District Court Issues Mixed Rulings In Retirees' Challenge to Increased Premiums

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A group of retired employees cannot proceed with claims that an employer violated federal labor and employee benefits laws by changing its method for calculating retiree medical premiums, the U.S. District Court for the District of Connecticut held June 14 (Connecticut Independent Utility Workers Local 12924 v. Connecticut Natural Gas Corp., D. Conn., No. 3:12-cv-00961-JBA, 6/14/13).

Judge Janet B. Arterton ruled that, because the health benefits in question were not vested under the terms of the relevant plans and contracts, the retirees could not maintain their challenge to their former employer's altered method for calculating its portion of the retirees' premium payments.

However, Arterton allowed the retirees to go forward with their claim that the employer committed fiduciary breach by failing to inform them of the changed calculation method.

Arterton also allowed the retirees' claim of excessive premiums to go forward.

Change in Retiree Health Insurance Premiums

In 1991, Connecticut Natural Gas Corp. (CNG) entered into a collective bargaining agreement with the Connecticut Independent Utility Workers Local 12924 union. The CBA established the maximum payments CNG would make toward retiree health insurance premiums. However, the union alleged that CNG and its administrator “unilaterally changed” the method for calculating maximum premium payments, thereby causing an increase in the retirees' share of the premium cost.

The union and a group of retirees filed a complaint against CNG and related entities, bringing claims under the Employee Retirement Income Security Act and the Labor Management Relations Act.

Retirees Have Standing

CNG first argued that the retirees lacked standing to bring claims of breach of contract under LMRA Section 301 because they did not retire while the relevant CBA was in force. The retirees maintained that the relevant contract was not the CBA but a 1994 letter agreement memorializing the parties' understanding regarding the maximum premium payments.

The court agreed with the retirees that the 1994 agreement did not contain language placing a “temporal limitation” on its terms. Further, the court found that the agreement did not specifically state that it was meant to be incorporated into the operative CBA. Therefore, the court concluded that the retirees had standing to bring LMRA claims based on the “unexpired contract under which they retired.”

No Right to Vested Benefits

CNG also argued that the retirees' LMRA and ERISA claims should be dismissed because they could not show that the employer share of their premiums was reduced within the plain meaning of the 1994 agreement and the health plan. CNG pointed to language in its employee benefits handbook, which provided that, “All such retired participants will have financial responsibility for…any other applicable cost sharing (e.g. contributions, deductibles, coinsurance, copayments) that the individual may require. That means that retirees' cost sharing may increase, while the Company's maximum contribution will remain fixed.”

The court agreed with CNG that the retirees failed to demonstrate that their health benefits were vested under the terms of the agreement or the plan. The court explained that the agreement “makes no mention of the continuation of benefits” and “contains only a promise to hold discussions to review the premium caps if they are ever reached.” Because “it does not appear that there is any language that could reasonably be interpreted as creating vested benefits,” the court dismissed the retirees' LMRA claims and claims for benefits under ERISA.

Mixed Ruling on Fiduciary Breach Claims

The retirees also alleged that CNG breached its fiduciary duties under ERISA by changing the manner in which the premium contributions were calculated. The court rejected this argument and said that, because the retirees' benefits were not vested, the CNG defendants' actions in changing the premium calculation “did not implicate their fiduciary duties under ERISA.”

However, the court allowed the retirees to go forward with their claims that CNG committed fiduciary breach by failing to notify them of a material modification to the plan. CNG argued that certain examples in the plan's summary plan description were sufficient to inform the retirees of the cost-sharing arrangement, but the court disagreed. It found that CNG failed to “cite to any language in the plan documents that notified Plaintiffs of a change in the premium calculation, even if the new calculation was described in those documents.”

Finally, the court found that the retirees stated a valid claim for fiduciary breach based on CNG's allegedly “excessive premiums.” In so finding, the court said that “a decision to charge excessive premiums could plausibly implicate the management of plan funds--in that the plan was collecting additional premiums for profit, rather than in the best interests of the plan participants--as opposed to a simple change in the structure of the plan.”

The retirees were represented by J. William Gagne Jr. of J. William Gagne & Associates, West Hartford, Conn. CNG was represented by Joshua B. Walls and Lawrence Peikes of Wiggin & Dana, Stamford, Conn.

The full text of the opinion is at http://www.bloomberglaw.com/public/document/Connecticut_Independent_Utility_Workers_Local_12924_et_al_v_Conne.

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