Form-Promised Benefits Creates ERISA Obligations

August 27, 2001 ( -An employer that promised lifetime benefits for retirees violated ERISA when it eliminated a Medicare reimbursement program, according to a federal judge.

In McMunn v. Pirelli Tires, LLC, the US District Court for the District of Connecticut found “undisputed” evidence that Pirelli had told retirees “over a period of thirty years that [they] would have medical benefits from ‘womb to tomb?,” and that their “benefits would be the same in retirement as during employment,” according to BNA Pension Reporter.

Form Is Substance

The court found that language used in the applications for the Medicare B premiums stated “this benefit is payable for the lifetime of the retiree and/or spouse” ? language that the court said created a vested benefit, and the denial of reimbursements by Pirelli therefore constituted a violation of the Employee Retirement Income Security Act (ERISA).

Despite that commitment, Pirelli, faced with the rising costs of medical insurance, amended its medical benefit plans to require retiree contributions in 1993.

Duration Challenge

However, District Judge Janet Bond Arterton found that the employer did not violate ERISA with respect to amendments it made to retirees’ medical insurance benefits and prescription drug coverage, since the retirees failed to show that such benefits were vested.

The court refused to find such a lifetime commitment in the lack of “durational language” in the plan document regarding the vested rights to those benefits. Instead, the court found that the retirees did not have vested rights in such benefits, despite plaintiff arguments that they had received oral commitments from “high-ranking” Pirelli employees. The court found those statements, that “benefits will continue in retirement” was ” not a material misrepresentation because the statement is neither untrue or misleading, and could not create a reasonable expectation that benefits had vested.”

The court did note that just three of the 48 retiree plaintiffs proved that they had relied on those representations to their detriment. The three in question all opted for early retirement, claiming that they would have continued to work but for the promise of “locked in” benefits made at retirement.

– Nevin Adams