One of the unfortunate results of this economic crisis is that employers are cutting benefits, i.e. the 401(k) match, pension benefits, retiree medical, etc. Thus, the outcome of this Sixth Circuit case–Winnett, et al v. Caterpillar, Inc.–is very relevant because it deals with the issue of whether retiree medical benefits had “vested.” While qualified plans are subject to formal vesting rules under ERISA, retiree medical plans are not. Therefore, many times the outcome of litigation over retiree medical benefits will depend upon the plan language and collective bargaining agreements involved. That is exactly what happened in the Winnett case.
An interesting twist to the case was the fact that the plaintiffs had retired between the time that a 1988 collective bargaining agreement (“CBA”) had expired and before the time that the employer and the UAW had agreed to a successor agreement. Therefore, because they had retired after the expiration of the CBA, the only way the plaintiffs could prevail was to argue that their right to no-cost retiree medical benefits had “vested” when they became eligible to retiree, even though they did not actually enter retirement until after the CBA had expired.
The District Court had concluded that the right to the retiree medical benefits “vested when the employees attained retirement or pension eligibility,” even for those who continued working after becoming retirement-eligible. Winnett v. Caterpillar, 496 F. Supp. 2d 904, 922 (M.D. Tenn. 2007). However, the Sixth Circuit overturned the District Court, saying that the earlier Sixth Circuit cases which the District Court had relied on had involved cases where contract language linked retiree medical benefits to pension eligibility and where the plaintiffs had actually retired under such contract language. Here the Court emphasized that the retirees had not retired until after the expiration of the CBA.
Generally, when retiree medical benefits are offered, they are often referenced in a number of documents involving benefits. Here there was (1) a collective bargaining agreement (2) a summary plan description, and a (3) Group Insurance Plan with scant language really describing the extent of the benefits being offered. Interestingly enough, the document a court would normally look to for such answers–the retiree medical plan document itself–was apparently non-existent. While ERISA would generally require that a retiree medical plan be evidenced by plan documents, courts will generally look to whatever documents they can find for trying to determine the intent of the parties.
Employers who wish to avoid litigation in this area should make sure that the terms of their retiree medical plans are set forth in plan documents and that the right to terminate, amend or change the terms of such benefits is clearly stated in the plan document, the summary plan description, and in any written communications to retirees. Employers should not assume that a benefits booklet supplied by a health insurance provider will contain the language which is necessary to protect the employer from costly litigation.