Retiree Health Benefits After the Fall of Yard-Man
Since 1983, the Sixth Circuit had applied an inconvenient presumption that retiree health benefits established through collective bargaining were vested benefits unless the terms of the collective bargaining agreement (“CBA”) expressly limited their duration. For decades, the Yard-Man presumption of vested retiree health benefits (from UAW v. Yard-Man) loomed over the heads of Sixth Circuit employers that sought to reduce or eliminate these benefits as a means of controlling costs.
Just last week, a unanimous Supreme Court provided some relief in M&G Polymers USA, LLC v. Tackett. In summary, the Court ruled that CBAs should be reviewed under ordinary contract principles to determine whether retiree health benefits are vested. Under ordinary contract principles, a presumption of vesting is not appropriate, and the Court sent the case back to the Sixth Circuit for a second look at the CBA. After Tackett, employers are better armed to take a legal stand in defense of modifications to retiree health benefits, and the Court’s analysis in Tackett seems to favor a finding that benefits are not vested in CBAs, even when there are no durational limitations or generic limitations. But even if the Yard-Man presumption was an inappropriate “thumb on the scale” in favor of retiree vesting, there is no guarantee that removing the thumb will always yield a favorable result for employers.
Questions linger about how the Sixth Circuit may apply the Tackett decision and the extent to which courts should consider extrinsic evidence that purports to show the parties’ intent when a CBA’s durational terms are ambiguous. As a result, there is still a litigation risk for employers that reduce or eliminate retiree benefits without clear authorizing language in the CBA and plan document. The easiest solution? To the extent possible, employers should negotiate and draft retiree health benefits provisions in CBAs to include language that expressly protects the employer’s ability to reduce or eliminate those benefits. It is also imperative that employers make sure that their retiree health plan documents allow them to amend, terminate, or modify the plan at their discretion.