Changes to Retiree Health Benefits

Employers, who for many years have contracted with their labor unions to provide retiree health benefits, are now finding the burden debilitating. Changes in accounting rules, spiraling health-care costs, increased competition and changing demographics converge to make it economically infeasible for some employers to continue providing such benefits at the generous levels of years past. Consequently, many companies have been compelled to modify their retiree health plans in ways that reduce or eliminate some benefits or that require retirees to pay more out of pocket. These changes have resulted in an avalanche of litigation.

Unfortunately, on some of the questions that are at the core of such litigation, the applicable law is far from uniform. Employers are left with little clear guidance about how to mitigate the legal ' and thus financial ' risks associated with modifying retiree health benefits. This two-part article identifies practical steps that employers can take to prepare for and defend against litigation stemming from changes to retiree health care benefits.

Current Status of the Law

Litigation about retiree health benefits involves competing policy concerns. Companies must be able to adapt to changed circumstances if they are to remain economically viable. On the other hand, retirees have often relied on the belief that their medical benefits would remain at a certain level; changes to these benefit levels can strike at the foundations of their retirement plans. Courts are hardly in agreement about which policy considerations should hold sway, and their inconsistent rulings have created great uncertainty for both employers and retirees. Two issues about which the judicial conflicts are most obvious are: 1) the legal standing of unions to represent and litigate on behalf of retirees, and 2) the vesting of retiree health benefits.

Union Standing to Represent Retirees

In a key case, the Supreme Court held that unions represent current employees only, and that retirees are, therefore, not represented by their (former) union. Allied Chem. & Alkali Workers, Local Union No. 1 v. Pittsburgh Plate Glass Co., 404 U.S. 157, 172 (1971). Some employers took this to mean that unions did not have standing to represent retirees in litigation against the employer. See, e.g., United Steelworkers of Am. v. Canron, Inc., 580 F.2d 77, 80-81 (3d Cir. 1978). The Third Circuit however, held that the reasoning in Pittsburgh Plate Glass applied only to the union collective bargaining role, and that unions could represent retirees for the purpose of enforcing promises that had already been bargained for. United Steelworkers, 580 F.2d at 80-81 (holding that under accepted contract principles the union has a legitimate interest in protecting the rights of the retirees and is entitled to seek enforcement of the applicable contract provisions. See also, United Auto., Aero. & Agric. Implement Workers v. Yard-Man, Inc., 716 F.2d 1476, 1486 (6th Cir. 1983) (holding that, as a signatory to a collective bargaining agreement, the union has standing to bring an action for the third party beneficiary retirees. cert. denied, 465 U.S. 1007 (1984).

This view fails to acknowledge that retirees may not wish to have their interests represented by a union ' particularly since a union's first priority must be the interests of its current members, which potentially can conflict with the interests of retirees. See generally, UMWA Health & Ret. Funds v. Robinson, 455 U.S. 562, 574-75 (1982) (holding that former [union] members and their families may [permissibly] suffer from discrimination in collective bargaining agreements because the union need not affirmatively ' represent [them] or ' take into account their interests in making bona fide economic decisions in behalf of those whom it does represent, (citation omitted) criticized on other grounds in, Local 144 Nursing Home Pension Fund v. Demisay, 508 U.S. 581 (1993). See also Anderson v. Alpha Portland Industries, Inc., 727 F.2d 177 (8th Cir. 1984), cert. denied, 471 U.S. 1102 (1985).

Currently, few courts maintain that unions may not, under any circumstances, represent retirees. Without actually deciding the issue, the Second Circuit has stated that it had doubts that a union could represent retirees. See Schweizer Aircraft Corp. v. Local 1752, Int Union, United Auto., Aero. & Agric. Implement Workers, 29 F.3d 83, 87 (2d Cir. 1994). See also Toussaint v. J.J. Weiser & Co., No. 04 Civ. 2592, 2005 WL 356834 (S.D.N.Y. Feb. 13, 2005) (holding that union officials acting in official capacity, even if viewed as the union itself, did not have standing to pursue ERISA claims on behalf of retirees). The Fifth, Sixth, and Seventh Circuits have reasoned that, in order to protect the rights of retirees to pursue their own claims, unions must obtain consent from retirees before representing them. See Int Ass of Machinists and Aero. Workers Local Lodge 2121 v. Goodrich Corp., 410 F.3d 204 (5th Cir.), cert. denied, 126 S. Ct. 647 (2005); Cleveland Elec. Illuminating Co. v. Util. Workers Union, Local 270, 440 F.3d 809, reh denied, 2006 U.S. App. Lexis 12081 (6th Cir. May 11, 2006); Rossetto v. Pabst Brewing Co., 217 F.3d 539, 543 (7th Cir. 2000), cert. denied, 531 U.S. 1192 (2001). The Third and Eighth Circuits allow unions to represent retirees without obtaining consent. The Ninth Circuit has not clearly decided the issue; however, a recent district court decision held that a union need not obtain consent to represent retires. See Int Bhd. of Elec. Workers v. Citizens Telecomms. Co. of Cal., Inc., No. CIV. S-06-0677, 2006 WL 1377102 (E.D. Cal. May 18, 2006). The First, Fourth, Tenth, Eleventh and D.C. Circuits also appear not to have directly decided the issue.

The conclusion of this article in next month's issue will address cases involving the presumption of vesting and offer tips for managing changes in retirement plans and negotiating future plans.

Thomas M. Beck is a partner in the Washington, DC, office of Jones Day. Pamela M. Keith is an associate in the same office.

