Struggling employers have been asking, can we reduce or eliminate retiree medical benefits? The Supreme Court has held that welfare benefits regulated by the Employee Retirement Income Security Act (ERISA) do not usually vest, and courts have generally followed the Sixth Circuit’s presumption that retiree medical benefits are not vested, unless the plan documents confer vesting. Thus, with proper reservation of the right to amend and terminate the plan, and consistent communications, an employer may be able to terminate these benefits without much risk of successful challenge.

But what if employees are unionized? In that case, the plan documents are not enough; courts also look to the terms of the collective bargaining agreement (CBA). And as the Sixth Circuit reminds us this month, the most important question just might be: in what court could this case be litigated? In Tackett v. M&G Polymers, USA, LLC, No. 07-4515/4516 (6th Cir. Apr. 3, 2009), the Sixth Circuit reversed dismissal of a retiree class action lawsuit, finding that the language in the CBA demonstrated an intent to vest retiree medical benefits sufficient to survive a motion to dismiss.

What CBA language is sufficient in the Sixth Circuit to establish that vesting of retiree medical benefits was not intended? No one knows. Since the seminal case in the early 1980’s, the Sixth Circuit has yet to find that a CBA did not vest retiree medical benefits. In UAW v. Yard-Man, 716 F.3d 1476 (6th Cir. 1983), applying the Labor Management Relations Act (LMRA) and disregarding the ERISA presumption that retiree medical benefits are not vested, the Sixth Circuit announced a rule by which retiree benefits are “status” benefits carrying an inference that they continue so long as the prerequisite status is maintained. When benefits accrue upon achievement of retiree status, there is an inference that the parties likely inferred those benefits to continue while the beneficiary remains a retiree. Extrinsic evidence is then reviewed if the CBA is silent about the duration of benefits, or ambiguous as to whether benefits are vested. With an inference of vesting, almost any CBA can be deemed to vest or to at least be ambiguous, thus shifting the burden to the employer to establish that it did not vest benefits. In Yolton v. El Paso Tenn. Pipeline Co., 435 F.3d 571 (6th Cir. 2006), the Sixth Circuit stated that the court “has never inferred an intent to vest benefits in the absence of either explicit contractual language or extrinsic evidence indicating such an intent.” Yet, in Yolton and subsequent cases, the Sixth Circuit has continued to find an intent to vest based on language that is not persuasive in other circuits. The Sixth Circuit did offer a glimmer of hope to employers in finding that the inference of vested lifetime retiree medical benefits did not extend to active employees who remained employed after a CBA expired, regardless of whether they were eligible to commence pension benefits. Winnett v. Caterpillar, Inc., 553 F.3d 1000 (6th Cir. 2009).

At issue in Tackett was a 2000 CBA that stated, “[e]mployees who retire on or after January 1, 1996 . . . [among other points-based eligibility requirements] . . . will receive a full Company contribution towards the cost of [medical] benefits.” (Emphasis in opinion.) The same paragraph of the CBA also outlined reduced employer contributions for retirees lacking the full number of points required for full retirement and stated, “[e]mployees will be required to pay the balance of the healthcare contribution.” At the time the CBA was signed, the employer did not require retiree contributions for retiree medical benefits. Several years later, however, the employer announced that it would require retirees to contribute to the cost of their medical benefits. Following the announcement, the retirees sued under Section 301 of the LMRA and Sections 502(a)(2)(B) and (a)(3) of ERISA.

The employer moved to dismiss the LMRA and ERISA claims, arguing that, among other things, the quoted CBA language did not establish a vested right to medical benefits. The district court agreed with the employer and dismissed.

The Sixth Circuit reversed. In so doing, the Court restated the familiar rule that medical benefits, as opposed to pension benefits, do not automatically vest upon retirement, but that employers and employees are free to vest them by agreement. The employer in Tackett argued that the “full Company contribution” language merely meant that the retiree would receive the full amount of the Company’s potential contribution to medical benefits, emphasizing that the employee was still required to pay the balance of the medical contributions for support. The retirees argued that the “full Company contribution” language suggests that the CBA conferred vested medical benefits. 

The Court agreed with the retirees that their complaint presented a plausible claim that the parties intended to vest medical benefits. The Court reasoned that it is unlikely that a union would agree to language that ensures its members a “full Company contribution,” if the employer could unilaterally change the level of contribution. Thus, the Court found the employer’s interpretation implausible because it would give the employer full discretion to set any contribution—including no contribution at all—rendering the promise wholly illusory.

The Court also agreed with the retirees that the language requiring employees to pay the balance of contributions can reasonably be interpreted to modify only the language regarding employees with less than the number of seniority points required for full retirement benefits. Finally, the Court applied another tenet of the presumption in favor of vesting, finding that because the CBA tied eligibility for medical benefits to the receipt of pension benefits, the parties must have intended the medical benefits to vest upon retirement. Consequently, the Court held that, for purposes of both LMRA Section 301 and ERISA Section 501(a)(1)(B), the CBA language suggests an intent to vest the medical benefits sufficient to withstand a motion to dismiss.

Finally, the Court affirmed the dismissal of the plaintiffs’ breach of fiduciary duties claims. The Court held that ERISA Section 502(a)(2)(B) provided full relief to the plaintiffs for their claims for benefits, making Section 502(a)(3)’s residual or “catchall” equitable relief unnecessary where, as here, the plaintiffs merely “repackaged” their benefits claims as breach of fiduciary duty claims. In affirming this dismissal, the Court only considered the plaintiffs’ complaint and declined to consider extrinsic evidence offered in support of their claims.

While we recognize that the negotiation of collective bargaining agreements is an art in and of itself, this decision should remind employers that the text of such an agreement can bind them to employee benefit obligations they may never have intended, for many years into the future. In the Sixth Circuit, at least, precise text appears to be required to specify that retiree medical benefits are not vested, to sever retiree medical benefit eligibility from pension benefit eligibility, to preserve the right to reduce or eliminate employer contributions, and to preserve the right to amend or terminate the retiree medical plan.

But the Tackett case is not all bad news for employers—the Court’s refusal to consider extrinsic evidence supporting the Section 502(a)(3) claim for benefits suggests that plaintiffs may actually have to specifically plead their claims rather than relying on affidavits and other “evidence” to avoid a motion to dismiss on scantly-pled allegations.