What Impact do Collective Bargaining Agreements Have on Vesting of Retiree Welfare Benefits? Supreme Court Set to Hear Retiree Health Care Benefits Case.
The Supreme Court has agreed to resolve a split in the U.S. Circuit Courts of Appeals over the rules for construing collective bargaining agreements that provide for retiree health care benefits. On May 5, 2014, the Court granted a petition for certiorari in M&G Polymers USA, LLC, et. al. v. Hobert Freel Tackett, et. al, No. 13-1010, cert. granted, May 5, 2014, a case examining if the right to receive retiree heath benefits under a collective bargaining agreement has vested. At issue is whether courts should presume that silence in a collective bargaining agreement concerning the duration of retiree health care benefits means the parties intended those benefits to vest and continue indefinitely, as the Sixth Circuit held, or if courts should require at least some language in the agreement that can reasonably support an inference that retiree health care benefits were intended to vest (and therefore must continue indefinitely). The case promises to resolve a long-standing conflict among the circuits on this issue and provide guidance to employers and multiemployer plan sponsors, just as they are reviewing their retiree health benefit plans for compliance with new requirements under the Affordable Care Act (“ACA”).
The case arose after M&G Polymers USA, LLC (“M&G”) informed its retirees in December 2006 that they would be required to contribute towards the costs of their health care insurance benefit premiums under M&G’s retiree health plan. In February 2007, the retirees, their dependents and their union filed a class action in the United States District Court for the Southern District of Ohio, alleging that language in their effective collective bargaining agreements promising a “full Company contribution towards the cost of [health care] benefits” provided them with a vested right to receive cost-free health care benefits for life. The plaintiffs asserted three claims: (1) violations of labor agreements under the Labor Management Relations Act (“LMRA”); (2) violations of an employee welfare benefit plan under section 502(a)(1)(B) of the Employee Retirement Income Security Act of 1974 (“ERISA”); and (3) breach of fiduciary duty under ERISA section 502(a)(3).
The District Court granted M&G’s motion to dismiss all three claims, holding that the retirees were subject to various agreements between their union and successive employers, including certain side letters and agreements, which limited the effect of that promise. These side letters were referred to as “cap letters,” because they capped the company’s contribution towards the cost of retiree health benefits (e.g., they specified various coverage maximums and dates when required contributions would begin). However, the cap letters were not reproduced in the relevant collective bargaining agreements and, allegedly, were not ratified as part of the agreements. The retirees and their union appealed to the Sixth Circuit, which reversed in part, concluding that the retirees had sufficiently pleaded the parties’ intention for the retiree health care plan benefits to vest and therefore should have survived the motion to dismiss. It was remanded for further proceedings. In reaching its conclusion, the Sixth Circuit relied heavily on International Union, United Automobile Workers of America v. Yard-Man, Inc., 716 F.2d 1476 (6th Cir. 1983), a seminal Sixth Circuit case that held that any retirement benefits obtained through a collective bargaining agreement are presumed to vest and continue beyond the expiration of the agreement (commonly referred to as “the Yard-Man inference”). The Sixth Circuit affirmed the District Court’s dismissal of the breach of fiduciary duty uclaim.
On remand, the District Court conducted a bench trial on the issue of liability and found the retirees had a vested right to cost-free health care benefits for life, reasoning that the cap letter language at issue was irrelevant, given the Yard-Man inference’s presumption in favor of vesting. The Court issued a permanent injunction reinstating the retirees’ lifetime, contribution-free health care benefits and barring M&G from collecting retiree medical contributions. M&G then appealed to the Sixth Circuit, which affirmed the District Court’s decision in August 2013, again guided by the Yard-Man inference, and approved the District Court’s inference that the collective bargaining agreement language vested a right to lifetime, contribution-free benefits in the absence of any extrinsic evidence to the contrary. The Sixth Circuit concluded that although the cap letters were potentially extrinsic evidence against vesting, they were insufficient to counter the retirees’ argument once vesting was assumed.
In February 2014, after its petition for rehearing en banc was denied, M&G filed a petition with the Supreme Court seeking a writ of certiorari to review the Sixth Circuit’s judgment.
Question to the Supreme Court
The Supreme Court has agreed to consider one of two questions M&G posed for review — the question of whether courts should take one of the following three circuit approaches when construing retiree health plan benefits in LMRA cases:
- when construing collective bargaining agreements, courts should presume that silence concerning the duration of retiree benefits means the parties intended for those benefits to vest (per the Sixth and Eleventh Circuits, aka the Yard-Man inference); or
- the courts should require a clear statement that health care benefits are intended to survive the termination of the collective bargaining agreement (per the Third Circuit). Under this approach, retirees are precluded from using extrinsic evidence to prove an alleged intent by an employer to vest the benefits; or
- the courts should require at least some language in the agreement that can reasonably support an inference that health care insurance benefits should continue indefinitely (per the Second and Seventh Circuits).
The Supreme Court declined to consider the second question posed by M&G for review — whether, as the Sixth Circuit has held in conflict with the Second, Third, and Seventh Circuits, different rules of construction should apply when determining if health care benefits have vested in pure ERISA health and welfare plans versus collectively bargained health and welfare plans.
The Supreme Court’s review of this case is noteworthy for several reasons. For starters, it will bring an end to the circuit split over which presumption must be followed, if any, when determining whether medical benefits for retirees are vested. Under ERISA, health care plans are welfare benefit plans, for which benefits vest only when the plan document expressly so provides. This is in contrast to pension plans, where benefits must vest by operation of law. The difference between circuits holding that such benefits are not vested absent explicit collective bargaining agreement language to that effect and circuits adopting the Yard-Man inference is drastic, resulting in disparate interpretations of otherwise identical collective bargaining agreements and leading to opposing results, depending on where the parties end up in court. The recent increase in retiree health care plan litigation necessitates a uniform rule to prevent inappropriate forum-shopping. Furthermore, given the rising costs of maintaining lifetime retiree health care benefits, the lack of uniformity can have a significant impact on an employer’s bottom line and its decision to provide such benefits to its retired employees.
It is anticipated that the Supreme Court’s decision in M&G Polymers v. Tackett sometime during the 2014 – 2015 Term will provide clarity to employers, unions, and retirees on an important employer benefit issue that could have considerable practical consequences.