Duration of Retiree Benefits: Terminable or Lifelong?BondBeebe
Ashleigh Hall, CPA
M&G Polymers USA, LLC (M&G), et al
Tackett et al
The History & The Issue:
In 2000, M&G purchased the Point Pleasant Polyester Plant and entered into a collective bargaining agreement (CBA) that included a related Pension, Insurance and Service Aware Agreement (P&I Agreement) with the Union. The P&I Agreement provided for retirees, surviving spouses, and dependents to receive full company contributions toward the cost of health care.
When the CBA and P&I Agreement expired, M&G announced that retirees would begin contributing to their own health care costs. The retirees sued M&G stating that the company is obligated to make full contributions for the duration of their lives.
The District Court/Sixth Court:
While reviewing the case, the District Court relied on precedent set in 1983 from the case of International Union, United Auto, Aerospace & Agricultural Implement Workers of Am. V Yard-Man, Inc., 716 F. 2d 1476 (“Yard-Man”). Guided by the Yard-Man case, the District Court interpreted the P&I Agreement to be ambiguous, weighted consideration should be given to retirees, and that it was the intent of both parties that benefits continue as long as the prerequisites were met. Thus, retiree benefits are to continue indefinitely and M&G is obligated to make full contributions on their behalf.
The Supreme Court:
Of the several reasons the Supreme Court listed in disagreeing with the judgments of the District Court, the following are particularly noteworthy:
- By placing a “thumb on the scale” in favor of the retirees, the District Court distorted the attempt to ascertain the intention of the parties, as dictated under contract law.
- The District Court refused to apply general durational clauses to the retiree benefit provisions. Contract law presumes to encompass the whole agreement.
- Ambiguous writings should not be construed to represent lifetime promises. Contracts that are silent as to their duration will ordinarily be treated not as “operative in perpetuity” but as “operative for a reasonable time.”
- The District Court did not consider that contractual obligations cease, in the ordinary course, when the bargaining agreement terminates. However, “a CBA may provide in explicit terms that certain benefits continue after the agreement’s expiration. But when a contract is silent as to the duration of retiree benefits, a court may not infer that the parties intended those benefits to vest for life.”
Where It Is Now:
The Supreme Court remanded the case to the Court of Appeals to examine the entire agreement to determine the intention of the parties. The retirees related pension benefits and survivor benefit clauses in the P&I Agreement are relevant in this determination. If contractual language is ambiguous, then extrinsic evidence may be considered (i.e., bargaining history). “The Court of Appeals, however, must conduct the foregoing inspection without Yard-Man’s thumb on the scale in favor of vested retiree benefits.”
What Does This Mean For You?
First, notice that pension plans and welfare plans are handled differently in the judicial system. The connection between contract law and welfare plans is notably stronger than the connection between contract law and pension plans.
Secondly, do you know the provisions of your plan regarding the duration of retiree benefits? Is the plan document silent or ambiguous? Are you comfortable with what it says? If you find that your plan shares similarities with the P&I Agreement in question in this case, you may be interested to continue to follow this case as it goes to the Court of Appeals for review.
The facts of the case as described above were summarized from the following opinion of the Supreme Court:http://www.supremecourt.gov/opinions/14pdf/13-1010_7k47.pdf