Sixth Circuit: CBA’s General Durational Clause Controls Retiree Health Benefit Vesting Absent Express Contrary Language

In a class action lawsuit over retiree health benefits, a Sixth Circuit panel has reversed the trial court’s determination that three collective bargaining agreements (CBAs) vested affected retirees with unalterable lifetime health benefits. Case law on this issue has evolved since the U. S. Supreme Court’s rejection, in Tackett, of presumptions previously applied by the Sixth Circuit (see our Checkpoint article). According to this court, the new rule as developed in subsequent cases (see, for example, our Checkpoint article) is that the CBA’s general durational clause governs the duration of retiree health benefits unless the CBA affirmatively and unambiguously says otherwise. The three CBAs at issue contained varying provisions regarding retiree health benefits. One provided that the company would pay retiree premiums in accordance with the terms and provisions of its overall welfare benefit plan; another stated that retirees would have the “opportunity to continue” their health coverage; the third said that coverage for retirees “shall be” for “pre-65 coverage” only. The court explained that, to vest retiree benefits, a CBA must expressly state either that the general durational clause does not control the length of retiree benefits, or that such benefits continue past the agreement’s expiration. It concluded that none of these CBAs included the requisite language.

A dissenting opinion emphasized that the Supreme Court, in rejecting the old presumptions, instructed courts to apply ordinary principles of contract law when analyzing retiree health benefit vesting—without placing a “thumb on the scale” in favor of either party, and keeping in mind that the parties’ intentions control. According to the dissent, at least one of the CBAs contained a provision that would be meaningless if retiree benefits were intended to last only until the end of the CBA. This inherent ambiguity would allow for consideration of extrinsic evidence such as communications to employees, internal company documents, and statements by a company representative involved in the negotiations, all of which indicated that retiree health benefits were intended to continue for life. Whereas the rejected presumptions tended to weigh in favor of finding benefits vested, the new rule, according to the dissent, places a thumb on the scale in favor of the employer and weighs against finding benefits vested.

EBIA Comment: This case reiterates the importance of ensuring that CBAs clearly and unambiguously reflect the parties’ intent with respect to the duration of retiree health benefits. But, as the dissent points out, that will be of little help to retirees or prospective retirees subject to CBAs already in effect. For more information, see EBIA’s ERISA Compliance manual at Section XII.E (“Certain Benefits May Be Vested and Thus Protected From Amendment”) and EBIA’s Self-Insured Health Plans manual at Section XIV.D (“Retiree Eligibility”).

Contributing Editors: EBIA Staff.