Much hinges on the Yard-Man inference, from a UAW case about the vesting of union retiree benefits. If there are gaps in the language to specify in complete detail the plan’s intentions about health care benefits, should that silence be interpreted to benefit the employer’s wishes? Or the employees’?
How should a plan sponsor understand how to carry out the plan’s intentions when they are not explicitly spelled out?
“A promise of unalterable, costly health care benefits should be negotiated at the bargaining table, not imposed at the courthouse,” said Allyson Ho, an attorney for the petitioners. “In a series of cases, the 6th Circuit has required courts to infer from contractual silence a promise of vested benefits.”
Calling the case one of her favorite subjects, Nancy Ross, a partner at Mayer Brown in ERISA litigation and employment, tells PLANSPONSOR, “First, it’s a very loud statement that the Supreme Court took the case in the first place. For years, parties in retirement medical benefits and the court have routinely denied the petition.” The argument against taking such cases, she explains, is that they are seen as analyses of contracts.
However, as Ross notes, what is this case but a dispute over language in a contract? “[The Supreme Court] took this case, and the entire argument was really over addressing a contract,” she says. “I like to think they took it because they recognize the critical status of health care in this nation.”
Another factor that may play a part in the Supreme Court’s decision to take the case is a foundational principle of the Employee Retirement Income Security Act (ERISA). Ross notes that a consistent principle handed down by the Supreme Court in ERISA cases is the idea that courts cannot make the administration of plans so onerous that employers stop offering them. “If [the plan sponsor] were forced to litigate in the 6th Circuit, it would most likely not be able to take action with respect to these benefits,” she says.
Yard-Man can rock the balance of how ERISA plans administer benefits, Ross says. Theoretically, employers could be forced to provide benefits they did not promise, she explains. The balance in the ERISA system is that employers must provide what they promise, but they have the freedom to decide what those benefits will be. If a court interprets these inferences and presumptions, it takes away the employer’s ability to decide what to provide, according to Ross.
In Ross’s view, the petitioner’s counsel, Ho, argued correctly when she said this is not an ordinary principle of contract interpretation. “It’s fascinating that both sides, at least superficially, are requesting the same relief,” Ross observes. “But both sides define that relief differently.” The respondent would like the case remanded to the 6th Circuit to apply ordinary principles of contract interpretation.
If you peel back the first layer, Ross says, the petitioner’s view is that where there is silence, it does not mean a statement of intent to vest. When the contract expires, all terms and conditions expire. The opposing view, that of the respondents’, asks the Supreme Court to tell the 6th Circuit to apply ordinary principles of contract interpretation, but these are defined as looking at the contract to see if there is language that is “reasonably susceptible.”
If the court says, "We are remanding to the lower courts to apply ordinary principles," it will be ineffective. All courts will have the freedom to decide what those traditional rules of contract interpretation are, unless the court gives guidance. "I didn’t get the feeling court would give much guidance about what those principles are," Ross said.
In Ross’s view, “You can’t interpret silence to mean what you want it to mean.” The court could issue a very narrow opinion, she says, based on the facts of this one case only, saying we agree or disagree with the conclusion of the 6th circuit. The court could decide they do not think there is enough evidence without applying the ordinary contract principles without any presumption or inference. However, she said, Yard-Man likely will have to be factored in, in some way.
A transcript of the arguments is here.
« Paper Advocates for Wider Use of Longevity Annuities