United States: The ERISA Litigation Newsletter - November 2015

Editor's Overview

This month we take a look at how the lower courts have been dealing with claims for retiree health benefits after the U.S. Supreme Court's ruling in M&G Polymers USA, LLC v. Tackett, 135 S. Ct. 926 (2015). As discussed below, notwithstanding what would seem to be a clear pronouncement by the Court to apply ordinary contract principles and that lower courts should not construe ambiguous writings to create lifetime promises, there remains uncertainty as to how the Court's ruling should be applied in practice. As always, please be sure to review the rulings, filings, and settlements of interest.

Retiree Health Benefits Post-Tackett: The Need For Clear and Unambiguous Language*

By Madeline Rea

Employers often agree in collective bargaining to provide their unionized employees with health benefits after employment ends and into retirement. The duration of these promises is sometimes unclear, however. Unlike pension benefits, which generally vest pursuant to ERISA, employers are usually permitted to stop providing retiree health benefits in their sole discretion. A facial review of the collective bargaining agreement (CBA) does not always resolve whether, by agreeing to provide retiree benefits, the employer intended to relinquish this right, such that the retiree benefits vest contractually.

Earlier this year, the U.S. Supreme Court resolved a long-standing issue as to what rules should govern the construction of promises of retiree benefits contained in CBAs. M&G Polymers USA, LLC v. Tackett, 135 S. Ct. 926 (2015). The Court ruled that there was no presumption favoring the vesting of these benefits, and that ordinary principles of contract construction should apply. Notwithstanding what would seem to be a clear pronouncement by the Court, there remains uncertainty as to how the Court's ruling should be applied in practice. This article reviews the Tackett decision and how the lower courts have applied it thus far, and concludes with some perspectives looking ahead.

M&G Polymers USA, LLC v. Tackett

In Tackett, a class of retirees sued their former employer's successor, M&G Polymers, after it announced that it would begin requiring retirees to contribute toward their health benefits. The CBA stated, in relevant part, that certain retirees 'will receive a full Company contribution towards the cost of [health care] benefits.' M&G Polymers claimed that the right to contribution-free health benefits expired at the conclusion of the CBA's term. The retirees argued that the language in the CBAs guaranteed them contribution-free benefits for life.

The district court granted M&G Polymer's motion to dismiss the retirees' claim and held that the CBA clearly did not give retirees a vested right to health benefits.

On appeal, the Sixth Circuit applied the principles it established more than three decades earlier in UAW v. Yard-Man, Inc., 716 F.2d 1476 (6th Cir. 1983). The Sixth Circuit relied on the context of labor negotiations to inform its decision and assumed it was 'unlikely' that the Union would have agreed to the provision as written if the employer could unilaterally change the contribution amount. It also relied on provisions in the CBA tying eligibility for health care to eligibility for pension benefits – which are for life – to find that there was an intent to vest the retiree health benefits. The Sixth Circuit thus held that the retirees had stated a plausible claim and remanded the case for further consideration. On remand, the district court ruled in favor of the retirees and the Sixth Circuit affirmed.

The U.S. Supreme Court granted M&G Polymer's petition for certiorari to decide whether courts should presume that, in the absence of contractual language to the contrary, the parties intended retiree health benefits to vest, whether they should require a clear statement that such benefits are intended to vest and continue indefinitely, or should require at least some language in the agreement that can reasonably support an interpretation that these benefits should continue indefinitely.

Justice Thomas, writing the five-Justice majority opinion, concluded that ordinary contract principles should apply and that the Sixth Circuit violated such principles 'by placing a thumb on the scale in favor of vested retiree benefits in all collective-bargaining agreements.' In particular, the Court noted that contractual obligations normally cease when the CBA terminates and that ambiguous writings should not be construed to create lifetime benefits. Although Justice Thomas did not state that 'clear and express' language is required to demonstrate an intent to vest retiree health benefits, he did quote Sprague v. Gen. Motors Corp., 133 F.3d 388, 400 (6th Cir. 1998) as stating 'the intent to vest must be found in the plan documents and must be stated in clear and express language.' Justice Thomas explained that the decision did not preclude a finding that parties intended to vest retirees with lifetime health benefits, but when a CBA is silent as to the duration, a court may not infer that the parties intended lifetime health benefits.

Justice Ginsburg, writing a concurring opinion that was joined by three other Justices, agreed that courts must apply ordinary contract principles to determine whether retiree healthcare benefits survive the expiration of a CBA. But she then explained that to determine the parties' intent, a court must examine the entire CBA in light of relevant industry-specific customs, practices, usages, and terminology. Justice Ginsburg further noted that clear and express language is not required to show that parties intended healthcare benefits to vest and that both explicit and implied terms of an agreement can evidence such intent.

