The Sixth Circuit has decided two new cases regarding ERISA lifetime retiree healthcare benefits under a collective bargaining agreement, continuing to put a thumb on the scale in favor of vested benefits, but recognizing that an employer may have the right to make “reasonable modifications” to those benefits. In an earlier post, we discussed the hurdles in place for employers attempting to reduce or eliminate these benefits.
In Reese v. CNH Am. LLC, No. 08-1234/1302/1912 (July 27, 2009), a group of retirees sought a declaration that they were entitled to lifetime healthcare benefits under a 1998 collective bargaining agreement (CBA), and that CNH was required to “maintain the level of retiree health care benefits currently in effect.” The district court granted the retirees judgment, and CNH appealed. The CBA stated that CNH would provide healthcare benefits to retirees at no cost and tied eligibility for healthcare benefits to eligibility for pension benefits—“‘[e]mployees who retire [under the pension plan]. . . shall be eligible for’ health-care benefits” and “‘[n]o contributions are required for the Health Care Plans.’” While the CBA limited the duration of other benefits, it was silent as to the duration of these benefits. The Sixth Circuit found its earlier decision in Yolton v. El Paso Tenn. Pipeline Co., 435 F.3d 571 (6th Cir. 2006) involving identical language and circumstances to be indistinguishable, although Yolton was merely a preliminary injunction decision, rather than a decision on the merits.
The Sixth Circuit restated the familiar rule from its Yard-Man line of cases that although there is no presumption that negotiated benefits vest, there is an “inference” that “it is unlikely that [welfare benefits] would be ‘left to the contingencies of future negotiations’” so long as there is either explicit contractual language or, in the event of ambiguity, extrinsic evidence of an intent to vest healthcare benefits. The Sixth Circuit found that the language in this case was sufficient to vest the healthcare benefits and make it unlawful for CNH to terminate the benefits.
The Sixth Circuit next acknowledged that if a summary plan description contained unqualified reservation-of-rights language, to the effect that the employer had a unilateral right to terminate coverage, and if the union failed to grieve or object to such language, then such reservation-of-rights language “prevent[s] retiree benefits from vesting” even if the summary plan description was distributed after the effective date of the CBA. But in this case, while the summary plan description stated that the employer had the unilateral right to terminate benefits, it also stated that the CBA language controlled in the event of a conflict. Accordingly, the employer was prevented from making any unilateral changes in benefits.
However, because the CBA was silent as to changes in benefit offerings and because benefit levels and offerings for retirees had changed from CBA to CBA, the Sixth Circuit held that CNH was permitted to make reasonable changes to these benefits. The Sixth Circuit remanded to the district court for findings on the extent to which the CBA allows for reasonable modifications to the scope of healthcare benefits for retirees.
In Schreiber v. Philips Display Components Co., No. 07-2440 (6th Cir. Sept. 2, 2009), the Sixth Circuit held that language in the CBA providing that retirees “are entitled to purchase health insurance coverage on the same terms and at the same employee contribution levels as in effect for active employees” and “group insurance in force upon the signature date of this Collective Bargaining Agreement shall remain in full force and effect until September 28, 2003” was ambiguous as to whether the retiree benefits were limited to the duration of the CBA. Therefore, the Sixth Circuit ordered the court to review the plan document and other extrinsic evidence regarding the intent of the parties as to whether the durational limit applied to the retiree benefits, or just to the CBA itself.
These decisions provide a reminder to employers that agreeing to less than precise language about retiree health benefits in a collective bargaining agreement may result in obligations long into the future. In addition, these cases raise interesting questions about the extent to which carefully designed plan documents and summary plan descriptions may establish the right to amend and terminate retiree health benefits, notwithstanding ambiguous collective bargaining agreement provisions.