The Supreme Court unanimously says changes to retiree medical coverage a matter of contract analysis—but with a mild twist

In what perhaps can be best described as a win for traditional contract analysis, the United States Supreme Court (the “Court”) issued an opinion on January 25, 2015 in M&G Polymers USA, LLC, et al. v. Tackett et al, that may permit M&G Polymers USA, a chemical company, to force its retirees to help pay for the cost of retiree medical coverage. While technically a unanimous decision, the Court’s opinion , which was authored by Justice Clarence Thomas, seems to prefer a stricter standard for this sort of contract analysis than what is set forth in a concurring opinion authored by Justice Ruth Bader Ginsburg (and joined by Justices Stephen Breyer, Sonia Sotomayor and Elena Kagan, the other three members of the so-called liberal wing of the Court).

This case relates to the Point Pleasant Polyester Plant in Apple Grove, West Virginia, which was purchased by M&G Polymers in 2000. At the time of that purchase, M&G Polymers entered into a collective bargaining agreement and a related pension and insurance agreement that extended retiree health care coverage to retirees at the plant, many of whom retired before M&G Polymers had bought the plant. Certain retirees who were eligible to receive a benefit under an applicable pension plan (while not clear in the Court’s opinion, the pension plan may have been a multiemployer pension plan) and whose accumulated number of years of age and service equaled or exceeded a specified number were entitled to retiree health care coverage completely paid for by the company. While the collective bargaining agreements were silent as to whether changes in the retiree health care coverage were permissible (silence on that question is not that unusual), the collective bargaining agreements themselves were subject to renegotiation every three years. In December, 2006, M&G Polymers announced that going forward it would begin to charge retirees for a portion of the cost of retiree health care coverage. The retirees responded by filing a court challenge to this decision—alleging that the decision to charge for retiree medical coverage constituted a violation of the applicable collective bargaining agreements. In essence, the retirees, supported by the United Steelworkers union, alleged that they had a vested right for life to no-cost retiree medical coverage.

The challenge by retirees was rejected by the United States District Court for the Southern District of Ohio for failure to state a clam. However, the United States Court of Appeals for the Sixth Circuit later reversed the lower court’s decision based on that appeal court’s previous decision in International Union, United Auto, Aerospace, & Agricultural Implement Workers of America v. Yard-Man, Inc. As applied to ambiguous contract provisions, the approach in Yard-Man looks to the “context” of labor negotiations in general to resolve any ambiguity—and in this case the Court felt that the context of the case established a plausible claim by the retirees. The case was remanded back to the District Court for trial consistent with Yard-Manprinciples, and that lower court ultimately rendered a decision in favor of the retirees. The Court of Appeals subsequently affirmed the District Court’s decision. The Supreme Court accepted the case on certiorari, and thus this matter landed in the laps of the justices.

The Court took what can only be described as a very dim view of the contextual analysis favored in Yard-Man and its progeny. The Court, both in the opinion of the Court and in the concurrence, rejected the inappropriate tilt that this sort of contextual analysis can create in favor of the retirees. The Court’s opinion goes to considerable length to eviscerate the contextual approach favored in Yard-Man, with Justice Thomas concluding that approach violates ordinary contract interpretation principles by “placing a thumb on the scale in favor of vested retiree benefits in all collective-bargaining agreements.” The Court takes a fairly hard line on these issues by concluding that courts generally should not construe ambiguous contract language to create lifetime promises.

The Court remanded the case back to the lower courts for a decision consistent with the opinion written by Justice Thomas. Towards the end of his opinion, Justice Thomas offered a strong hint as to how he thinks the case should be resolved by the lower courts with the admonition “…when a contract is silent as to the duration of retiree benefits, a court may not infer that the parties intended those benefits to vest for life.” The concurring opinion, while also dismissive of the notion of a thumb on the scale, is less dismissive of the claims of the retirees and suggests that there might be arguments that could support those claims even under a stricter contractual analysis favored by the Court (Justice Ginsburg suggests the fact that no-cost retiree medical coverage is tied to eligibility for a vested pension benefit could indicate the retiree medical coverage also is vested). It now is up to the lower courts to sort all of this out, and it should be interesting to see how that decision unfolds.

The Supreme Court’s decision in M&G Polymers certainly seems to invalidate the contextual analysis favored by the Sixth Circuit in Yard-Man and its progeny, and that development likely will be cheered by many employers. Having said that, the results of a contractual analysis of ambiguous contract provisions even under the Supreme Court’s stricter approach can be unpredictable, and thus employers may be well served to ensure whenever possible that explicit language providing for the ability to amend (or even terminate) employee benefits coverage be inserted in all contractual arrangements, including collective bargaining agreements, to avoid unpleasant surprises.

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Reimbursing Employees for Individual Health Insurance Policies Subjects Employers to Hefty Excise Taxes

What, you may ask? That’s right. It no longer works to reimburse employees for the purchase of an individual health insurance policy. I know, many of you have always done this. Well, not any longer under guidance issued under the Affordable Care Act (ACA). Beginning with an IRS Notice issued in September 2013 and most recently in November 2014 DOL FAQs, the federal government has made it clear that this practice does not work under the ACA. While it flew under the radar for some, this rule became effective in 2014. (more…)

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Attention All You Procrastinators!

The Centers for Medicare and Medicaid Services (CMS) has postponed to 11:59 pm on December 5, 2014, the deadline for health insurance issuers and self funded plans to submit their annual enrollment count for the transitional reinsurance program. The deadline was otherwise November 15, 2014. The payment deadlines of January 15, 2015 and November 15, 2015 have not been extended. (more…)

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Summary Plan Description Format Voids Benefit Limitations – Court Applies “Reasonable Participant” Standard Of Review

The “Limitation of Action” provision, buried deep in Section 9, is not in “close conjunction” to benefits provisions, Sections 1 and 2. Nor is there any reference, adjacent to the benefits description, to the page number on which the “Limitation of Action” provision appears.  . . .

If we were to hold that the placement of the limitation provision in Section 9 satisfies [the] “reasonable plan participant” standard under § 2520.102-2(b), we would, in effect, require a plan beneficiary to read every provision of an SPD in order to ensure that he or she did not miss a limitation provision.

Such a requirement is what the regulation is specifically designed to avoid.

Spinedex Physical Therapy USA Inc. v. United Healthcare of Ariz., Inc., 2014 U.S. App. LEXIS 21132 (9th Cir. Ariz. Nov. 5, 2014) (emphasis added).

(more…)

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