Senate Sets Sight on Retiree Benefit Vesting; ERISA Amendments Create New Presumption

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By Matthew Loughran  

June 13 — In what some may see as an to effort to preempt U.S. Supreme Court review of the topic in next year's term, the Senate is considering amendments to federal benefits and labor laws that would make any retiree group health benefits vest upon retirement or the completion of 20 years of service.

The Bankruptcy Fairness and Employee Benefits Protection Act, sponsored by Sens. Jay Rockefeller (D-W.Va.) and Elizabeth Warren (D-Mass.), would amend Section 502 of the Employee Retirement Income Security Act to require that courts hearing cases involving the vesting of retiree health benefits apply a rebuttable presumption that the benefits vest in the absence of clear and convincing language to the contrary in the plan documents themselves.

The bill, which was referred to the Senate Judiciary Committee on June 3, would also amend the National Labor Relations Act to make it an unfair labor practice for either a labor union or an employer to modify a previous agreement to reduce or terminate retiree health insurance benefits after the affected employees have already retired.

These amendments directly address an issue that has been granted certiorari and will likely be heard by the Supreme Court in next year's term, reviewing a decision by the U.S. Court of Appeals for the Sixth Circuit in Tackett v. M&G Polymers USA, LLC, 733 F.3d 589, 56 EBC 1829 (6th Cir. 2013).

ERISA and NLRA Amendments

Title I of the bill, entitled “Fairness for Employees and Retirees in Corporate Bankruptcies,” would protect employee benefits from being modified or terminated as a result of a corporate bankruptcy proceeding.

Title II of the bill, which is labeled “Protection of Employee and Retiree Health Benefits” amends both ERISA and the NLRA to make employee welfare benefits more like pension benefits in the way that they vest.

The bill would require that any summary plan description prepared for a group health plan under Section 102(b) of ERISA include clear language that will inform plan participants if the plan sponsor has the right to unilaterally modify or terminate benefits under the plan and to what extent any benefits are vested.

The legislation also would add a section to the civil enforcement provisions of ERISA Section 502, requiring that a court reviewing whether retiree health benefits are vested apply a rebuttable presumption in favor of vesting at retirement or after 20 years of service that can only be defeated by clear and convincing evidence that the terms of the plan allowed modification or termination of benefits and that the retiree was made aware in “clear and unambiguous terms” of plan sponsor's ability to modify or terminate benefits.

Under the terms of the Senate bill, these benefits would be vested for the life of the retiree or the life of the retiree's spouse, whichever is longer.

The bill would also amend the NLRA to make it an unfair labor practice for a union and an employer to enter into any agreement that would result in the reduction or termination of retiree health benefits granted by a previous agreement, provided that the reduction occurred after the effected individual had already retired.

Finally, the bill requires that the U.S. comptroller general provide Congress a report detailing “strategies that corporations use to avoid obligations to pay promised employee and retiree benefits.”

Retiree Health Benefits

According to Jennie G. Arnold, an associate at Cook & Logothetis in Cincinnati who represented the retirees in the Tackett case before the Sixth Circuit, the bill was a necessary solution to the drawn-out process of health benefits litigations for retirees.

“Unfortunately, in the face of radical and greedy corporate actions, this bill appears necessary,” Arnold told Bloomberg BNA on June 13.

“The bill will make crystal clear what retirees, their unions and their lawyers already know: Their retirement health-care benefits both are and were intended to last for life, with only rare and limited exceptions that must be extraordinarily clear,” she said.

Arnold emphasized that many retirees rely on their health benefits staying the same throughout their retirement.

“Workers are making their retirement decisions based on the contractual obligations of their employers,” she said. “When employers don't honor those obligations, the impact on retirees is devastating. Litigation is no real remedy for aging retirees, for while litigation ensues, retirees pass on. This bill could clarify the rights of retirees with vested retiree health-care benefits and improve retirement security for folks who deserve to know that their benefits can't be stripped away by a greedy former employer.”

Some argue, however, that while that may be the purpose of the legislation, its actual effect might be to lead to the elimination of retiree health benefits being offered by some employers.

“The most likely near-term impact of the legislation is to reawaken the opposition to vesting in the absence of an ability to pre-fund with favorable tax treatment, and to have plan communications modified to meet the wording of the legislative proposal in order to reserve rights, and to accelerate the ongoing decline in retiree health benefits for new hires,” Dallas Salisbury, president of the Employee Benefit Research Institute told Bloomberg BNA on June 13.

Diann Howland, vice president of legislative affairs at the American Benefits Council, agreed.

“That would be a sobering change to the law for employers who want to provide retiree benefits for their employees,” she told Bloomberg BNA on June 13.

“This is a difficult issue because retiree benefits are so sympathetic. You have people who are advanced in age and they are not comfortable with change,” she continued. “I think that the senators intend this bill to help people avoid that change. But if you make it too difficult for employers to afford to provide benefits, I'm afraid that you will see more and more of them stop doing it altogether.”

