Alert March 24, 2015

Supreme Court Rules No Presumption of Lifetime Vesting of Retiree Health Benefits

Summary

The Supreme Court overturned the Sixth Circuit’s long-standing Yard-Man presumption, ruling that courts should apply ordinary contract principles to determine whether benefits have vested.

Background

In a unanimous decision, the U.S. Supreme Court overturned the Sixth Circuit’s long-standing presumption first articulated in International Union, United Auto., Aerospace, and Agr. Implement Workers of America (UAW) v. Yard–Man, Inc., 716 F.2d 1476 (6t Cir. 1983), that, if a collective bargaining agreement is ambiguous as to the duration of retiree welfare benefits, benefits are presumed to vest for life. In M&G Polymers USA v. Tackett, the Court held that courts should apply ordinary contract principles to determine whether retiree benefits have vested.

The Yardman Presumption

Yard–Man involved a claim that an employer had breached a collective-bargaining agreement when it terminated retiree benefits. The Sixth Circuit found a provision of the agreement governing retiree insurance benefits ambiguous as to the duration of those benefits, and relied on the “context” of labor negotiations to resolve that ambiguity in favor of the retirees’ interpretation. Specifically, the court inferred that the parties to collective bargaining would intend retiree benefits to vest for life because such benefits are not mandatory or required to be included in collective-bargaining agreements, are typically understood to be a form of delayed compensation, and are keyed to the acquisition of retirement status. Based on these inferences, the Sixth Circuit presumed that in the context of collective bargaining, the parties intended benefits for life and would not have left that up to future negotiation. Since its decision in Yard-Man, the Sixth Circuit had extended  its analysis in a series of other cases.

Tackett Background

Tackett involved a collective-bargaining agreement that had conferred retiree healthcare benefits for the duration of the agreement. The agreement was subject to renegotiation in three years, and when it expired, the employer announced that it would begin requiring retirees to contribute to the cost of their healthcare benefits. Retirees sued on behalf of themselves and others similarly situated, alleging, among other claims, a claim for benefits under ERISA. The district court dismissed the complaint for failure to state a claim. The Sixth Circuit reversed, applying its reasoning in Yard-Man and inferring from the collective-bargaining agreement an intent to vest lifetime contribution-free healthcare benefits for retirees. On remand, the district court conducted a bench trial and ruled in favor of the retirees. The Sixth Circuit affirmed. 

The Supreme Court Held that There Is No Presumption Lifetime Vesting of Retiree Health Benefits.

The Supreme Court granted certiorari and vacated. It rejected the Yard-Man presumption as inconsistent with ordinary principles of contract law because it “distorts” the attempt to ascertain the intention of the parties “by placing a thumb on the scale in favor of vested retiree benefits in all collective-bargaining agreements.” In so ruling, the Court noted that the written terms of the plan are the “linchpin” of the benefits system, and that such terms should be enforced as written. The Court remanded the case for the Sixth Circuit to apply ordinary principles of contract law. 

In a concurring opinion, Justice Ginsburg, joined by Justices Breyer, Sotomayor and Kagan, directed the appeals court to examine “the entire agreement” to determine whether the parties intended retiree healthcare benefits to vest. The concurring opinion noted as relevant to this examination provisions of the agreement that (i) conferred upon retirees vested, lifetime pension benefits, and (ii) conferred healthcare benefits if the retirees “are ‘receiving a monthly pension."