The United States Supreme Court ruled last month that retirees do not have lifetime contribution- free health care benefits where a collective bargaining agreement contains a “durational clause” limiting all the benefits, even though the clause did not reference health care specifically. A copy of the case of CNH Industrial, N.V. v. Reese et l is attached.
The case involved a suit by retirees against their former employer who had entered into a collective-bargaining agreement in 1998 that created vested lifetime health care benefits. The agreement said “All other benefits, such as life insurance, cease upon retirement.” The agreement also contained a provision, called a “durational clause” stating that the agreement “would terminate in May 2004”.
When the agreement expired in 2004, a class of retirees and surviving spouses sued for a court order that they have benefits for life and to prevent the employer from stopping them.
The Sixth Circuit Court of Appeals ruled in the retirees’ favor saying the agreement was ambiguous and that the intent of the parties was to cover lifetime health care benefits because it did not specify health care benefits in the provision stating that all benefits would cease upon retirement and because the agreement “tied” health care benefits to lifetime pension benefits.
The Supreme Court reversed the Sixth Circuit and held the agreement was not ambiguous. It enforced its long-standing principle that ERISA plans are interpreted “according to ordinary principles of contract law”. Those generally mean that the
Court must not go outside the contract (extrinsic evidence) to interpret the agreement, unless the contract is clearly ambiguous. The Court ruled the Sixth Circuit had made certain “inferences” that were outside the way courts should interpret ERISA plans.
The Supreme Court had previously reversed the Sixth Circuit for similar “inferences” in interpreting an ERISA plan in a 2015 case, M&G Polymers USA, LLC v. Tackett, et al. (before the appointment of Trump nominee Justice Gorsuch).
The Supreme Court emphasized in Tackett and again in CNH that it will strictly enforce “durational clauses” regarding ERISA benefits in a collective bargaining plan and that it will not allow a court to “create lifetime benefits” where those are not clearly spelled out in the agreement.
Key Takeaway: if you are a retiree or potential retiree covered under a collective bargaining agreement, or an provider rendering services to one, do not automatically assume there will be lifetime benefits, even if you have been told so. Get a copy of the actual agreement from your employer, union or patient and check it in light of the above cases which currently are the law of the land. If you are a negotiator for employees, be sure to spell out explicitly that retirees will have lifetime health care benefits despite a plan’s durational clause.