The Court vacated the decision and remanded to the Sixth Circuit to apply ordinary principles of contract law in the first instance. Oral argument took place before the Sixth Circuit on October 6, 2015.

Lower Courts' Application of Tackett

The lower courts have differed in their interpretation and application of Tackett. Their interpretations appear to have largely depended on whether they believe the Supreme Court ruled that 'clear and express' terms are required to establish vesting in retiree health benefits. According to employers, the Tackett majority requires such a showing. Retirees, however, have relied on Justice Ginsburg's concurrence to argue that such language is not required.

Courts Applying An Employer-Friendly Interpretation of Tackett

In one of the first post-Tackett rulings, a district court in Kansas explained that, in its view, the Supreme Court ruled that 'the intent to vest must be found in the plan documents and must be stated in clear and express language.' Fulghum v. Embarq Corp., No. 07-cv-2602, 2015 WL 3632490 (D. Kan. June 10, 2015). Applying this standard, the district court rejected the retirees' claim seeking vested lifetime benefits because it concluded that the CBA's provision stating that benefits would be provided 'during the term of the agreement' did not confer lifetime benefits. 

Similarly, a district court in West Virginia held that retirees were not entitled to lifetime health benefits where the CBAs provided that the retiree healthcare benefits 'shall remain in effect for the term of this . . . Labor Agreement.' Dewhurst v. Century Aluminum Co., No. 09-cv-1546, 2015 WL 5304616 (S.D. W. Va. Sept. 9, 2015). Although the court did not comment on whether clear and express language was needed to show an intent to vest, it ruled that there was no basis for finding contractual vesting here because the provision in question was 'clear and unambiguous' in stating that retirees' healthcare benefits remained in effect for the term of the applicable CBA, and that there was no basis to conclude otherwise.

Courts Applying A Retiree-Friendly Interpretation of Tackett

In stark contrast to the decisions discussed above, a district court in Ohio concluded on a motion for reconsideration, filed after Tackett was decided, that several groups of retirees were entitled to lifetime health benefits. See Zino v. Whirpool Corp., 11-cv-01676, 2015 WL 6559579 (N.D. Ohio Oct. 30, 2015). The court ruled that the Tackett majority did not require that the intent to vest retiree health benefits be set forth in 'clear and express' language. To the contrary, Justice Ginsburg's concurrence clarified that clear and express language is not required for retirees to vest in benefits. For several subclasses, the court determined that the applicable CBA provision was ambiguous, and thus relied on testimony of several witnesses to enforce an award of lifetime health benefits. The court also held that one of the groups was not entitled to lifetime benefits because, in light of Tackett, the court could no longer rely on extrinsic evidence when the contractual language was clear that the retirees were not entitled to vesting of health benefits.

A district court in Michigan reversed course twice since its pre-Tackett ruling. In its first post-Tackett ruling, the court ruled 'at a minimum, that a court must find a clear manifestation of intent, evinced in the language of the contract, before concluding that the parties intended to confer lifetime benefits' and that such an intent was not present here. Reese v. CNH Indus. N.V., No. 04-CV-70592, 2015 WL 5679827 (E.D. Mich. Sept. 28, 2015). In so ruling, the court recognized the parties' disagreement over whether clear and express language demonstrating an intent to vest is necessary under Tackett, but did not decide the issue. On the retirees' motion for reconsideration, the court stated that it had committed a 'palpable error' in finding for the defendants and ruled that clear and express language showing an intent to vest was not required. The court determined that the CBA was ambiguous and it could therefore rely on extrinsic evidence demonstrating that the parties intended to provide lifetime health benefits to retirees.

Similarly, in UAW v. Kelsey-Hayes Co., No. 11-cv-14434, 2015 WL 5460631 (E.D. Mich. Sept. 17, 2015), the court held that it was clear from the language of the applicable CBA and the Plant Closing Agreement (PCA) that retiree benefits were intended to survive the expiration of the CBA and the plant closing. In so holding, the court disregarded a clause in the CBA stating that the company could unilaterally change health care benefits because the PCA perpetuated retiree health care and the CBA contained a superseding clause barring changes to health care benefits and coverage without union agreement. The court further noted that the lack of an end date for the retiree health benefits contrasted with the presence of other durational clauses pertaining to other benefits and that indicated an intent to provide lifetime health benefits. It also determined that the parties could not have intended that the PCA end retiree health benefits because some employees did not become eligible for the benefits until they retired following the plant closing.

