LG Philips Retirees Can Pursue Claim for Health Benefits

September 4, 2009 (PLANSPONSOR.com) - The 6th U.S. Circuit Court of Appeals has reopened a case in which retirees of LG Philips Displays are seeking to be reinstated with health benefits that ended after their previous employer filed bankruptcy.

For a group of former union employees, the appellate court ruled that a district court erred in concluding that a Collective Bargaining Agreement unambiguously states that Philips only “agreed to provide retirees ‘basic’ and ‘major’ medical insurance for the duration of the 2000 CBA.”

For a group of former salaried employees, the court agreed with the retirees that because non-party retirees who retired before July 1, 2001, still receive benefits, the health plans are not terminated. The court found LG Philips had to amend or modify the plans to exclude plaintiff retirees, and it failed to comply with the Employee Retirement Income Security Act (ERISA) procedures to do so; therefore its refusal to provide health benefits to the retirees is a breach of fiduciary duty.

In its opinion, the 6 th Circuit said the district court erred under precedent in construing the CBA for union employees as including a specific durational clause limiting retiree healthcare benefits to the duration of the CBA. The court case establishing the precedent found a durational limitation must include a specific mention of retiree benefits in order to apply to such benefits. The 6 th Circuit determined there is no language in the CBA that specifically states retiree benefits expire upon the termination of the agreement.

In addition, the appellate court said a “Medical Plans” section in the CBA is ambiguous, so the district court was wrong to not consider the health plan’s Summary Plan Description and extrinsic evidence when making its decision.

The court also rejected LG Philips argument that a prior arbitration opinion, in which the arbitrator held that Philips had no obligation to provide life insurance benefits to retirees who retired after the expiration of the CBA, collaterally estops plaintiffs from asserting their claims. According to the opinion, the precise issue raised in the present case must have been raised and actually litigated in the prior proceeding.

For the former salaried employees, the district court disposed of their claims, saying that “any breach of fiduciary duty by Defendants must come from the decision made by defendants’ parent company to transfer its assets and liabilities” to LG Philips. Because this act was “part of a business decision implemented by their parent company,” the district court held that “Defendants did not breach an ERISA fiduciary duty when Plaintiffs [sic] retiree health care benefits were terminated.”

However, the appellate court said the fact that Philips’ decision to transfer assets was not a fiduciary one under ERISA does not mean that it did not trigger ERISA obligations. While it “is firmly established . . . that ‘a company does not act in a fiduciary capacity when deciding to amend or terminate a welfare benefits plan,'” ERISA still provides instructions as to how an employer should properly amend or terminate a plan, the court said.

The case was remanded to the district court for further proceedings.

The decision in Schreiber v. Philips Display Components Company is here .