Termination of retiree health benefits.

The Eighth Circuit recently found that 40 years of bargaining history between a company and a union failed to vest the workers in any retiree health benefits, and therefore upheld the company's unilateral termination of benefits that had previously been provided (Morrell v. United Food & Commercial Workers International Union, 37 F3d 1302 (8th Cir. 1994), reh'g denied, 1995). The union has indicated it will seek review by the Supreme Court. If accepted for review, this case will be the first Supreme Court test of the legal obligation of employers to continue health care benefits for retirees.

Beginning in the 1940s, Morrell and the union entered into a string of three-year collectively bargained master agreements. Prior to 1976, Morrell and the union bargained the issue of health care benefits for retired employees, and expressly included such benefits for "all retirees" in the master agreements. Each master agreement contained a general clause limiting the duration of the agreement to a three-year term. The 1976 master agreement deleted the reference to "all retirees" and provided that health benefits would continue only for employees who retired during the term of that agreement. In 1991, after negotiating a new master agreement, the issue arose of whether Morrell was obliged to continue health benefits to hourly employees who retired before April 1989 - the expiration date of the preceding master agreement. Morrell filed suit seeking a declaration that it could unilaterally modify or terminate the health care benefits. The union contended that the benefits were lifetime benefits vested under the Employee Retirement Income Security Act of 1974 (ERISA).

A Federal district court granted Morrell the requested declaratory relief, finding that the health benefits provided under any master agreement were limited to its three-year term and, therefore, were not vested under either the contract or ERISA. The Eighth Circuit agreed that the union failed to show that the plan granted more than what its plain language conferred.

The Court of Appeals noted that ERISA does not prohibit a company from terminating or modifying previously offered health benefits that are not vested. Although ERISA contains a strict vesting requirement for pension benefits, it expressly exempts employee welfare benefit plans from that requirement. Accordingly, a plan participant's interest in welfare benefits is not automatically vested, and employers have a statutory right to amend or terminate the terms of the plan "absent the employer's contractual agreement to the contrary." The court found that the master agreement had no express vesting provision relating to health care benefits.

The court observed that, in the past, retiree health benefits were routinely modified or reduced - but that neither the union nor any retiree had voiced objections that such changes impaired vested rights. The court observed further that modifications to the benefits were fundamentally inconsistent with the notion that any retirement benefits were ever contractually vested. Thus, the plain meaning of the master agreement supported the district court's determination that the retirement health benefits were not contractually vested.

In a similar case, Gable v. Sweetheart Cup Co., 1994, the Fourth Circuit also found that a company has the right to change or terminate medical benefits provided to retired employees. The court stated that although an employer may waive its right to modify or terminate benefits under a welfare benefit plan by providing for vested, unalterable benefits, such an intention on the part of an employer must be found in the plan documents and must be stated in clear and express language. The Fourth Circuit found that the retirees did not meet their burden of proving that their health insurance benefits were vested. The court rejected the retirees' contentions that the right to amend applied only to active employees, and that the company failed to provide proper notice of its amendment right to plan participants. Such a failure to notify would not preclude an employer from exercising its right to amend. In any case, the summary plan document issued four years before the challenged decrease in benefits was "more than sufficient" to put the retirees on notice of the possibility of a future amendment or termination of their benefits.