On August 7, 2012, the United States Court of Appeals for the Eighth Circuit upheld unilateral changes to retiree benefits by Whirlpool Corporation (“Whirlpool”) for former employees of Maytag Corporation (“Maytag”), which was acquired by Whirlpool in 2006.
When Whirlpool acquired Maytag, certain Maytag employees in Newton, Iowa, were covered by a collective bargaining agreement which provided, inter alia, retiree health benefits. In 2008, the United Auto Workers (“UAW”) terminated the collective bargaining agreement (“CBA”) upon its expiration. When Whirlpool and the UAW began negotiations over a new CBA, the UAW refused to bargain over retiree health benefits on the basis that such benefits were vested by the parties’ prior CBA, which had been signed in 2004.
Whirlpool filed an action in the United States District Court for the Southern District of Iowa seeking a declaratory judgment that Whirlpool had the right to unilaterally change the retiree medical benefits upon the expiration of the CBA. The district court entered judgment in favor of Whirlpool.
On appeal, as it had in the district court, the UAW argued that the case should be dismissed because, at the time Whirlpool filed the action, there was no active case or controversy under Article III of the Constitution. The Eighth Circuit affirmed that there was an active controversy because the UAW refused to negotiate over such benefits, which are only a permissive, rather than mandatory, subject of bargaining. Thus, Whirlpool could not compel the UAW to negotiate over whether or not retiree benefits were vested. Thus, because Whirlpool knew there was a dispute over whether retiree benefits were vested and because Whirlpool could not compel bargaining over that issue, the Court held that seeking declaratory judgment was the only way Whirlpool could test its position on this issue.
Reaching the merits of whether retiree benefits were vested, the Court noted that ERISA does not mandate that employee welfare benefit plans provide vested benefits and that, therefore, unless an employer has contractually agreed to provide vested benefits, it may unilaterally modify or terminate the benefits at any time. Examining the retiree medical plan documents, the Court noted that the summary plan description (“SPD”) issued during the term of the 2004 CBA expressly granted Maytag the right to unilaterally modify, suspend, or terminate the plan.
The Eighth Circuit held that while an SPD may not strip collectively bargained rights, an unchallenged SPD may clarify that plan benefits are not vested. Moreover, the Court noted that nothing in the 2004 CBA and related agreements unambiguously vested the retirees’ rights. The Eight Circuit accordingly agreed with the district court that the UAW failed to satisfy its burden to include express vesting language or to present specific evidence establishing that Maytag had agreed to provide vested retiree medical benefits.
While the Eighth Circuit gave some credit to language indicating that certain benefits would continue during a retiree’s life, the Court held this was not an unambiguous granting of vesting rights, particularly in light of the SPD language and other contrary evidence. Moreover, the Eighth Circuit held that because the SPD language expressly reserving the right to modify benefits was unambiguous, it was unnecessary and improper to examine other extrinsic evidence.
This case provides an important reminder to sponsors of plans offering unvested benefits of the importance to provide clear, unambiguous language expressly reserving the company’s rights to modify benefits at any time and for any reason. Moreover, in light of the Supreme Court’s decision last year in Cigna Corp. v. Amara, 131 S. Ct. 1866 (2011), such language is best placed in the plan document itself instead of, or, even better, in addition to, an SPD.
The case is Maytag Corp. v. International Union, United Automobile, Aerospace & Agricultural Implement Workers of America, No. 11-2931 (8th Cir. Aug. 7, 2012).