Proskauer's Perspective

The Tackett majority appears to have articulated a legal analysis for retiree health benefit claims that favors employers. In particular, the majority's rulings that ordinary contract principles apply, that lower courts should not construe ambiguous writings to create lifetime promises, that contractual obligations generally cease upon termination of the bargaining agreement, and that courts should not infer that parties intended benefits to vest for life when the contract is silent regarding their duration, clearly tend to tip the scale in favor of finding no contractual vesting. However, as evidenced by some of the decisions reviewed, there is still an opportunity for courts to rule in favor of participants when the CBA is ambiguous by employing the use of extrinsic evidence as advocated by Justice Ginsburg in her concurrence. One thing is certain – employers would be well-served by being as specific as possible in articulating the limited intended duration of promises of retiree health benefits.

Rulings, Filings, and Settlements of Interest

EEOC Grapples with Proposed Rule Comments on Wellness Program; Additional Guidance Expected Soon

By Tzvia Feiertag and Lisa Schlesinger

  • As we previously reported here, the Equal Employment Opportunity Commission (EEOC) released Proposed Rules on April 16, 2015 to provide guidance under the Americans with Disabilities Act (ADA) on permissible employer incentives for employee participation in wellness programs. Comments on the proposed rules were due on or before June 19, 2015. The EEOC received approximately 340 comments, which can be viewed here.

    At an American Bar Association Joint Committee on Employee Benefits conference on October 19, 2015, the EEOC informally stated that the agency is currently reviewing the substantive comments received, including the many comments on the EEOC's 'controversial' position that employers can't limit coverage under a health plan or deny access to particular benefit packages within a group health plan for employees who don't participate in the employer's wellness program. The EEOC has also been discussing potential regulation with the Department of Labor, particularly regarding how to determine which wellness programs are outside of group health plans. Another provision being reviewed for new guidance is the requirement that employers who offer wellness programs give employees a notice that clearly explains what medical information will be obtained, who will receive the medical information, how the medical information will be used, and how the employer will maintain the confidentiality of that information. Many commenters stated that the notice is duplicative of existing notices required under the Health Information Portability and Accountability Act (HIPAA), which applies to group health plans. The EEOC is trying to determine when notice should be required and whether existing notices may be sufficient under the ADA. In addition, the EEOC expects to issue a Notice of Proposed Rulemaking under the Genetic Information Nondiscrimination Act (GINA) addressing spousal participation in wellness programs. Employers should continue to review their current programs in light of current EEOC guidance and remain on alert for new EEOC proposed and final rules.

IRS Issues Proposed Regulations to Accommodate Obergefell

By Damian A. Myers and Roberta Chevlowe

  • On October 21, 2015, the IRS issued proposed regulations to clarify the treatment of same-sex spouses for federal tax purposes. By way of background, in 2013, the United States Supreme Court held in United States v. Windsor that the portion of the Defense of Marriage Act defining marriage as being between opposite-sex partners was unconstitutional. Shortly following the Windsor decision, the IRS issued guidance recognizing, for federal tax purposes, same-sex marriages performed in states permitting such marriages. As previously reported, the Supreme Court recently held in Obergefell v. Hodges, that the Fourteenth Amendment's Due Process and Equal Protection Clauses required states to allow same-sex marriage and to recognize same-sex marriages performed in other states.

    The proposed regulations provide that all marriages, whether opposite-sex or same-sex, will be recognized by the IRS for federal tax purposes if the marriage is recognized by any state, possession or territory of the United States. Additionally, the proposed regulations address the impact that Windsor and Obergefell has on gender-specific terms, such as 'husband' and 'wife.' To ensure that same-sex marriages are treated equally for federal tax purposes, the proposed regulations clarify that the terms 'husband' and 'wife' will be interpreted neutrally to include same-sex and opposite-sex spouses.

    Similar to the IRS's previous guidance, the proposed regulations provide that registered domestic partnerships, civil unions and other similar relationships are not considered marriages for federal tax purposes. Also, marriages performed in a foreign jurisdiction will be recognized for federal tax purposes only if the marriage would be recognized by at least one state, possession or territory of the United States.

    The proposed regulations explain that previous guidance related to same-sex marriages, such as Rev. Rul. 2013-17 and IRS Notice 2014-19, remain in effect and that additional guidance may be issued in the future.

The ERISA Litigation Newsletter - November 2015

* Originally published in Bloomberg, BNA.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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