had told the plaintiffs that, when they reached age 65, the plaintiffs would not have to pay any portion of the premiums for the retiree medical coverage. This statement is a misrepresentation, because it created the impression that the retirees would have the retiree medical coverage for the remainder of their lives, without the possibility of change, by failing to mention the reservation of rights clauses. The SPDs for the retiree medical plans disclose the existence of the reservation of rights clauses, but under Unisys policy, the SPD is delivered to a retiree only after he or she actually enrolls in the plans. Since the deliveries of the SPDs occurred after the misrepresentation was made in the instant case, the SPDs do not help Unisys.

After dealing with the other elements needed to establish the claim, the Court held that twelve of the fourteen plaintiffs had established that Unisys breached its fiduciary duty to them under ERISA, so that the plaintiffs’ retiree medical benefits were vested and could not be changed.

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