Supreme Court Rules on Duration of Retiree Medical Benefits
Written By Blaine Brickhouse, FSA
On January 26, 2015, in a unanimous decision, the Supreme Court ruled that when determining whether a collectively bargained retiree medical plan has lifetime vested benefits, the ordinary principles of contract law should apply. Quoting the opinion from Judge Thomas, “when a contract is silent as to the duration of retiree benefits, a court may not infer that he parties intended those benefits to vest for life.” This will be of interest to plan sponsors with unionized retiree medical benefits.
The Court ruled that in the case of M&G Polymers USA, LLC v. Tackett, the Sixth Circuit should review the case and apply the ordinary principles of contract law to determine whether retiree benefits vest past the expiration date of the bargaining agreement.
The collective bargaining agreement provided that retirees and their spouses would receive a full company contribution towards the cost of health care benefits; that such benefits would be provided for the duration of the agreement; and that the agreement would be subject to renegotiation in three years. The agreement did not otherwise specify the duration of the health care benefits. The court overturned the Sixth Circuit ruling based on general contract principles that (1) ambiguous writings should not be construed to create lifetime promises and (2) contractual obligations normally cease upon termination of the bargaining contract.
This case points out, for both bargaining and non-bargaining benefit programs, the need for clear, concise contractual terms and employee communications about the nature of the Company's intent, reserving the right to change or terminate benefits.