Salisbury noted the failure of another attempt by Congress to strengthen vesting almost 30 years ago. “The last time a serious effort to impose vesting on retiree health was in 1986 by then Congressmen Rod Chandler and Dan Rostenkowski tied to tax reform,” he said.

“They would have extended pension-type tax-advantaged funding of a retiree health trust in exchange for vesting of benefits and increased participant rights similar to pension rights,” Salisbury said. “The coalition that had been pushing for the funding change decided that it was not worth giving up the ability to reserve the right to modify benefits and they switched positions, which killed the legislative initiative.”

Salisbury said that “once accounting standards changed in the 1990s and required retiree health and pension liabilities to be on the balance sheet, the use of the ‘reservation' went into full action and retiree health benefit sponsorship began to decline rapidly. Courts have fairly consistently found that the reservation, if used broadly in publications, notices, etc., the benefit reductions for current retirees were legal.”

Yard-Man Inference

The bill would codify a stronger version of what has come to be known in ERISA litigation as the Yard-Man inference.

The inference, which was first created in by the Sixth Circuit decision in Auto Workers v. Yard-Man, Inc., 716 F.2d 1476, 4 EBC 2108 (6th Cir. 1983) has sometimes mistakenly been called a “presumption” and applies only to collectively bargained retiree health benefits.

The inference allows a court reviewing the language of a collective bargaining agreement to infer that the union and employer intended to allow retiree health benefits granted under the agreement to be vested and thus survive the expiration of the CBA in which they were granted if there is no language in the agreement indicating duration or the ability to modify or terminate benefits.

In a pair of later decisions, Reese v. CNH Am., LLC, 574 F.3d 315, 47 EBC 1385 (6th Cir. 2009) and Reese v. CNH Am., LLC, 694 F.3d 681, 54 EBC 1077 (6th Cir. 2012), the appellate court appeared to reverse course on this inference, allowing a company to unilaterally modify retiree health-care benefits without engaging in collective bargaining as long as the modifications were reasonable and didn't either terminate the benefits altogether or require retirees to begin contributing to the costs of the benefits.

However, in April in Steelworkers v. Kelsey-Hayes Co., 2014 BL 111194, 57 EBC 2745 (6th Cir. 2014), the Sixth Circuit reinforced the Yard-Man inference, clarifying that the effect of the Reese cases was to reaffirm that a court had to look to the intent of the parties to a CBA when determining whether it allowed any changes to vested retiree health benefits.

In Kelsey-Hayes, the court addressed the difference between a presumption of vesting—which the current Senate bill creates—and the Yard-Man inference by saying that the inference isn't a binding requirement that has to be disproved by the employer but is merely a “nudge” in the direction of finding vesting if the CBA is otherwise silent.

Treatment in Other Circuits

While the Sixth Circuit has a reputation of being the most retiree-friendly federal appellate court in the country, the Fourth and Eleventh circuits have also adopted some formulation of the Yard-Man inference when interpreting CBAs.

However, other appellate courts that have dealt with the subject of the vesting of retiree health benefits have required stronger language in a CBA to allow the benefits to survive the expiration of the agreement.

Among the appellate courts that have expressly rejected the Yard-Man inference are the Second, Fifth, Seventh and Eighth circuits.

The Third Circuit, in an opinion joined by now-Supreme Court Justice Samuel A. Alito Jr., adopted the reverse presumption from the one presented in the Senate bill. In that case, Auto Workers v. Skinner Engine Co., 188 F.3d 130, 23 EBC 2022 (3d Cir. 1999), the court adopted a rebuttable presumption that all benefits granted in a CBA would expire upon the expiration of the CBA unless clear language in the agreement provides otherwise.

Supreme Court Review

On May 5, the Supreme Court granted certiorari in the case of M&G Polymers USA, LLC v. Tackett, U.S., No. 13-1010, cert. granted5/5/14, the appeal of a Sixth Circuit case that affirmed a permanent injunction reinstating retirees to the company's health plan, finding that their health benefits had vested at retirement.

The court will review only one of the two questions that were presented in the original petition. Specifically, the high court will determine whether the Yard-Man inference should be used when interpreting a CBA under the Labor Management Relations Act.

The court declined to review the question of whether different rules of construction should apply to retiree health benefits that are provided under purely ERISA-governed plans and aren't subject to collective bargaining.

Under the Senate bill, both retiree benefits provided through ERISA plans and those provided by the collective bargaining agreements would be subject to the presumption that they vest at retirement or after 20 years of service.

Benefits that are collectively bargained would have the added protection of being subject to the unfair labor practice provisions of the NLRA and would be unchangeable in later collective bargaining agreements between the employer and union after the affected employees had retired.

To contact the reporter on this story: Matthew Loughran in Washington at

To contact the editor responsible for this story: Jo-el J. Meyer at

Text of S. 2418 is at

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