Early Retirees Non-vested in Health Benefits Lack ERISA Standing

September 23, 2008 (PLANSPONSOR.com) - The 9th U.S. Circuit Court of Appeals has determined that early retirees do not have vested rights to retirement health benefits, so they lack standing to sue under the Employee Retirement Income Security Act (ERISA) for continuation of those benefits.

In dismissing the retirees’ claims for lack of subject matter jurisdiction, Judge Diarmuid F. O’Scannlain, writing for the majority, pointed out that to establish standing to sue under ERISA, the early retirees must show that they are plan “participants,” which the Supreme Court has defined as having “a reasonable expectation of returning to covered employment” or having “‘a colorable claim’ to vested benefits.”   O’Scannlain noted that ERISA does not require that welfare benefits, including health benefits, actually vest.

He also cited several cases in which the court found that “if the pensioners’ medical insurance constituted a vested benefit, that benefit could not be ended without the pensioners’ consent” and that the employee’s rights under an insurance policy were not vested because the employer retained the right to change the policy without the employee’s consent. Similarly, other circuits have held that vesting a right or benefit means to render it “forever unalterable.”

Applying this interpretation of vesting, O’Scannlain said the district court was correct in concluding that the early retirees’ health benefits are not vested. He noted that the collective bargaining agreement (CBA) and closure agreement both incorporate a plan booklet, which expressly reserves to Simpson Paper Co. “the right to alter, amend, delete, cancel or otherwise change welfare . . . plan benefits at any time, subject to negotiation with the Union.”

O’Scannlain conceded that the plan booklet provides a specific duration for which the benefits are promised, which can in some circumstances indicate vesting. However, when read together with the reservation-of-rights provision, the plan allows such benefits to be altered, or even terminated, without the retirees’ consent, which defeats vesting.

In a dissenting opinion, Judge Susan P. Graber said, “The majority confuses subject matter jurisdiction with the merits.” She conceded that the plaintiffs may lose on the merits of the case, “but their federal claims are not frivolous.”

Graber noted that the relevant CBAs and benefit plans explicitly provide that early retirees’ and spouses’ health care benefits are to continue after the agreements’ expiration, which gives the court federal question jurisdiction over the action pursuant to the Labor Management Relations Act.

Graber further argued that because the CBAs granted the retirees the right to continue receiving benefits subject to Simpson Paper Co.’s negotiating with the union, which may or may not have occurred, genuine issues of material fact remain in the case.

The opinion in Poore v. Simpson Paper Co. is here .