Unisys Loses Benefits Reduction Fight

October 12, 2006 (PLANSPONSOR.com) - A federal judge has ruled that the Unisys Corp. breached its fiduciary duties by telling a dozen former workers that they could get lifetime benefits for $20 a month, but not disclosing that Unisys could change the retirees' health coverage.

US Magistrate Judge Thomas Rueter of the US District Court for the Eastern District of Pennsylvania said in a 125-page opinion that 12 of the 14 plaintiff employees had proven they were hurt by relying on the benefits misrepresentations made by the company.

To repay them, Rueter recommended that the 12 employees were entitled to have restored to them the benefits that existed prior to Unisys’s decision to modify the plan to exclude free and low-cost medical coverage. However, Rueter did not recommend giving the ex-employees back medical premiums because such an award would not be called for under the Employee Retirement Income Security Act (ERISA).

US  District Judge Bruce Kauffman issued an order agreeing with Rueter’s findings and formally adopting his recommendations.

In his ruling, Rueter asserted that Unisys had a duty to convey complete information that was relevant to the employees’ retirement decisions. It wasn’t relevant that summary plan descriptions (SPD) provided to the retirees contained reservation of rights clauses giving Unisys the right to terminate or modify their benefits. The SPDs were confusing in that it was unclear whether the reservation of rights clause applied only to active employees’ benefits or whether it also applied to retired employees’ benefits, Rueter said.

Post-Merger Benefits

According to Rueter, Sperry Corp. and Burroughs Corp. merged in 1986 to form Unisys. Before the deal, Sperry and Burroughs provided their active employees and retired employees with medical benefits. After the merger, Unisys continued to provide the pre-merger benefits under the separately established plans, according to the court.

In 1988, Unisys created a new medical benefit plan for active employees. The same year, Unisys implemented a new medical plan for employees who retired after April 1, 1989.

The ruling said that Unisys announced in October 2002 that the retirees’ benefit plan would be replaced with a new plan effective January 1, 1993. Under the new Unisys plan, retirees were responsible for increasing levels of contributions until January 1, 1996, after which the retirees were forced to pay the full cost of their coverage under the plan.

According to Rueter, under the old medical plans, Unisys and its predecessors had subsidized most or all of the cost of premiums for retirees. The 14 former Burroughs employees filed a lawsuit against Unisys alleging the company breached its ERISA fiduciary duties.

Addressing the fiduciary status of the defendants, the court rejected Unisys’s contention that the alleged misrepresentations were not made by persons acting in a fiduciary capacity. The court found that all 14 of the employees had established that Unisys’s agents communicated with them about retiree medical benefits and such agents had apparent, if not actual, authority to make such communications.

The opinion in In re Unisys Corp. Retiree Medical Benefits ERISA Litigation, E.D. Pa., No. 03-3924, 9/29/06 is  here .