ERIC Disagrees with Court About Vested Retiree Health Benefits

July 30, 2014 ( - The ERISA Industry Committee (ERIC) is urging the U.S. Supreme Court to reverse a federal court ruling that one company’s collectively bargained retiree health benefits are vested for life.

In an amicus brief filed with the U.S. Supreme Court, ERIC asks the high court to reverse a decision by the 6th U.S. Circuit Court of Appeals in M&G Polymers v. Tackett. The appellate court reached the conclusion that retirees had a vested right to health care benefits and, in the absence of evidence to the contrary, a vested right to contribution-free health care benefits. Those benefits could not be bargained away without retiree permission.

ERIC argues that courts should not presume that silence regarding the duration of retiree health benefits in collective bargain agreements (CBAs) means the parties intended those benefits to vest for life. ERIC notes that other circuits have adopted a variety of approaches for evaluating the vesting issue, but none has applied the 6th Circuit approach, and the 3rd Circuit has essentially adopted a presumption that the benefit is not vested. 

The brief specifically argues that vesting should not be held to exist unless there is clear and unambiguous language providing for such, emphasizing that no reasonable employer can be deemed by implication to have unalterably committed itself to provide such uncertain and costly benefits for life.

“If the parties wish to negotiate lifetime health care benefits for retirees and their families, they are free to do so. But such lifetime benefits should not be a ‘gotcha’ sprung by the judiciary on employers who never intended to assume such costly and unpredictable burdens,” the brief argues. “Thus, unless clearly stated otherwise, the terms of a collective bargaining agreement pertaining to retiree health care benefits should apply only to those employees who retire during the term of the agreement and only for the duration of the agreement.”

The brief explains that requiring parties to state their intentions clearly is all the more appropriate because Congress, in enacting the Employee Retirement Income Security Act (ERISA), consciously imposed a vesting standard for pension benefits but not health care benefits. In distinguishing between the two types of benefits, Congress recognized that it is easier for employers to anticipate the costs of pension plans, but health care costs, by contrast, are inherently uncertain, as new treatments, technologies and drugs are always emerging, ERIC says.  

Moreover, the brief urges the Supreme Court to expressly reject the “flawed rules” of contract interpretation applied by the 6th Circuit in the case. In finding that retiree health care benefits had vested for life, as it has done in prior cases, the 6th Circuit relied on a series of special rules of contract interpretation that it has created in this context, the brief explains. “Applying traditional rules of contract interpretation, the judgment … must be reversed because the collective bargaining agreements at issue here do not include a clear and unambiguous statement (or, indeed, any statement at all) of an intent to vest benefits,” the brief maintains.

Finally, the brief contends that, even assuming for the sake of argument that it was appropriate for the 6th Circuit to have relied on non-legal policy considerations to support its presumption favoring vesting based on the 1983 ruling in UAW v. Yard-Man, Inc., such policy considerations have changed dramatically since then. Since Yard-Man was decided, a number of changes have significantly expanded the availability and affordability of health care benefits for both pre-65 and post-65 retirees. Expansions in Medicare coverage, as well as the enactment of the Affordable Care Act and other “pathmarking” health care-related legislation, have created health care options that did not exist in 1983. Those changes have dramatically shifted the landscape for post-employment health care benefits and undermined the policy considerations (if any) that the 6th Circuit may have originally relied upon in fashioning the so-called Yard-Man presumption, the brief stresses. 

“These options ensure that retirees and their families will have access to affordable, comprehensive healthcare coverage even in the absence of the Sixth Circuit’s artificial rule that unilaterally imposes lifetime health care obligations on employers,” despite the lack of clear agreement and intent to do so, the brief concludes.

The case will be heard and decided by the court in its upcoming term which commences in October.

ERIC’s brief is here.