Securing Vested Retiree Health and Welfare Benefits: A Road Guide (Of Sorts)

The United States Supreme Court has finally addressed an issue that has plagued us for some time—when are retired healthcare benefits really “vested”—that is, “guaranteed” for life. And the answer they gave provides a little guidance, though not much.

The Supreme Court said what we would expect: it depends on what the contract(s) creating the benefits say and what the parties agreeing to the contracts intended. It’s just like any other issue in a collective bargaining agreement or memorandum of understanding—if there’s a conflict, you look to the clear language of the contract, and if the language is silent or ambiguous, then you look to bargaining history and past practices.

In this case, M&G Polymers USA, LLC v. Tackett, the contract provided for retiree health care benefits but it was silent as to whether the benefits were “vested” for life, or whether they could be negotiated away by the company when the collective bargaining agreement expired and new bargaining began. The company took the position that the benefits could be changed whenever the contract opened. By contrast, the Union took the position that the benefits had been guaranteed for life and were not subject to bargaining every time the contract opened.

The Supreme Court did not decide the issue in this case, but it sent it back to the lower court with instructions to use all the usual legal rules for interpreting contracts—it said the whole contract in all its parts should be considered, that oral testimony as to what the parties said to each other in negotiations should be considered, that the past practices should be considered, and so on.

What does the case suggest for how to address this issue from now on? Wherever possible, the parties should be absolutely clear in their contracts and their negotiations—if the intent is to provide retiree health benefits for life (and in some cases, for the lifetime of spouses, too), this should be expressly stated. The bargaining parties should develop a full bargaining history and explicit language designed to leave no doubt. And where it’s too late to do this, and a dispute arises, the parties need to gather up every single bit of evidence they can to show what was intended when they addressed the issue in the past.

By Bill Sokol and Caren Sencer | February 2, 2015

Legal Developments