Employers, who for many years have contracted with their labor unions to provide retiree health benefits, are now finding the burden debilitating. Changes in accounting rules, spiraling health-care costs, increased competition and changing demographics converge to make it economically infeasible for some employers to continue providing such benefits at the generous levels of years past. Consequently, many companies have been compelled to modify their retiree health plans in ways that reduce or eliminate some benefits or that require retirees to pay more out of pocket. These changes have resulted in an avalanche of litigation.

Unfortunately, on some of the questions that are at the core of such litigation, the applicable law is far from uniform. Employers are left with little clear guidance about how to mitigate the legal ' and thus financial ' risks associated with modifying retiree health benefits. This two-part article identifies practical steps that employers can take to prepare for and defend against litigation stemming from changes to retiree health care benefits.

Current Status of the Law

Litigation about retiree health benefits involves competing policy concerns. Companies must be able to adapt to changed circumstances if they are to remain economically viable. On the other hand, retirees have often relied on the belief that their medical benefits would remain at a certain level; changes to these benefit levels can strike at the foundations of their retirement plans. Courts are hardly in agreement about which policy considerations should hold sway, and their inconsistent rulings have created great uncertainty for both employers and retirees. Two issues about which the judicial conflicts are most obvious are: 1) the legal standing of unions to represent and litigate on behalf of retirees, and 2) the vesting of retiree health benefits.

Union Standing to Represent Retirees

In a key case, the Supreme Court held that unions represent current employees only, and that retirees are, therefore, not represented by their (former) union. Allied Chem. & Alkali Workers, Local Union No. 1 v. Pittsburgh Plate Glass Co. , 404 U.S. 157, 172 (1971). Some employers took this to mean that unions did not have standing to represent retirees in litigation against the employer. See, e.g., United Steelworkers of Am. v. Canron, Inc. , 580 F.2d 77, 80-81 (3d Cir. 1978). The Third Circuit however, held that the reasoning in Pittsburgh Plate Glass applied only to the union collective bargaining role, and that unions could represent retirees for the purpose of enforcing promises that had already been bargained for. United Steelworkers, 580 F.2d at 80-81 (holding that under accepted contract principles the union has a legitimate interest in protecting the rights of the retirees and is entitled to seek enforcement of the applicable contract provisions. See also, United Auto., Aero. & Agric. Implement Workers v. Yard-Man, Inc. , 716 F.2d 1476, 1486 (6th Cir. 1983) (holding that, as a signatory to a collective bargaining agreement, the union has standing to bring an action for the third party beneficiary retirees. cert. denied , 465 U.S. 1007 (1984).

This view fails to acknowledge that retirees may not wish to have their interests represented by a union ' particularly since a union's first priority must be the interests of its current members, which potentially can conflict with the interests of retirees. See generally, UMWA Health & Ret. Funds v. Robinson , 455 U.S. 562, 574-75 (1982) (holding that former [union] members and their families may [permissibly] suffer from discrimination in collective bargaining agreements because the union need not affirmatively ' represent [them] or ' take into account their interests in making bona fide economic decisions in behalf of those whom it does represent, (citation omitted) criticized on other grounds in, Local 144 Nursing Home Pension Fund v. Demisay , 508 U.S. 581 (1993). See also Anderson v. Alpha Portland Industries, Inc. , 727 F.2d 177 (8th Cir. 1984), cert. denied , 471 U.S. 1102 (1985).

Currently, few courts maintain that unions may not, under any circumstances, represent retirees. Without actually deciding the issue, the Second Circuit has stated that it had doubts that a union could represent retirees. See Schweizer Aircraft Corp. v. Local 1752, Int Union, United Auto., Aero. & Agric. Implement Workers , 29 F.3d 83, 87 (2d Cir. 1994). See also Toussaint v. J.J. Weiser & Co., No. 04 Civ. 2592, 2005 WL 356834 (S.D.N.Y. Feb. 13, 2005) (holding that union officials acting in official capacity, even if viewed as the union itself, did not have standing to pursue ERISA claims on behalf of retirees). The Fifth, Sixth, and Seventh Circuits have reasoned that, in order to protect the rights of retirees to pursue their own claims, unions must obtain consent from retirees before representing them. See Int Ass of Machinists and Aero. Workers Local Lodge 2121 v. Goodrich Corp. , 410 F.3d 204 (5th Cir.), cert. denied , 126 S. Ct. 647 (2005); Cleveland Elec. Illuminating Co. v. Util. Workers Union, Local 270 , 440 F.3d 809, reh denied , 2006 U.S. App. Lexis 12081 (6th Cir. May 11, 2006); Rossetto v. Pabst Brewing Co. , 217 F.3d 539, 543 (7th Cir. 2000), cert. denied , 531 U.S. 1192 (2001). The Third and Eighth Circuits allow unions to represent retirees without obtaining consent. The Ninth Circuit has not clearly decided the issue; however, a recent district court decision held that a union need not obtain consent to represent retires. See Int Bhd. of Elec. Workers v. Citizens Telecomms. Co. of Cal., Inc., No. CIV. S-06-0677, 2006 WL 1377102 (E.D. Cal. May 18, 2006). The First, Fourth, Tenth, Eleventh and D.C. Circuits also appear not to have directly decided the issue.

The conclusion of this article in next month's issue will address cases involving the presumption of vesting and offer tips for managing changes in retirement plans and negotiating future plans.

Thomas M. Beck is a partner in the Washington, DC, office of Jones Day. Pamela M. Keith is an associate in the same office.