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If your company has ever negotiated retiree health care benefits for its represented employees, one decision coming from the Supreme Court of the United States this term may have a significant effect on your company's bottom line.

 

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On November 10, 2014, the Court will hear oral arguments in M&G Polymers USA v. Tackett on the question of what language used in - or omitted from - a collective bargaining agreement results in negotiated retiree health care benefits "vesting" beyond the end of the current agreement.  In this situation (because welfare benefits do not technically "vest" under ERISA or the Internal Revenue Code), retiree health care benefits that "vest" are required to continue - in both form and retiree cost - for the life of any employee who retires during the term of that agreement.

 

The two extremes are represented by the Sixth Circuit (Kentucky, Michigan, Ohio, and Tennessee), where the M&G Polymers case originated, and the Third Circuit (Delaware, New Jersey, and Pennsylvania).  In the Sixth Circuit, unless the collective bargaining agreement specifically limits the duration of retiree health care benefits to the term of the agreement, the retiree health care benefits are presumed to vest and continue for the life of any employee who retires during that agreement.  The opposite applies in the Third Circuit; retiree health care benefits only continue beyond the current agreement term if the agreement specifically states that the retiree health care benefits continue.  The Second and Seventh Circuits have decided the question between these two outposts.

 

If the Court adopts M&G Polymer's position, retiree health care benefits would end each time a collective bargaining agreement expires unless the bargaining agreement explicitly provides that the form or retiree cost, or both, of the benefits continues after the agreement expires.  Arguably, if a past bargaining agreement does not include specific "vesting language," the employer could immediately change the retiree health care benefits provided under that agreement, change the retiree cost for those benefits, change both the benefits and the retiree cost, or terminate the retiree health care benefits entirely.

 

If the Court adopts Tackett's position on behalf of the retirees, employers will be locked into providing retiree health care benefits at the benefit level and retiree cost in effect when the collective bargaining agreement was negotiated, unless explicit language is included in the bargaining agreement allowing future changes to the benefits or retiree cost, or both, or allowing the employer to terminate the benefits entirely.  Past collective bargaining agreements without the necessary "magic language" could impose an immediate obligation on the employer to continue to provide (or to resume providing) the benefits promised under those agreements, at the retiree cost specified in those agreements.

 

Regardless of which position is taken by the Court, the Court's forthcoming opinion will affect how employers and unions negotiate retiree health care benefits.

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