Health insurance was once a common benefit for retirees. But spiraling health care costs and the requirement to account for the cost of the benefits on corporate balance sheets have led many employers to attempt unilaterally to modify or terminate the benefits. Ending retiree health insurance coverage has, predictably, resulted in litigation, mostly about union-negotiated health benefits.
Courts generally have held that an employer cannot unilaterally modify or terminate retiree health benefits if the parties intended the benefits to "vest" for the lifetime of the retirees. Recently, though, the Sixth Circuit Court of Appeals held that an employer could unilaterally make "reasonable" modifications to vested retiree health benefits.
The court directed that reasonableness be determined by whether:
• The modified plan provides benefits "reasonably commensurate" with the old plan.
• The proposed changes are "reasonable in light of changes in health care."
• The modified benefits are "roughly consistent with the kinds of benefits provided to current employees."
This decision marked the second time the case was before the court. In 2009, the court directed the district court to decide how and in what circumstance the employer could modify the vested retiree health benefits. The district court ruled that the employer could not unilaterally modify the benefits. The circuit court said the district court was wrong and again returned the case, with directions to take evidence on seven different factors to determine the reasonable of the modifications.
The court noted that the reasonableness inquiry is a "vexing one." Still, for employers interested in changing retiree health benefits, this case, Reese v. CNH America, is worth watching.
-- Richard Kennedy, Meyer, Unkovic & Scott, firstname.lastname@example.org
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